Saturday, November 25, 2017

Trading Psychology Challenges - 6: Distraction

Traditional trading psychology has tended to focus on the emotional side of human nature as a source of performance success:  both controlling emotions and maintaining discipline and using our feelings as intuitive sources of information.  Both are essential; indeed, it is only by becoming observers to our emotions that we can learn from them.

Still, the research I've undertaken to identify the characteristics of successful traders has consistently shown that cognitive traits, and not just emotional ones, are essential to superior performance.  This is why, for example, I have emphasized the structure of the learning process as a source of mastery in the Enhancing Trader Performance book and why I devoted a large section of the Trading Psychology 2.0 book to the development of creativity and the cultivation of our cognitive strengths.  Show me a successful trader, and I'll show you someone who displays unusual talents in processing information.

The most basic of these cognitive strengths is focus.  Indeed, the ability to sustain focused attention is seen (albeit in different ways) among both successful daytraders and successful investors.  In the daytrader, we see the ability to sustain intense concentration on a number of variables simultaneously.  It is this parallel processing skill that enables the daytrader to act quickly on shifts in buying and selling flows.  Conversely, the skilled investor maintains a depth of concentration over time that allows for a deeper understanding of fundamentals and the supply/demand changes that result from monetary and geopolitical sources.

The challenge faced by these market participants is distraction.  Distraction interferes with focus and thus reduces the quality of our information processing.  Distractions can be emotional in nature, but can result from environmental sources as well.  Indeed, I've consistently found that both home environments and trading floor environments are poorly suited for the optimization of focus.  This is why many of the successful traders I've known have made it a practice to get away from their screens for periods of time during the day to both renew their concentration and to increase their focus on the bigger picture of what they are doing.

All of this is important because the quality of our focus mediates the quality of our access to intuition and prior learning.  When we have superior focus, we literally have greater access to a larger library of information.  In a highly distracted state, we lose any edge we might otherwise possess, because we simply cannot access the sources of that edge.  Indeed, it is only through focused immersion in information that we, over time, develop a keen capacity for intuitive pattern recognition.  Without that immersion, we never truly internalize our learning.

This is why so many successful traders value sleep and physical exercise as part of their daily routines.  They realize that fatigue and burnout increase our susceptibility to distraction: to optimize our focus, we have to keep ourselves in an energized and rested state, renewing our willpower.  

So what can we do to build our focus and reduce distraction?  Several steps stand out in my experience:

1)  Optimizing our physical environment - Surrounding ourselves with the people who contribute to our decision-making and tuning out others.  Creating a trading station that is comfortable and well laid out, with the right lighting, temperature, and sound level.  

2)  Optimizing our cognitive environment - Making sure we have ready access to the information essential to our decision making, but not more than that.  Laying out screens for ready comprehension and action and avoiding a cluttering of our information environment.  Controlling when and how we access chat, email, and phone calls to minimize external noise.

3)  Optimizing our capacity for focus - I've written extensively on the topic of biofeedback as a tool for improving focus.  Indeed, biofeedback is a major treatment modality for children who suffer from attention deficits.  In biofeedback, we learn to sustain frontal brain activation over time, literally training ourselves to build our attention muscles.  This helps us filter out distractions and maintain focus for longer period of time.

4)  Optimizing our personal lives - In addition to maintaining a high quality of sleep and exercise, many people find that how they eat and take in caffeine and sugar impacts their level of focus.  Quite a few traders I've known have made use of coaching, not to work on their trading per se, but to sort out challenges in their personal lives (relationship issues, family matters, financial challenges) that can be distracting to their trading.  It is generally a mistake to try to put such issues out of your mind.  Finding time and a proper forum for addressing the issues directly helps prevent them from intruding on trading time.

As the quote at the head of the post suggests, it is very difficult to achieve great things if we're distracting by little things.  Building our focus from day to day is helpful in sustaining a greater life focus, where we're not only doing things right, but doing the right things.