A wide range of research finds that physical exercise that improves aerobic conditioning improves both mood and self-esteem. Such exercise also has distinctive health benefits and helps reduce state anxiety and other forms of emotional distress.
One study, however, suggests that the link between aerobic conditioning and psychological well-being is due to a placebo effect: subjects who are specifically told that their exercise will help their psychological state show much greater improvements in well-being than those going through the same program and not told of the link.
An interpretation of this latter finding is that improvements in self-efficacy, not just aerobic conditioning per se, might be responsible for the link between exercise and psychological well-being. Research suggests that beliefs about the health benefits of exercise are often responsible for people starting their workout routines, but that improvements in self-efficacy are responsible for *continuing* these routines.
Self-efficacy--the belief that one is capable of engaging in positive actions and reaching desired goals--may thus be important to sustaining an exercise regime, but may also be the result of such routines. This creates a virtuous circle, in which efficacious actions enhance the sense of efficacy, which, in turn, fuel further goal-oriented behavior.
These research results hold a number of implications. First, it may be fruitless to engage in coaching and counseling efforts if one is lacking the basic self-efficacy beliefs needed to sustain goal-directed action. Stated otherwise, it may be important to first improve self-efficacy beliefs with immediate, emotionally-impactful experiences of efficacy before tackling larger life goals. Does it really make sense, for example, to help someone improve their trading discipline when, in fact, that person does not possess the self-efficacy needed to sustain personal discipline in other aspects of life?
Another, subtle implication is that programs designed to enhance self-efficacy in one arena may spill over and fuel self-efficacy in other areas of life. A sustained exercise program, for instance, may fuel the self-efficacy needed to tackle changes in one's relationship life or trading. Nothing so promotes goal-seeking as goal attainment: by tackling goals in a variety of life areas, a more general sense of self-efficacy--impelling further achievement--may result.
RELATED POSTS:
Self-Efficacy and Consumer Debt
Building Self-Efficacy With a Solution Focus
Self-Evaluation and Success
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Showing posts sorted by relevance for query efficacy. Sort by date Show all posts
Showing posts sorted by relevance for query efficacy. Sort by date Show all posts
Sunday, December 23, 2007
Monday, May 28, 2007
Self-Efficacy and the Psychology of Consumer Debt
Popular personal finance expert Jean Chatzky calls it an epidemic and organizes self-help groups to deal with its impact. U.S. News and World Report, Newsweek, the Center for American Progress, and Fox News all use the same word to describe the situation: drowning.
Increasingly, they note, middle class Americans are drowning in debt.
Statistics from the Federal Reserve show that, from 1980 to the present, homeowners are paying an increasing percentage of their disposable income toward debt repayment. Indeed, the financial obligations ratio for the average American is at a record 19.4%. In an excellent review, Mike Shedlock notes that personal bankruptcy rates are rising among baby boomers and particularly among those above the age of 55. He refers to the situation of housing woes and rising fuel prices as a "perfect storm" of debt, with household expenses increasing and home equity not keeping pace.
To be sure, many causes of debt are unavoidable. Those without health insurance, for example, can be wiped out by expenses associated with treatment of major diseases, such as cancer. Many times, however, debt is simply a function of lifestyles that fail to balance income with expenditures. Chatzky's recent book on making money rather than excuses, for instance, covers a number of practical steps--simple reductions of regular purchases--that can meaningfully reduce a family's debt burden.
So what keeps individuals and families from taking such steps?
Consider these situations that appear quite different, but are psychologically similar:
* A man knows he needs to lose weight given his heart problems, but he continues to overeat.
* A woman vows to exercise to get in better shape, but fails to use the expensive equipment she's purchased.
* An investor knows that he should hold onto winning positions and not let losers get out of hand, yet he finds himself doing exactly the opposite.
* Arguments are killing their marriage; both members of the couple realize it and don't want a divorce, but they continue to wound one another in bitter verbal battles.
Each of these situations is one in which a person knows what to do, but cannot match their actions to their awareness. We usually associate such a lack of will with addictions, but as the above suggests--and as we see with many families in debt--the problem is much more widespread than that.
Why do we lack the will to do what is best for us?
The answer, one group of psychological researchers suggests, can be found in self-efficacy. Self-efficacy refers to the belief system of the individual: the degree to which people hold the conviction that they are *capable* of attaining their goals. A person may wish to lose weight, for example, but may not perceive that she is in control of her weight. Her belief is that "I just have a slow metabolism". Without the underlying conviction that she's in control, she won't be motivated to take the actions needed to change her situation.
