Monday, December 31, 2007

Coaching Yourself for Profitable Trading Performance in 2008

In my recent post, I mentioned that there is a considerable overlap between coaching and the short-term approaches to behavior change known as brief therapy. Many traders try to make accelerated changes in their cognitive, behavioral, and emotional patterns without understanding how such changes can be made and sustained. Indeed, few of the professional trading coaches that I've met seem to be aware of the brief therapy literature and the extensive research on change and how it occurs.

So how can you use this growing area of research and practice to aid your progress in 2008? Here are a few findings from the brief therapy world and their implications for coaching yourself to successful trading performance:

1) Keep It Focused - The research is unequivocal: focused efforts at change are more likely to occur--and more likely to occur in a relatively brief time frame--than efforts to change many things at one time. Establishing and maintaining a change focus is perhaps the single most important thing one can do to ensure that efforts at improvement will pay off. The focus should be grounded in a thorough assessment of the problems to be addressed and the strengths to be built upon. Many times traders assume that their problem is one thing or another, when in fact they haven't really drilled down into their trade data to identify what, specifically, they're doing right or wrong. Working on something broad and vague, such as "discipline", is not a focus. Focused changes should identify specific things to do differently and concrete steps to make a difference.

2) Keep It Consistent - Research into short-term change finds that involvement in the change process--consistent efforts over time--is associated with success. Traders who work on their trading in a structured, daily fashion are much more likely to benefit from coaching than those who limit their change efforts to weekly or monthly reviews. The goal of all short-term change is to create new, positive habit patterns. It is impossible to create those patterns without regularity: doing new things so consistently that they become part of the self.

3) Keep It Doable - Success breeds optimism, motivation, and further efforts at success. Effective change efforts create a virtuous cycle of continuous improvement. If goals for change are too difficult, they will create only frustration and discouragement. It is better to start small and ensure success than to try to make the most complex changes all at once. If you're working on entering or exiting trades differently, just try it for a single day and see how it goes. Then modify the goal for the next day. By focusing on the next day's trade, you keep goals concrete and doable.

In general, I would say that traders tend to overweight the importance of psychology in their results and underweight trading mechanics: how they execute trade ideas (getting good entry prices, not chasing moves; ensuring that each trade has a favorable reward-to-risk profile) and how they set and follow criteria for exiting trades (price targets as well as stop losses). To be sure, psychological factors can interfere with the implementation of those mechanics, but many traders simply lack sound rules for entering and exiting positions and instead make decisions impulsively, on the fly.

A review of one's own best trades can be very effective in identifying one's own "best practices" regarding trading mechanics. Those best practices can then be translated into focused, doable goals that are pursued with consistency.

Best of luck in your development in 2008. The posts below may be of additional help in your self-coaching efforts.


Predicting Coaching Success

Coaching and Mentorship Resources for Traders

Why Coaching Doesn't Work - Part One

Why Coaching Doesn't Work - Part Two

Coaching the Professional Trader