Here's why I'm writing a new book on trading psychology:
The status quo says that problems in trading performance are the result of emotional disruption, lapses of discipline, and failure to consistently act upon one's edge in markets.
That analysis simply does not match my experience, either as a coach or as a trader.
Successful traders don't suddenly morph into inconsistent basket cases. And when you see multiple talented traders lose money at the same time, it's impossible to believe that an epidemic of lapsed discipline has suddenly struck the trading community.
Rather, what happens is that the edge that had been present in markets no longer exists. Markets continually change--they shift in their patterns of trend, volatility, correlation, etc.--so that what once worked no longer yields reliable results. The momentum trader makes money until volatility shrinks and we move into choppy, rangebound trade. That brings frustration and emotional disruption, but the cause of the negative emotions is a failure of adaptation to markets--not a failure of discipline or rule-following. Indeed, doubling down on following rules that no longer work can only cement further losses and frustration.
To be sure, once emotional upset enters the trader's experience, it can interfere with future decisions. But no amount of psychological stress management will create needed adaptations to changed markets. That can only be accomplished by treating losses as potential sources of information--as signals that alert us to altered market regimes.
Once you view drawdowns as information--not merely as failures or as stresses--the door opens to a deeper understanding of markets and ways in which we can take our trading to that proverbial next level. The challenge is not simply to learn trading; it's also to unlearn and relearn it when markets present different, fresh opportunity sets.
Market Structure and Adapting to Change
The status quo says that problems in trading performance are the result of emotional disruption, lapses of discipline, and failure to consistently act upon one's edge in markets.
That analysis simply does not match my experience, either as a coach or as a trader.
Successful traders don't suddenly morph into inconsistent basket cases. And when you see multiple talented traders lose money at the same time, it's impossible to believe that an epidemic of lapsed discipline has suddenly struck the trading community.
Rather, what happens is that the edge that had been present in markets no longer exists. Markets continually change--they shift in their patterns of trend, volatility, correlation, etc.--so that what once worked no longer yields reliable results. The momentum trader makes money until volatility shrinks and we move into choppy, rangebound trade. That brings frustration and emotional disruption, but the cause of the negative emotions is a failure of adaptation to markets--not a failure of discipline or rule-following. Indeed, doubling down on following rules that no longer work can only cement further losses and frustration.
To be sure, once emotional upset enters the trader's experience, it can interfere with future decisions. But no amount of psychological stress management will create needed adaptations to changed markets. That can only be accomplished by treating losses as potential sources of information--as signals that alert us to altered market regimes.
Once you view drawdowns as information--not merely as failures or as stresses--the door opens to a deeper understanding of markets and ways in which we can take our trading to that proverbial next level. The challenge is not simply to learn trading; it's also to unlearn and relearn it when markets present different, fresh opportunity sets.
Market Structure and Adapting to Change
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