Self-efficacy has been found to be associated with positive outcomes in educational and health settings, as well as athletic performance. When people believe that they *can* achieve a goal, they're more likely to initiate action toward that goal. A great example of how a lack of self-efficacy can dampen motivation can be found among abused children and spouses. Even when they have opportunities to leave their environments, they often do not act on these. They have learned--through painful experience--that they cannot control their own life outcomes.
So it is with many families facing potential bankruptcy. Their self-talk is that they're "in debt", just like they might be *in* an accident or *in* a hurricane. Such self-talk reinforces the notion that debt happens to them--not that they can influence their own financial outcomes. Similarly, the investor who hangs onto losing positions and risks going bust talks about being *in* the red, *in* losing trades, and *in* a drawdown.
Changing such self-talk requires fresh emotional experience, not just intellectual awareness. Intellectually everyone pretty much knows what they need to do to follow a budget, exit losing positions, stay in good physical condition, etc. If, however, you don't experience yourself as being in control, you can't internalize an enduring sense of self-efficacy. Building that experience of control requires at least two steps:
1) Developing a new kind of self-talk, which makes nouns like "debt" and "drawdown" into active verbs, stressing decision-making and choice. Debt is something you do, not something you passively find yourself in;
2) Cultivating a hierarchy of doable goals to create the emotional experience of being in control and seeing in one's own experience that it *is* possible to make good things happen.
In short, self-efficacy can only result from first-hand experiences of being efficacious. Unless we truly, consistently feel ourselves to be in control, we're unlikely to sustain the actions needed to achieve our goals. In my next post, I'll take a look at one immediate step people can take to generate those first-hand experiences of efficacy.
RELATED POST:
The Devon Principle
Increasingly, they note, middle class Americans are drowning in debt.
Statistics from the Federal Reserve show that, from 1980 to the present, homeowners are paying an increasing percentage of their disposable income toward debt repayment. Indeed, the financial obligations ratio for the average American is at a record 19.4%. In an excellent review, Mike Shedlock notes that personal bankruptcy rates are rising among baby boomers and particularly among those above the age of 55. He refers to the situation of housing woes and rising fuel prices as a "perfect storm" of debt, with household expenses increasing and home equity not keeping pace.
To be sure, many causes of debt are unavoidable. Those without health insurance, for example, can be wiped out by expenses associated with treatment of major diseases, such as cancer. Many times, however, debt is simply a function of lifestyles that fail to balance income with expenditures. Chatzky's recent book on making money rather than excuses, for instance, covers a number of practical steps--simple reductions of regular purchases--that can meaningfully reduce a family's debt burden.
So what keeps individuals and families from taking such steps?
Consider these situations that appear quite different, but are psychologically similar:
* A man knows he needs to lose weight given his heart problems, but he continues to overeat.
* A woman vows to exercise to get in better shape, but fails to use the expensive equipment she's purchased.
* An investor knows that he should hold onto winning positions and not let losers get out of hand, yet he finds himself doing exactly the opposite.
* Arguments are killing their marriage; both members of the couple realize it and don't want a divorce, but they continue to wound one another in bitter verbal battles.
Each of these situations is one in which a person knows what to do, but cannot match their actions to their awareness. We usually associate such a lack of will with addictions, but as the above suggests--and as we see with many families in debt--the problem is much more widespread than that.
Why do we lack the will to do what is best for us?
The answer, one group of psychological researchers suggests, can be found in self-efficacy. Self-efficacy refers to the belief system of the individual: the degree to which people hold the conviction that they are *capable* of attaining their goals. A person may wish to lose weight, for example, but may not perceive that she is in control of her weight. Her belief is that "I just have a slow metabolism". Without the underlying conviction that she's in control, she won't be motivated to take the actions needed to change her situation.
Self-efficacy has been found to be associated with positive outcomes in educational and health settings, as well as athletic performance. When people believe that they *can* achieve a goal, they're more likely to initiate action toward that goal. A great example of how a lack of self-efficacy can dampen motivation can be found among abused children and spouses. Even when they have opportunities to leave their environments, they often do not act on these. They have learned--through painful experience--that they cannot control their own life outcomes.
