Why Bad Trading Habits Always Come Back
Markets move on. These ideas don’t.
Three themes worth adding to your process.
Unpredictable Markets and Asymmetrical Thinking
When you have an unpredictable environment, whether it’s politics, markets, or anything else, people keep expecting it to become predictable again. But environments don’t usually switch back and forth quickly. If something is chaotic, it usually stays chaotic longer than people expect.
At the same time, people tend to have asymmetrical expectations. They believe low-probability bad outcomes will happen, but they don’t believe low-probability good outcomes will happen. Their thinking is biased toward the negative. So when something unexpected happens, the assumption is that it must be bad for the market.
But unexpected events can be good, bad, or irrelevant. The market decides, not our opinions. This combination of unpredictable environments and negative bias causes people to constantly expect the worst and doubt rallies when they start.
That’s why some of the biggest moves happen when people don’t believe them.
Trading Is About Probabilities, Not Certainty
One of the biggest psychological challenges in trading is that human beings want certainty. We want to know what’s going to happen. We want confirmation, explanations, and reasons. We want to feel like we are in control of the outcome.
But markets don’t offer certainty. Markets only offer probabilities.
Think of market participation as a spectrum of risk.
On one end: Long-term investing in stable, cash-flowing companies. Here, the probability of permanent capital loss is relatively low, but the time horizon is long.
On the other end: Short-term speculation in volatile equities or options. Here, the probability of being wrong—and being wrong quickly—is much higher.
Everything else sits somewhere between those two extremes. Every trade and every investment is simply a different point on that spectrum.
The goal is not to find certainty, because certainty doesn’t exist in markets. The goal is to have the discipline to consistently put yourself in situations where the probability of success is higher than the probability of failure, and where you can control your risk if you’re wrong.
Don’t Just Remove Bad Trading Habits, Replace Them
When traders try to fix bad habits, they usually focus on stopping the behavior. Stop overtrading. Stop checking positions every five minutes. Stop forcing trades. Stop revenge trading.
The problem is, you can’t just remove a habit and leave a hole where it used to be.
Think of it like a basket. If you take all the bad habits out of the basket but leave the basket empty, it won’t stay empty for long. Those habits will slowly creep back in because the space is still there.
You don’t break bad habits by removing them. You break bad habits by replacing them.
If the temptation is to overtrade, you need to fill that time with something else. Exercise. Read. Work on a project. Review old trades. Study charts. Spend time with family. Do anything productive that keeps you from sitting in front of the screen looking for trades that aren’t there.
This is especially important in bad markets. When there’s no edge, the worst thing you can do is sit there all day staring at the screen. That’s when boredom turns into bad trades.
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It should go without saying - but I’ll say it anyway - all opinions expressed in The Lund Loop are my own personal opinions and don’t reflect the views of my employer, any associated entities, or other organizations I’m associated with.
Nothing written, expressed, or implied here should be looked at as investment advice or an admonition to buy, sell, or trade any security or financial instrument. As always, do your own diligence.