Tuesday, April 28, 2009

We Gravitate Toward Our Self-Talk

I'll be doing a talk for a group of traders this afternoon. One of the topics I'll be emphasizing is that our actions naturally gravitate toward our self-talk: how we process information shapes how we will respond to situations.

The trader who engages in catastrophic thinking finds himself becoming risk-averse.

The trader who beats up on herself after a losing day loses the motivation to prepare for the next day's trade and misses a great opportunity.

The trader who is perfectionistic can't tolerate missing a move and ends up chasing highs, just as the market reverses.

The trader who thinks he can do no wrong after a series of winning days overtrades and blows through his downside loss limits the next day.

The trader who rehearses the good trade when reviewing possible scenarios for the day doesn't hesitate to put the trade on when economic data come out favorable and makes money for the morning.

In all these ways, how we think affects how we feel and how we act. Our self-talk constructs our personal reality and helps define the behavioral options open to us.