So it is with many families facing potential bankruptcy. Their self-talk is that they're "in debt", just like they might be *in* an accident or *in* a hurricane. Such self-talk reinforces the notion that debt happens to them--not that they can influence their own financial outcomes. Similarly, the investor who hangs onto losing positions and risks going bust talks about being *in* the red, *in* losing trades, and *in* a drawdown.
Changing such self-talk requires fresh emotional experience, not just intellectual awareness. Intellectually everyone pretty much knows what they need to do to follow a budget, exit losing positions, stay in good physical condition, etc. If, however, you don't experience yourself as being in control, you can't internalize an enduring sense of self-efficacy. Building that experience of control requires at least two steps:
1) Developing a new kind of self-talk, which makes nouns like "debt" and "drawdown" into active verbs, stressing decision-making and choice. Debt is something you do, not something you passively find yourself in;
2) Cultivating a hierarchy of doable goals to create the emotional experience of being in control and seeing in one's own experience that it *is* possible to make good things happen.
In short, self-efficacy can only result from first-hand experiences of being efficacious. Unless we truly, consistently feel ourselves to be in control, we're unlikely to sustain the actions needed to achieve our goals. In my next post, I'll take a look at one immediate step people can take to generate those first-hand experiences of efficacy.
RELATED POST:
The Devon Principle
Sunday, September 02, 2007
Goal Setting for Traders: What Works
It is often thought that setting goals is helpful for motivation and performance. The psychological research, however, suggests that this isn't the case. Goals can either help or hinder performance, depending upon how they are structured. If traders are going to act as their own trading coaches, it is important that they know how to set goals that are most likely to produce good results.
The research of Locke and Latham suggests that goals impact performance in several ways:
* Directing - Goals direct our activity toward priorities and away from aspects of performance that are less important.
* Energizing - Goals can motivate us to pursue particular ends, particularly if the goals are sufficiently challenging that they prod us to make special efforts.
* Persisting - If we have a valued goal, we are more likely to persist in efforts at performance improvement than if goals are lacking.
* Knowing - Goals activate knowledge and skills that are relevant to performance improvement.
Goals will be most likely to accomplish the above if performers are committed to their pursuit and truly value those goals. Locke and Latham note that a public commitment to a goal can be highly effective, enhancing the performer's level of dedication and effort. Performers also need to believe that they are capable of reaching their goals (self-efficacy), and they need to set goals that are neither so easy nor so difficult that they discourage sustained efforts.
A large body of research, including the work on deliberative practice, suggests that goals are not effective by themselves. Rather, it is regular and accurate feedback about goal progress and attainment that facilitates learning, skill development, and motivation. Traders will often set a goal and then set it aside, hoping that the mere act of setting an objective will be helpful. Rather, the value of goals is in their ability to channel efforts at learning. Tracking goal progress and creating new subgoals based on this regular feedback lies at the heart of expertise development.
Goals are also most likely to be effective if they are relatively short-term, channeling immediate efforts and providing rapid feedback. That doesn't mean that long-term goals are irrelevant or unhelpful, but rather suggests that a performer will derive the greatest benefit from dividing long-term goals into concrete short-term objectives.
Finally, there is evidence that process goals can be more effective than all-or-none outcome goals. A process goal for a trader might be to limit losses to a certain number of ticks per trade; an outcome goal might be to make a certain dollar amount per week or month. The latter is highly dependent upon market conditions and not entirely within the trader's control. Process goals, alternatively, focus on what the trader can control directly and thus reinforce self-efficacy.
The proper setting of goals, tracking of performance for feedback, and creation of new objectives is a fantastic use for trading journals. If your goal pursuit and journaling feel burdensome, there's a strong likelihood that you're setting the wrong kinds of goals. Ideally, goals should challenge and motivate us, build our skills, and enhance our sense of mastery.
RELEVANT POSTS:
Building Self-Efficacy With a Solution Focus
Self-Efficacy and the Psychology of Consumer Debt
.
The research of Locke and Latham suggests that goals impact performance in several ways:
* Directing - Goals direct our activity toward priorities and away from aspects of performance that are less important.
* Energizing - Goals can motivate us to pursue particular ends, particularly if the goals are sufficiently challenging that they prod us to make special efforts.
* Persisting - If we have a valued goal, we are more likely to persist in efforts at performance improvement than if goals are lacking.
