Quit yoyo trading to help consume healthier profits

A YOYO trader is one who shows the same destructive pattern as a yoyo dieter. After a series of successful trades, the yoyo trader suffers repeated losses. If not warned, he or she will get stuck in this pattern, often with detrimental results. But there is hope.

About one third of UK adults are obese and another third are overweight. Weight management is a multi-billion pound business, with millions of people expending effort to lose weight.

Some diets over-promise but, as a general rule, if you watch what you eat and exercise, you will lose weight. The problem is, most put it back on in far less time. Another diet starts – initial weight loss, followed by more weight gain, followed by the next and even better diet. This is the yoyo pattern. At this point, the dieter concludes: “I’ve tried it all. It’s not for me.”

Similarly, in trading, there are many strategies to choose from. Initially, the hopeful trader studies and applies a strategy. He or she will have early successes and, little by little, will make more positive trades than negative.

That is until, for no obvious reason, losses increase by size and frequency and eat into a trade balance. It’s easy to falsely conclude that the markets must have changed and to feel the need for a new and different strategy. You may start winning, but you’ve already lost your discipline. In the end, the yoyo trader will conclude: ”I’ve tried it all. It’s not for me.”

Trading yoyo is like eating healthily for some time and then binging – whether for comfort or thrill. No food intake goes to waste; all is stored as body fat. Similarly, no lost trade goes forgotten, it all adds up negatively on the bank balance.

This is a sad outcome, especially when the trader has good potential. But, with a little help and understanding all this could be quite easily prevented.

Even after successive losses, many traders may think they’re still in control, or that they will be lucky and can wrestle some profit out of the market. But in this stage of their pattern driven trading, they will trade compulsively and lose.

Does the yoyo trader need surgical intervention? His hands tied up and banned from trading? Some heavily obese people may need surgery as a last resort to save their lives. The same may apply to traders. But, for the large majority of people, the pattern can be broken.

Firstly, the trader must recognise the yoyo pattern, and then identify and change the habits that led to their downfall.

If you’re a yoyo trader, you should write a diary, noting what you trade, why this asset in particular, and how you feel before entering, during and after closing the trade. This exercise will help you understand your cravings and temptations and why you disobey your chosen trading rules. You will re-evaluate your trading and emotions and, most importantly, develop mechanisms to control yourself, to give yourself the tailored discipline that you need.

Trading platforms invest heavily in trading technology and continuous education for staff. They provide an environment to help traders to trade systematically and to prevent destructive patterns. Modern trading platforms can help the retail trader to stick to the rules of a chosen strategy, so use them wisely.

Spend time acquainting yourself with your chosen technology before you trade real money. It’s also wise, especially for retail traders, to trade on a demo account, until you have sufficient evidence that a chosen strategy works and you are not in a yoyo pattern.

Learning and conditioning ourselves to stick to a disciplined approach in trading is similar to holding back from momentary urges or cravings. But changing our behaviour and lifestyle will ultimately change the outcome: better health and a healthier bank balance.

Ulf Brackmann is a personal, executive and corporate coach. He is currently writing a book on what makes a trader successful. Email: ulfb@mindyourway.biz