Stockdale Paradox For Traders

How can traders can use the Stockdale Paradox
to improve trading performance?

The Stockdale Paradox

You know how some things just stick with you.

Phrases, sayings, rules… You just hear them and they resonate.

The Stockdale Paradox was definitely one of those for me.

It consists of

#1 Being brutally honest about your current situation
#2 Having massive optimism and unwavering belief in ultimate success

(This actually came from a prisoner of war James Stockdale, something he pondered on whilst in captivity. You can listen to a podcast episode from the archives where I talk through the origins and how it applies to trading here).

Why is it so so important in trading? Well, I think many traders are either too optimistic and ignore the actual reality of where they are.  Or they are too pessimistic and focus totally on the current skill level and equity curve direction.

So here’s an idea.

Step 1

  • Write down where you are right now in your trading.
  • What do you need to work on?
  • Where’s the missing piece?
  • Discipline? Strategy? Mindset?

Like Stockdale says.

Be honest…

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The exercise doesn’t work if you aren’t honest with yourself.


“I have poor discipline, I overtrade and break my rules under stressful conditions. Unless I fix this I will not ever hit my goals”

Tough to do, but without an honest assessment you can’t come up with a solution.

Then Step 2.

Imagine the trader you are becoming…

  • What does that look like?
  • How does that feel?

Flood yourself with optimism and certainty.  Feel it. You might want to close your eyes. Do what you need to do to believe it.

Step 3

Once you’ve been brutally honest about your current situation AND felt the excitement for the future, now it’s time to get to work. Work on solving the challenges that are holding you back. One by one, climb each hurdle. And when the going gets tough, get yourself back into the step 2 zone.

If Stockdale can do it in a POW camp under conditions we can’t even imagine then we can certainly do it sitting at a nice trading desk, hot coffee in one hand, mouse in the other…

If you need help coming up with a plan of action move you forward I have been building out lots of resources on my website.

Here’s a bunch of articles and links to help attack specific psychology challenges

Then this, for trading strategy inspiration.

Of course, there’s the member’s dashboard and group trader calls if you are a premium member.