* Knowing - Goals activate knowledge and skills that are relevant to performance improvement.
Goals will be most likely to accomplish the above if performers are committed to their pursuit and truly value those goals. Locke and Latham note that a public commitment to a goal can be highly effective, enhancing the performer's level of dedication and effort. Performers also need to believe that they are capable of reaching their goals (self-efficacy), and they need to set goals that are neither so easy nor so difficult that they discourage sustained efforts.
A large body of research, including the work on deliberative practice, suggests that goals are not effective by themselves. Rather, it is regular and accurate feedback about goal progress and attainment that facilitates learning, skill development, and motivation. Traders will often set a goal and then set it aside, hoping that the mere act of setting an objective will be helpful. Rather, the value of goals is in their ability to channel efforts at learning. Tracking goal progress and creating new subgoals based on this regular feedback lies at the heart of expertise development.
Goals are also most likely to be effective if they are relatively short-term, channeling immediate efforts and providing rapid feedback. That doesn't mean that long-term goals are irrelevant or unhelpful, but rather suggests that a performer will derive the greatest benefit from dividing long-term goals into concrete short-term objectives.
Finally, there is evidence that process goals can be more effective than all-or-none outcome goals. A process goal for a trader might be to limit losses to a certain number of ticks per trade; an outcome goal might be to make a certain dollar amount per week or month. The latter is highly dependent upon market conditions and not entirely within the trader's control. Process goals, alternatively, focus on what the trader can control directly and thus reinforce self-efficacy.
The proper setting of goals, tracking of performance for feedback, and creation of new objectives is a fantastic use for trading journals. If your goal pursuit and journaling feel burdensome, there's a strong likelihood that you're setting the wrong kinds of goals. Ideally, goals should challenge and motivate us, build our skills, and enhance our sense of mastery.
RELEVANT POSTS:
Building Self-Efficacy With a Solution Focus
Self-Efficacy and the Psychology of Consumer Debt
.
Sunday, October 12, 2014
How Goal Setting Helps Performance
Key to the achievement of goals, according to the researchers, is self-efficacy. People are much more likely to buy into and pursue goals if they believe themselves to be competent to reach those goals. This is why the best goals embrace our strengths: they represent ways in which we can leverage the best of who we are.
Sometimes, people have gone through so many setbacks that they lack the sense of self-efficacy. They come to believe that they can never reach their goals. In that case, setting distant, difficult goals will not be helpful; the focus has to be on achieving small wins. A series of small goals that are achieved provides multiple experiences of efficacy. When you win, win, and win--even with relatively small goals--the boost to self-efficacy can inspire larger goals, which energize even further. It may seem too daunting to lose 30 pounds for a heavy person, for example. By focusing on losing one pound per week by eating smarter, it is much easier to create experiences of goal achievement, which then fuel the larger goal.
Where traders often fall short is not in goal setting, but in the feedback process following the pursuit of goals. If a goal is not reached, something went wrong. It is important to figure that out and make corrective efforts to pursue the goal in a new way. Goal setting with feedback provides deliberate practice, because the feedback hones our efforts to reach goals. It is very common in my experience that, when traders keep a journal, they write about their problems, but do not take the next steps of translating problems into challenging, specific goals. Even when they do outline such goals, it is rare that the goals are revisited with concrete feedback that is used to guide future efforts.
Too much of life occurs in auto-pilot mode. We take life--and markets--day to day, without an overarching plan and with no deadlines. We act as if experience itself will teach us all we need to know, when it is guided experience--experience informed by goals and feedback--that gets us where we want to go. One of the most important functions of a trading journal is as a chronicle of our goals, feedback, learning, and achievement. We deliver our best efforts when we're on the path to becoming our very best.
Further Reading: Setting the Right Goals
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Friday, May 09, 2008
Worthwhile Readings to Kick Off the Weekend
Self-Efficacy - It's difficult to achieve something if you don't experience yourself as capable of achieving. Thanks to trading coach Doug Hirschhorn for pointing out this excellent Wall St. Journal article on self-efficacy. Here's one of my posts on self-efficacy and why it's important, and here's my favorite framework for building self-efficacy.
Range Markets - I recently wrote about how to identify slow, range markets. Today, Trader Mike's favorite indicator of range markets was quite helpful as the day wore on.
Learning How to Trade - This is just a great post, with quite a bit of wisdom and experience from Globetrader. There's a lot to be said for learning how to trade by learning how others have learned.
