Or … “Why your own brain can’t be trusted for more than five minutes at a time …”
One of the least glamorous … least flashy … at times mind-numbingly boring … but absolutely most foundational habits a trader can cultivate is keeping real, structured performance records. We don’t mean a notebook scribble or a half-updated Excel sheet. We mean proper monthly grids. A VAMI, and the performance metrics that force you to confront the reality of your performance.
Most people don’t want to admit this to themselves. But our brains lie to us. My brain lies to me. Your brain lies to you. And it does so … consistently, and constantly.
And we’re not talking about the big, well-known, long-term cognitive traps like Dunning–Kruger or confirmation bias. We’re talking about something much more subtle, much more temporary, and far more insidious during the rigours of trading week in, and week out.
The mood-congruent judgment effect.
The Mood-Congruent Judgment Effect
In simple terms, this effect says: Whatever mood you’re in right now colors how you evaluate everything you’re doing right now. Not because the evaluation is accurate. But because your mood can and sometimes will temporarily hijack your judgment.
If you’re in a fleeting good mood. Let’s say you hit not one? But two good winners. And your mind begins to interpret your performance, your setups, your signals, even your “future potential,” far more positively than all of your longer term trade history … or the objective data … warrants. And the opposite is equally true: one minor loss, or some personal stress bleeding into the day? And all of a sudden you’re catastrophizing. The portfolio could be hitting new equity highs, but your mood convinces you that you’re a disaster and a failure.
This isn’t theory or opinion. Decades of real scientific research ( e.g., Bower, 1981; Mayer et al., 1992 as well as others) show that positive moods make positive attributes “feel” more valid and more typical. And negative moods amplify the salience of anything that smells even remotely pessimistic.
And this can happen extremely quickly. It can shift your perceptions in minutes, not weeks. It’s not a metacognitive deficit. It’s not a personality flaw. It doesn’t mean you’re a ‘bad’ human, or ‘bad trader’. It’s simply how human affect works.
In trading? This phenomenon is a wrecking ball.
Two wins can inflate your sense of competence. A brief dip in mood can convince you that you’re failing spectacularly. Even as your performance metrics say exactly the opposite. It’s the “affect-as-information” model in action: I feel bad, therefore things must be going badly.
Welllllll ….. not necessarily.
This is why record-keeping matters. It’s not to show off how ‘professional’ you are. It’s about having an external anchor to reality.
Even Veterans Need To Hear This From Time to Time
Some may assume this is a rookie problem. It’s not. If anything, experienced traders? Those of us who have been doing this through many decades and multiple regimes … can be even more vulnerable, because we think we’ve “seen it all” and can “trust our instincts.”
But our ‘instincts’ … in the moment … can be just our emotions in disguise.
A veteran trader can have a phenomenal month … and still convince themselves they’re “slipping.” A newer trader can be hemorrhaging money and somehow believe they’re “just fine.” Both are symptoms of the exact same psychological mechanism: mood coloring self-perception.
Again, this has nothing to do with competence. It has everything to do with something none of us can escape. It’s called: being human.
Anchoring to Objective Reality
This is why, at GTC Traders, we insist and demonstrate structured, standardized, industry-accepted performance metrics.
Monthly grids
VAMI charts
Contextual Summaries
Performance Metrics
At the end of every single month, it all begins with …
( Ending Balance – (Capital Contributions and Withdrawals) ) ) – Beginning Balance ) / Beginning Balance. And you can expand from that point, forward.
And we want to emphasize context. Because numbers rarely tell the entire story by themselves. Take our long/short valuation book since November 2023 …
At a quick glance of only the numbers and metrics … a trader unfamiliar with the context and objective could easily (and fairly) think:
“Okay. That grid is steady. Sharpe is there. Sort of. But nothing explosive, and perhaps really underperforming in this market”
But once you understand the context that this account has been running a short-only program since November 2023? Most institutional short-only programs are paired with long only portfolios; and they almost intentionally bleed money as a non-correlative pair to the parent portfolio. So if you compare it’s performance to other short-only books (equity or derivatives), it becomes clear (apples to apples … oranges to oranges) that the performance is not just respectable… it’s exceptional.
So it’s the same data. But the context explains the full picture.
Records and context don’t merely track performance. They defend you against your own temporary psychological distortions. They let you zoom out when your mood tries to zoom in on the wrong thing. They recalibrate the narrative when your emotional state tries to write its own.
Record-keeping Grounds EVERY Professional to Reality
In any field, be it trading … baseball … football …. jiu-jitsu … or running a business? We keep stats because your perception lies to you, and performance truths live in measurement. Trading is no different. In fact, it’s even more susceptible to emotional misfires because trading operates on a near-continuous feedback loop. A single mood swing can rewrite your internal story. A single metric can rewrite it back.
So keep the grid. Keep the VAMI. Keep the logs. Keep the anchor. Because mood-driven illusions don’t last long. But they can do a tremendous amount of damage in a very short period of time.
Until next time, stay safe and trade well …
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