This Is Why We Get Addicted to Over Trading !

I was reading a great book on trading psychology by  Mark Douglas named " Trading In the Zone " 

He has explained this concept beautifully in it so i thought that it would be a great to share a summary of it with all of you guys. Will try to keep it as simple and short as possible.

So an experiment was done with 3 Monkeys. A task was given to all the monkeys and then their behavior was observed depending upon the reward that they got after completing the task.

In the first case, the monkey was instructed to do the task and when he completed it, a Banana was given to him. Every time he completed the task, he was rewarded with a banana. So, what happened was, he kept on doing the task until he got exhausted and could no longer do the task. He was quite happy as he collected good number of bananas with him and now he could enjoy his reward.

In the second case, the monkey was instructed to the task, but he was not given any reward. The monkey still did the task, but when he saw that he was not getting anything in return, he just stopped doing it after some time. The instructors tried a lot to guide him so that he could do the task, they even tried to make him do the task forcefully, but he just did not do it as there was no reward included. It could be observed that the monkey was really sad that he did not got any reward and he felt no excitement to do the task and just sat down in a corner.

In the third case, the monkey was given the reward " randomly " that is , he was instructed to do the task, but he was given reward only on some random occasions. He got the reward on the 1st attempt, then on the 3rd, then on the 7th, then 12th and so on. So, since he didn't knew that when he will get the reward, he kept on doing the task endlessly. He kept doing it because he was not sure when he would get the reward, but he was sure that he will get it " sometime " or " someday " in our case.

He kept on performing the task just like the 1st monkey even though he did not got the reward every time like him.

What i want to prove through this example is, that in our trading career, there always is a chance that we get some huge profit very early on in our trading career. That huge profit will keep us hooked to over trading as we won't know when the huge profit will come again. 

We would basically keep on doing over trading till we exhaust our capital. We can avoid this by trading with a proper and well written plan and prepare a checklist of our own. We should enter into a trade and exit it only if all the points of the checklist are fulfilled. 

The checklist could be short and simple too, Like buying a stock only when the MACD turns positive in daily time frame and exiting when it turns negative, but a checklist and plan is a must.

I hope the message behind this example is clear. Happy Trading :)

Also read : Why do Losing Traders keep Losing