Thursday, July 24, 2014

The Single Best Predictor of Sustained Trading Success

It's true of all great performance fields:  they can bring the best--and the worst--out in people.

Trading can bring out our worst fears, our greediest ambitions, and our innermost self doubts.

Trading can also reveal our greatest character strengths:  perseverance, creativity, and self mastery.

What is the difference?  What determines whether financial markets bring out our greatest efforts or our worst biases?

A wealth of research on character strengths suggests that when we draw upon those strengths, we achieve higher levels of emotional well-being.  Indeed, people who more consistently draw upon their strengths report lower levels of stress, higher levels of positive emotion, and higher levels of self-esteem over three and six month horizonsA study of college students found that those who are best at making use of their strengths also are most successful at making use of social supports and most likely to build on successes by applying their strengths to new situations.

Optimism fuels performance; successful performance fuels confidence and self-efficacy; confidence fuels broadened social networks and resources and builds further competencies.  In other words, exercising our greatest strengths with the greatest consistency sets up virtuous cycles that, over time, expand our horizons and abilities

At the risk of oversimplification, I would like to suggest a straightforward hypothesis:  Some traders are attracted to markets as a way to exercise their strengths and some are attracted to markets to compensate for their weaknesses.  This is why trading, like football in the Marv Levy quote, reveals character.  Some traders don't want to work for a living; they don't see themselves as successful in the world.  They view markets as a way to strike it rich and provide them with the esteem they lack.

Other traders find in markets the performance challenges that engage their greatest cognitive and emotional strengths.  Trading, for them, is an affirmation, not a compensation.

What brings you to markets determines what markets bring out in you.  I strongly suspect that is the single greatest determinant of sustained trading success.

Further Reading:  The Power of Teamwork