Good Reading - Kirk links the best investments of the decade, the case for the end of the housing crisis, and more. See also his review of a website resource that tracks sector rotation and more.
Building Expertise - While we're on the topic of learning to trade, thanks to an alert reader for pointing out this blog entry on deliberate practice. Here are some implications for trading.
Credit Crunch Goes to School - Research Recap notes the crunch in student loan issuance.
Chop, Chop - Quantifiable Edges notes the chopfest, but finds a pattern in the noise.
Links Galore - Looking for more links? Abnormal Returns links the linkfests.
Beating the Market House - Suppose there was a market indicator that had a stationary distribution and that was significantly associated with price behavior. The distribution need not be normal; it would only need to be stable over time. In that event, the search for trading edges would be very similar to card counting in blackjack. Just a thought... ;-)
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Range Markets - I recently wrote about how to identify slow, range markets. Today, Trader Mike's favorite indicator of range markets was quite helpful as the day wore on.
Learning How to Trade - This is just a great post, with quite a bit of wisdom and experience from Globetrader. There's a lot to be said for learning how to trade by learning how others have learned.
Good Reading - Kirk links the best investments of the decade, the case for the end of the housing crisis, and more. See also his review of a website resource that tracks sector rotation and more.
Building Expertise - While we're on the topic of learning to trade, thanks to an alert reader for pointing out this blog entry on deliberate practice. Here are some implications for trading.
Credit Crunch Goes to School - Research Recap notes the crunch in student loan issuance.
Chop, Chop - Quantifiable Edges notes the chopfest, but finds a pattern in the noise.
Links Galore - Looking for more links? Abnormal Returns links the linkfests.
Beating the Market House - Suppose there was a market indicator that had a stationary distribution and that was significantly associated with price behavior. The distribution need not be normal; it would only need to be stable over time. In that event, the search for trading edges would be very similar to card counting in blackjack. Just a thought... ;-)
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Tuesday, May 29, 2007
Building Self-Efficacy With a Solution Focus
My last post identified self-efficacy as an important link between a person's goals and their ability to sustain action toward those goals. If we experience ourselves as efficacious--if we feel that we are in control of our destinies--we will be more likely to muster the motivation to do what we know is best for us.
In my co-authored book The Art and Science of Brief Psychotherapies, I wrote a chapter specific to solution-focused brief therapy (SFBT). The idea behind SFBT is that, instead of focusing on a person's problems, it is often helpful to identify strengths and build upon these. The psychologist using SFBT identifies what you're doing when you're not having problems; when you're acting in a manner more consistent with your goals. From those exceptions to problem patterns, it is possible to find solution patterns: positive modes of thought and behavior that can be duplicated in new situations.
Thus, if I'm working with a trader with discipline problems in a SFBT framework, I will review his recent trading with him and work with him to identify occasions when he *did* follow his plans and trade in control. We'll then figure out how he was able to do that and create a solution pattern from his own recent behavior. Perhaps, for instance, we'll learn that he was able to trade in a disciplined way when he traded a position reasonable for his portfolio size, took a break after losing trades, and clearly identified a market direction in his pre-opening preparations. We might then use a self-hypnosis technique to mentally rehearse these solution patterns again and again--until they become a more natural part of the trader's repertoire.
Research on SFBT suggests that the approach works because it directly improves the individual's self-efficacy. Here's what I had to say in my book chapter:
"Beyebach et al (1996) examined SFBT outcomes and found that the sole significant predictor of success was client internal locus of control, which reflects the degree to which individuals perceive that they are in control of their lives. The internal locus was positively correlated with favorable pretreatment reports of change and subsequent goal formation in counseling" (p. 96).
Pretreatment reports of change refer to partially successful efforts that the person made prior to getting professional help. By focusing individuals on what they are already doing to change and by helping them form clear, doable, positive goals, the solution-focused approach enables them to feel more efficacious, more in control of their own lives.
This, I have found, is the most effective means for helping people bridge the gap between their actions and their goals. If coaching or counseling focuses on problems and what people are doing wrong, it unwittingly reinforces the lack of efficacy. By identifying what you're already doing--even in a small way--to bring you closer to your goals and then gradually building on that, you increase your sense of control and eventually pave the way for larger goals and greater progress.
Positive focus, measurable and achievable goals: these are key to a trader's self-coaching and improved control over one's own actions.
