If there is an overworked notion in psychology, it's that individuals have problems because of "low self esteem". If only we can feel better about ourselves, the reasoning goes, all will be well and we'll perform up to our potentials.
As it turns out, this doesn't appear to be the case. Research suggests that improvements in our views of ourselves may not be an emotional cure-all. Indeed, the degree to which self-esteem is contingent upon other factors may be more psychologically important than a given level of esteem. Simply feeling good about oneself does not appear to lead to better performance in life.
While it is true that self-doubt and a lack of self-confidence can interfere with trading decisions, it is equally true that overconfidence and an unrealistic assesment of one's skills can lead to ruin. Research in behavioral finance suggests that, if you show traders charts generated by random number sequences, they will--as a whole--be more inclined to overestimate than underestimate their prowess at divining future market movements. And those with the greatest overestimation will be most susceptible to trading losses.
It is not at all unusual, in trading chat rooms and seminars, to find traders who have no problem valuing their own skills, despite no evidence of achieving consistent, superior returns and managing significant portfolios. On the other hand, most if not all of the very successful traders I've worked with are quite circumspect about their abilities. They are always seeing areas that need improvement, and they're always cognizant of risk, aware that large potential losses are only a trade away.
One of my favorite bumper stickers reads, "Forget world peace; visualize using your turn signal." That's pretty much how many fine traders approach their careers. They're not sitting around visualizing grand outcomes. They're immersed in the blocking and tackling--the sound trading practices--that make for the next profitable trade.
And maybe that's what has me writing this post. The really good traders aren't thinking good things or bad things about themselves. They're not thinking about themselves at all.
They're immersed in the markets.
If you're thinking about how good you're doing, how badly you're doing, your recent P/L, your hopes for future profits--all of that is a distraction from being focused on markets.
And *that* will affect performance.
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8 comments:
It strikes me that doing esteem-able things is probably the best way to actually achieve self-esteem.
While I've been interrogating my 2008 plan, it is very refreshing to read such a post.
While it's a must to have confidence and a plan, concentration during my daily activities is what will get me to the goal line.
This reminds me of the confidence movement in schooling. Rather than build real confidence in children by making them really good at academics through programs like Direct Instruction or other advanced techniques, schools would rather have children feel good about themselves by talking about it.
Brett ~
The biggest trading loss having to do with self-esteem is that it has replaced character as the most important personal trait in the estimation of many people. Thus, Bill (above) has it exactly right.
The much-parodied talk show scenario of audience members shouting at clueless victims on stage, “You have low self-esteem,” has its origins in how methods have changed in schools, pop-psyche "treatments" and faddish coaching styles.
Even the Wall Street Journal has weighed in on this topic with an article titled “The Most Praised Generation.” The core idea explored was that people are now praised for thinking well of themselves rather than actually doing well at tasks or doing performing good acts in the wider world.
I believe the societal implications of this trend are easy to see in increasing impoverishment of our civic and political dialogues. It plays out in more intimate relationships as well.
Paraphrasing your post:
The really good people aren't thinking good things or bad things about themselves. They're not thinking about themselves at all. They're immersed in the world.
I think it’s a good prescription for any trade, whether in life itself or in markets.
Adam.
Doctor, you cease to amaze. Thank you for your generosity or writing such an insightful post.
-optiondragon
I read somewhere that it is all Mr. Rodgers fault... He would tell kids they were good kids, but really he was on the other side of the boob tube... how would he know a good kid from a empty sofa? So the a whoel generation of kids grew up thinking: all I have to do is sit in front of TV and shazam "Im good"
Fortunately, I watched Howdy Dudie, I dont remember what he told me I was....
Brett
I just woke up, scanning your Traderfeed and my mentor's blog, and what a coincidence on the topics you both covered !
Your say:
If you're thinking about how good you're doing, how badly you're doing, your recent P/L, your hopes for future profits--all of that is a distraction from being focused on markets.
Ray's say @ http://www.tradingsuccess.com/blog/
"What is Winning Psychology? For me it’s a combination of traits, and tools that provide the environment whereby a trader consistently executes his trading plan." and more.
Essentially,both you and Ray focus on the markets, not on the self so much.
Thanks for the insightful comments; I agree with you, Bill, and Adam's point re: being immersed in the world is *such* an excellent prescription for life satisfaction--
Brett
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