The 5×2 Trading Psychology Matrix
No system is perfect. No trader is perfect. You will have losing trades. But it's how you react to those losing trades, or even false-positive trades, that defines how long you'll survive in this business. Today's show focuses on what I'm calling the 5x2 "Victim Matrix" in which there are 2 paths you can follow each and every trading event. Each path has 5 stages or steps. Which path should you choose?
- Trading is 20% of what we actually do and 80% how we react to it or the emotions that we have as a result of trades that we make.
- Trading is often a very emotional game, which influences a lot of what we do.
- A lot of trading is sub-surface or subconscious thought processes and psychological frameworks.
- Understanding the Victim Matrix can help understand the trading "victim mentality" that traders might have.
- The matrix is derived from Figure 32 in the book, The One Thing by Gary Keller.
- The matrix describes what happens to you after a life event, or a trading event happens.
- When something happens to you, there are only two paths you can take.
- Each path will determine which type of trader you are and how you will react.
Example: A Bad Trade Happens.
A bad trade does not necessarily mean you did something wrong; a bad trade can simply be a losing trade. A losing trade may just be how the probabilities play out over time. We are starting with this idea that a bad trade or losing trade happens and the two reactions that occur to a trade like this.
Path 1: Being Accountable.
- Seek the reality of what actually happened.
- Acknowledge the reality that something happened.
- Take ownership of the reality of what happened.
- Find a solution to actively resolve what happened.
- Move on from what happened to a new trade.
Path 2: Being the Victim
- Avoid the reality of what actually happened.
- Fight the reality that something happened.
- Blame others for the reality of what happened.
- Make excuses for what happened.
- Wait and hope for the perfect opportunity to come.
- When a bad trade happens, there are two paths to take.
- Understanding the Victim Matrix can help you identify your trading emotions and behaviors.
- If you can recognize the pitfalls of the victim matrix, you can change your trading habits.
- In the world of trading, if you are heading down the victim path, it can start snowballing into catastrophic losses.
- Mastering your trading psychology will hopefully help you to move towards the path of accountability.