Locus of Control

Interesting question posed to me recently amongst a small group of market participants that I meet with on a regular basis. We all come from different backgrounds and each of us approach the market in different ways. I think this variety and difference of opinions is what makes the group work and why I love it so much.

The question asked was what I thought the most damaging thought/act/emotion in trading was. I quickly said frustration and almost immediately everyone agreed. What was interesting was the discrepancy that existed regarding why we become frustrated. Lots of reasons exist for frustration and the market has a tendency to bring out the worst.

  • Buying the top tick
  • Selling the bottom tick
  • Leaving money on the table
  • Being stopped only to have stock run immediately after
  • Choppy, non trending days

The therapist in me came out as I took it a step further to better understand the locus of control. In other words, I wanted to know the extent to which the group believed that they were in control of the events that affect them. I use the concept of locus of control to help others find their place in the markets as it is often at the root of issues.

Those who own their losses, recognizing that they are mainly due to their own behavior, action, and in-action have high internal locus of control. Those that blame others, market conditions, chance, luck, etc. have high external locus of control.  Locus of control is on a continuum so there are varying degrees that we each reside, depending upon the situation.

In the markets, locus of control is the difference between those that can make a career out of trading and those that blow up accounts and walk away bitter. Here’s why.

Those with internal locus of control:

  • Engage in activities such as studying systems, inter-market relationships, reading and studying market topics
  • Strive to achieve goals that they’ve set
  • Exhibit a hard work ethic to achieve skills necessary to succeed
  • Are inquisitive as they figure out the whys of the markets

When the locus of control is external: 

  • Finding blame is top priority as it’s never their fault
  • Inability to focus on task at hand exists
  • Small set backs are seen as massive roadblocks
  • Wallow in self-pity

Bottom line is that you can learn a lot from your self-talk. Listen to the thoughts in your head as you participate in the market. Statements like “Nothing I could do would matter” or “I had no choice” are indicative of externalizing the locus of control. Own it! Realize that being in the markets isn’t as easy as many suggest and that it’s going to take effort. Focus on the characteristics of those with an internal locus of control and make a career out of this. In the end, your self-efficacy will thank you for your hard work.