The 5×2 Trading Psychology Matrix

This episode focuses on what I'm calling the 5x2 trading psychology matrix. This "victim matrix" has 2 paths you can follow every trading event, and each path has 5 stages or steps.
The 5×2 Trading Psychology Matrix
Kirk Du Plessis
Nov 28, 2018

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?

Show Overview

  • 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. 

Victim Matrix

  • 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.

  1. Seek the reality of what actually happened.
  2. Acknowledge the reality that something happened.
  3. Take ownership of the reality of what happened.
  4. Find a solution to actively resolve what happened.
  5. Move on from what happened to a new trade.

Path 2: Being the Victim

  1. Avoid the reality of what actually happened.
  2. Fight the reality that something happened.
  3. Blame others for the reality of what happened.
  4. Make excuses for what happened.
  5. Wait and hope for the perfect opportunity to come.

Conclusion:

  • 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.
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