RELATED POSTS:
A Solution-Focused Linkfest
The Most Important Question to Ask When You're in a Slump
Solution-Focused Trading
In my co-authored book The Art and Science of Brief Psychotherapies, I wrote a chapter specific to solution-focused brief therapy (SFBT). The idea behind SFBT is that, instead of focusing on a person's problems, it is often helpful to identify strengths and build upon these. The psychologist using SFBT identifies what you're doing when you're not having problems; when you're acting in a manner more consistent with your goals. From those exceptions to problem patterns, it is possible to find solution patterns: positive modes of thought and behavior that can be duplicated in new situations.
Thus, if I'm working with a trader with discipline problems in a SFBT framework, I will review his recent trading with him and work with him to identify occasions when he *did* follow his plans and trade in control. We'll then figure out how he was able to do that and create a solution pattern from his own recent behavior. Perhaps, for instance, we'll learn that he was able to trade in a disciplined way when he traded a position reasonable for his portfolio size, took a break after losing trades, and clearly identified a market direction in his pre-opening preparations. We might then use a self-hypnosis technique to mentally rehearse these solution patterns again and again--until they become a more natural part of the trader's repertoire.
Research on SFBT suggests that the approach works because it directly improves the individual's self-efficacy. Here's what I had to say in my book chapter:
"Beyebach et al (1996) examined SFBT outcomes and found that the sole significant predictor of success was client internal locus of control, which reflects the degree to which individuals perceive that they are in control of their lives. The internal locus was positively correlated with favorable pretreatment reports of change and subsequent goal formation in counseling" (p. 96).
Pretreatment reports of change refer to partially successful efforts that the person made prior to getting professional help. By focusing individuals on what they are already doing to change and by helping them form clear, doable, positive goals, the solution-focused approach enables them to feel more efficacious, more in control of their own lives.
This, I have found, is the most effective means for helping people bridge the gap between their actions and their goals. If coaching or counseling focuses on problems and what people are doing wrong, it unwittingly reinforces the lack of efficacy. By identifying what you're already doing--even in a small way--to bring you closer to your goals and then gradually building on that, you increase your sense of control and eventually pave the way for larger goals and greater progress.
Positive focus, measurable and achievable goals: these are key to a trader's self-coaching and improved control over one's own actions.
RELATED POSTS:
A Solution-Focused Linkfest
The Most Important Question to Ask When You're in a Slump
Solution-Focused Trading
Sunday, June 24, 2007
Art and Science in Trading and Psychotherapy
Note: The following is my post to an online discussion group that had taken up the issue of art vs. science in trading:
The art/science debate/dichotomy has dogged the field of psychotherapy as well. There we've seen two stances taken toward reconciliation. The first is to identify effective treatments from controlled outcome studies and then create treatment manuals around these. Practitioners are then expected to follow the manuals with fidelity, so that treatment remains "evidence based".
The art/science debate/dichotomy has dogged the field of psychotherapy as well. There we've seen two stances taken toward reconciliation. The first is to identify effective treatments from controlled outcome studies and then create treatment manuals around these. Practitioners are then expected to follow the manuals with fidelity, so that treatment remains "evidence based".
The second approach is to assess outcomes among practitioners who employ subjective methods in talk therapy, relying on clinical judgment and experience. Those studies find that some therapists are consistently more effective than others, that much of their efficacy is independent of the specific treatment approaches they take, and that much of their efficacy is wrapped up in their ability to forge positive working relationships with patients.
In the first instance, insurers attempt to steer patients toward evidence-based approaches to maximize outcomes. In the second instance, insurers attempt to steer patients toward practitioners with the best outcomes. Both represent attempts to bring science to bear in a field that is highly discretionary and subjective.
I believe we see the same thing in the trading world. At hedge funds that I work for as a psychologist, we see a first approach, which is the development of automated trading systems based upon backtested historical patterns in the markets. These address the need for scientific money management by eliminating as much of the human element of trading as possible. Their mechanical trading systems are the equivalent of the therapist's evidence based treatment manual.
The second approach taken by the funds is the collection of copious metrics on traders who employ discretionary judgment. From these metrics, it is possible to determine which traders are achieving results beyond their peers and beyond what would be expectable by luck. Just as insurers track the risk-adjusted outcomes of practitioners and determine, say, who are the best heart surgeons, funds similarly trace the outcomes of their discretionary traders and allocate more capital to their all-stars.
