Thursday, February 14, 2019

Taking The Ego Out Of Trading

The central hypothesis of the book that I am writing on trading and spirituality is that the major emotional challenges of trading are due, not to intractable psychological problems, but to the intrusion of our egos into decision-making processes.  

What we attach our egos to controls us.

If trades and trading are our only activities filled with purpose, we will overtrade.  If we judge our success and failure by profits and losses, our moods will rise and fall with market conditions.

It sounds so great:  the "passion" for trading.  Too often, however, that belies an ego-attachment to trading.

So how do we take the ego out of trading?

By tapping into the soul.

Meaningful relationships tap into the soul.  Worthy causes and challenges speak to the soul.  Appreciation of the world--from art and music to travel--nourishes the soul.  Our religious beliefs awaken the soul.  Playing an important role in the lives of others, developing our potential in various life areas, learning and creating new things--all take us out of our narrow egos and connect us with larger meanings and purposes.

We take trades we shouldn't and avoid the ones we should because we're using the ego of trading to fill soul needs.  If we work on our trading to the point of neglecting the rest of our lives, we are like bodybuilders who obsessively develop their upper bodies while their middle sections go flabby and their legs are like twigs.

A great first step in taking the ego out of trading is evaluating our trading by process criteria, not by profits and losses alone.  If we focus on placing good trades, our trading can build mindfulness, intentionality, and resilience.  

At the end of the day, however, trading cannot sustain us always, in all ways.  We need not just the pleasures, victories, and gratifications of the ego, but also the energy, connectedness, and fulfillment of the soul.  It is amazing how much easier it is to tackle trading challenges when trading is not burdened with needs it was never meant to fill.

The question is not simply whether we live a successful life or an unsuccessful one.  The question is whether we live a full life or an empty one.

Further Reading:


Sunday, February 10, 2019

Tough Advice For Aspiring Traders

Recently, I have received an unusually large number of emails and messages from new traders who have been encountering problems--and losses--in their trading.  The majority have opened up their own accounts and are trying to learn on their own and eventually make a living from their trading.

Of course, they find out that it is not so easy to make a living from trading--just as it's not easy to make a living from any performance activity, from acting to sports.  But to hope to learn completely on your own and somehow rise to elite levels of performance?  How often does that occur in any performance domain?  Show me a successful performer and I'll show you one who has undergone years of training, practice, and mentoring.  No one goes from their backyard basketball court to the NBA.  No one tries acting at home and makes the casting calls on Broadway.

No one.

But those selling services to traders won't say this.  Educators will pretend that their books and classes can make traders successful.  (Would anyone possibly believe that books and online courses on acting would take someone to Hollywood?  To the NBA?).  Coaches will pretend that, if you just use their techniques and gain mental mastery, you'll find profitability.  (Really?  Will emotional control and self awareness win you chess championships or help you find success as a baseball pitcher?)  

I receive requests for coaching every week from individual, retail traders.  In the 15 years I've been doing this full-time, how many of those requests have I taken on?



The only way I work with aspiring traders is if they are enrolled in full-time programs of mentoring, either on a hedge fund desk or a training program at an investment bank, graduate program of finance/financial engineering, or proprietary trading firm.  Because anything else would not be practicing performance psychology.  It would be selling hope.

If you're an aspiring trader, hope and passion and desire are not business plans.  They do not substitute for talent, skill, and experience.  If you think you have the talent and drive, my advice is to find yourself the best training possible and do what medical students, Olympic athletes, and performing artists do:  learn from successful practitioners in a daily, structured curriculum.  

It may not be what you want to hear, but that advice will save you a lot of money, time, and heartache.  And, more importantly, it will free you up to do what you're truly meant to do in this world.

Further Reading:


Wednesday, February 06, 2019

Improving Performance With Relentless Score Keeping

In this new year, I'm working with Mike Bellafiore and a group of newer traders to hasten their learning curves.  An important part of that process is the keeping of monthly statistics on trading results.  These stats, compiled in TraderVue, allow a trader to break down performance into many categories.  For example, a trader can view profitability as a function of the setups/strategies traded; as a function of time of day; as a function of position sizing; etc.  At a single glance, mentors can see if a trader has improved their win percentage on trades; if risk management has been sound; and much more.  That creates a very high level of visibility and accountability.  It also provides a rational basis for setting goals and plans from month to month.

Perhaps the most eye-opening result from the ongoing score-keeping is that it highlights strengths and problems in trading that both trader and mentor may not have been aware of in real time.  For example, one trader showed a pattern of losing money following early morning losses, with the frequency of trading increasing as the losing day progressed.  This did not occur every day, but it happened sufficiently often as to hurt monthly profitability.  Seeing this pattern clearly in real time allows mentors, coaches, and traders to create a plan to take breaks following opening losses and readjust, both psychologically and in trading.

I recently began work with a Fitbit, which spits out real time information on everything from heart rate and number of steps taken to quantity and quality of sleep.  The app allows for easy goal setting, so that the wearer always has targets to hit to improve wellness.  As with the trading stats, some of the results took me entirely by surprise.  For instance, there was much more variability in my active exercise from day to day than I expected.  By adding just one component to my daily workouts, I have been able to derive significantly greater aerobic benefit.

The most subtle benefit of the relentless score keeping, however, is that the stats themselves have a psychological impact that is carried over from one period to another.  Seeing improvement in the numbers builds confidence and a sense of control.  Achieving poor numbers can arouse the competitive instinct to make improvements, focusing on doing things the right way.

If a sports team proclaimed their desire for a championship but never reviewed game film and performance and coaches never looked at where the team was most and least successful, we would question the true commitment of the team--and we would question their odds of achieving a championship.  Similarly, when traders pronounce their passion for trading but never bother to systematically keep score on what they are doing right and wrong, can we truly say that we would invest *our* money with those traders?

It is when we make ourselves fully accountable that we become our fullest successes.

Further Reading:


Sunday, February 03, 2019

Three Ways of Turning Your Trading Psychology Around

Looking back on recent conversations with traders, here are a few ways of turning your trading psychology around by finding the light in the darkness:

1)  Using losing trades as learning experiences - The best losing trades are ones that should have worked, but didn't pan out this time.  Very often, that tells you something about the market that you can incorporate into your next trade.  The losing trade is not a loss if it leads to a larger winner.  And it's not a total loss if it leads to good learning about your trading.

2)  Using people's negativity as a positive challenge - Others may doubt us or not care about us and that can be hurtful.  It can also provide the motivation to double down on our efforts and refuse to buy into their negativity.  We don't have to become bitter when we can focus on becoming better.

3)  Pulling out your winning trades and learning from them - It's human nature to focus on what we've done wrong.  But if you're relatively flat in your performance over time, it means you've probably done some things well and others not so well.  Often, it's the winning trades that can teach you what works in the current market and how you best manage positions and risk.

The research in psychology tells us that maintaining a positive mindset is good for creativity, it's good for productivity, and it's good for our mental and physical health.  The latest Forbes article contains more ideas about how we can turn negative emotions into positive well-being.