Why is this important?
Positive psychology researcher Martin Seligman describes resilience as a kind of emotional fitness. Like physical fitness, we can train to be more emotionally fit by learning to respond constructively to adversity. An important part of that training is the cultivation of optimism: the ability to see setbacks, not as final, but as stepping stones toward success. We can think of a trading journal as structured training in processing adverse performance outcomes. The journal can be used either to help us use losses as learning experiences or as personal threats. As Seligman points out, the alternative to resilience and bouncing back is learned helplessness. A big part of getting through our learning curves is using failure as a source of empowerment and inspiration, not as a personal defeat.
How do we become physically fit? By engaging in regular exercise that challenges a variety of functions, from our strength and balance to our aerobic conditioning. We become more fit by pushing past our boundaries and lifting more weight, running faster and more distance.
Similarly, we become emotionally fit when we challenge our various trading functions, from our ability to stay level headed after periods of winning to our capacity for using losses as sources of learning. When we bump up our risk-taking as a trader, we give ourselves a workout in emotional fitness, pushing ourselves to tolerate greater profit and loss volatility. One exercise I've used with the traders at SMB is to compute the average number of trades per day for the past few weeks and then, going forward, only allow themselves to take half that number. That, too, is a workout in emotional fitness, requiring us to truly hone in on our conviction and focus on the best trading opportunities.
A great way to review your trading journals is to ask, at the end of each entry, how you used that day or week to build your emotional fitness. What did you do to make yourself a more confident trader, a more resilient trader, a more disciplined trader? Every day of trading can be a workout; how are you making yourself more fit?
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