Both of these modes strike me as legitimate applications of science. I don't think all psychologists need to work from treatment manuals, and I don't think all traders need to trade backtested systems. If, however, those psychologists and traders make claims of efficacy, the burden of proof is upon them (and the assessment of their objective outcomes).
Note that even once discretionary practitioners are found to be efficacious, that doesn't necessarily mean that they are successful because of their chosen orientations (Freudian, behavioral, etc.). Indeed, studies have found that specific orientations account for only about 10-20% of outcome variance. Specific practitioner skills and characteristics of patients account for far more variance in outcomes.
Similarly, I suspect that whether a successful trader adheres to one form of TA or another or some other analytical method accounts for surprisingly little variance in P/L outcomes. Specific trader competencies and characteristics of markets being traded may well account for the lion's share of profits. But these are meaningful questions and raising them can only further the cause of science in trading, even as it refines discretionary practice.
Added Note From Dr. Brett: Once we treat traders as trading systems and objectively measure their performance, the dichotomy between what is scientific and subjective falls away. Subjective methods in trading, as in psychotherapy, are objectively valid if they can be shown to produce results beyond those expectable by chance.
Added Note From Dr. Brett: Once we treat traders as trading systems and objectively measure their performance, the dichotomy between what is scientific and subjective falls away. Subjective methods in trading, as in psychotherapy, are objectively valid if they can be shown to produce results beyond those expectable by chance.
Tuesday, January 13, 2009
Self-Efficacy and the Effective Coaching of Traders
One of my observations over the years is that the coaching of traders is most effective when it is goal-focused. A large body of research suggests that goal-setting facilitates improvements in performance by channeling and energizing efforts. As I noted in a recent post, "Effective goals must be important to the performer and must inspire commitment. While absolute outcome goals can be inspiring (such as setting a P/L goal for the year), more immediate process goals that pertain to day-to-day trading are most likely to generate feedback, review, and learning."
The role of goals in facilitating enhanced performance is consistent with the solution-focus outlined in recent posts. In solution-focused coaching, the idea is to identify and build upon strengths--including strengths that might be overlooked. No one is wholly dysfunctional; we do not fall into problem patterns all the time. Observing what we're doing when problems are *not* occurring often leads to solutions that reflect hidden strengths.
Coaching--including the self-coaching of traders and portfolio managers--is effective to the degree that it provides experiences of self-efficacy. In other words, whether a trader works on goal A or goal B may be less important than how he or she works on those goals. When a trader not only sets a goal but directs efforts toward reaching the goal over time, the result is an experience of oneself as efficacious. This experience enhances motivation and confidence, aiding future risk-taking and helping sustain the "flow" state of consciousness (the "zone") in which optimal performance can occur.
This is where the relationship between coach and trader becomes all-important. The coaching is most likely to be successful when the relationship affirms trader strengths, mirroring competencies and helping to sustain efforts at improvement. Such an emphasis is especially helpful to traders who are struggling with performance pressures, as the goal focus and the affirmative relationship help to sustain confidence and motivation during difficult times.
My general experience is that traders tend to set goals, but tend to be lax in structuring their work on those goals. How we pursue self-improvement is every bit as important as the ends we seek. We are most likely to internalize a positive sense of self--a sustained level of confidence and conviction--if we are generating experiences of efficacy on a daily and weekly basis.
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The role of goals in facilitating enhanced performance is consistent with the solution-focus outlined in recent posts. In solution-focused coaching, the idea is to identify and build upon strengths--including strengths that might be overlooked. No one is wholly dysfunctional; we do not fall into problem patterns all the time. Observing what we're doing when problems are *not* occurring often leads to solutions that reflect hidden strengths.
Coaching--including the self-coaching of traders and portfolio managers--is effective to the degree that it provides experiences of self-efficacy. In other words, whether a trader works on goal A or goal B may be less important than how he or she works on those goals. When a trader not only sets a goal but directs efforts toward reaching the goal over time, the result is an experience of oneself as efficacious. This experience enhances motivation and confidence, aiding future risk-taking and helping sustain the "flow" state of consciousness (the "zone") in which optimal performance can occur.
This is where the relationship between coach and trader becomes all-important. The coaching is most likely to be successful when the relationship affirms trader strengths, mirroring competencies and helping to sustain efforts at improvement. Such an emphasis is especially helpful to traders who are struggling with performance pressures, as the goal focus and the affirmative relationship help to sustain confidence and motivation during difficult times.
My general experience is that traders tend to set goals, but tend to be lax in structuring their work on those goals. How we pursue self-improvement is every bit as important as the ends we seek. We are most likely to internalize a positive sense of self--a sustained level of confidence and conviction--if we are generating experiences of efficacy on a daily and weekly basis.
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Monday, January 07, 2008
The Limits of Self-Esteem
If there is an overworked notion in psychology, it's that individuals have problems because of "low self esteem". If only we can feel better about ourselves, the reasoning goes, all will be well and we'll perform up to our potentials.
As it turns out, this doesn't appear to be the case. Research suggests that improvements in our views of ourselves may not be an emotional cure-all. Indeed, the degree to which self-esteem is contingent upon other factors may be more psychologically important than a given level of esteem. Simply feeling good about oneself does not appear to lead to better performance in life.
While it is true that self-doubt and a lack of self-confidence can interfere with trading decisions, it is equally true that overconfidence and an unrealistic assesment of one's skills can lead to ruin. Research in behavioral finance suggests that, if you show traders charts generated by random number sequences, they will--as a whole--be more inclined to overestimate than underestimate their prowess at divining future market movements. And those with the greatest overestimation will be most susceptible to trading losses.
It is not at all unusual, in trading chat rooms and seminars, to find traders who have no problem valuing their own skills, despite no evidence of achieving consistent, superior returns and managing significant portfolios. On the other hand, most if not all of the very successful traders I've worked with are quite circumspect about their abilities. They are always seeing areas that need improvement, and they're always cognizant of risk, aware that large potential losses are only a trade away.
One of my favorite bumper stickers reads, "Forget world peace; visualize using your turn signal." That's pretty much how many fine traders approach their careers. They're not sitting around visualizing grand outcomes. They're immersed in the blocking and tackling--the sound trading practices--that make for the next profitable trade.
And maybe that's what has me writing this post. The really good traders aren't thinking good things or bad things about themselves. They're not thinking about themselves at all.
They're immersed in the markets.
If you're thinking about how good you're doing, how badly you're doing, your recent P/L, your hopes for future profits--all of that is a distraction from being focused on markets.
And *that* will affect performance.
RELATED POSTS:
Self Efficacy and Goal Attainment
Building Self-Efficacy
Self Confidence and Performance
Self Evaluation and Trading Success
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As it turns out, this doesn't appear to be the case. Research suggests that improvements in our views of ourselves may not be an emotional cure-all. Indeed, the degree to which self-esteem is contingent upon other factors may be more psychologically important than a given level of esteem. Simply feeling good about oneself does not appear to lead to better performance in life.
While it is true that self-doubt and a lack of self-confidence can interfere with trading decisions, it is equally true that overconfidence and an unrealistic assesment of one's skills can lead to ruin. Research in behavioral finance suggests that, if you show traders charts generated by random number sequences, they will--as a whole--be more inclined to overestimate than underestimate their prowess at divining future market movements. And those with the greatest overestimation will be most susceptible to trading losses.
It is not at all unusual, in trading chat rooms and seminars, to find traders who have no problem valuing their own skills, despite no evidence of achieving consistent, superior returns and managing significant portfolios. On the other hand, most if not all of the very successful traders I've worked with are quite circumspect about their abilities. They are always seeing areas that need improvement, and they're always cognizant of risk, aware that large potential losses are only a trade away.
One of my favorite bumper stickers reads, "Forget world peace; visualize using your turn signal." That's pretty much how many fine traders approach their careers. They're not sitting around visualizing grand outcomes. They're immersed in the blocking and tackling--the sound trading practices--that make for the next profitable trade.
And maybe that's what has me writing this post. The really good traders aren't thinking good things or bad things about themselves. They're not thinking about themselves at all.
They're immersed in the markets.
If you're thinking about how good you're doing, how badly you're doing, your recent P/L, your hopes for future profits--all of that is a distraction from being focused on markets.
And *that* will affect performance.
RELATED POSTS:
Self Efficacy and Goal Attainment
Building Self-Efficacy
Self Confidence and Performance
Self Evaluation and Trading Success
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Wednesday, February 25, 2015
Best Practices in Trading: Elaborating Your Trading Processes
Today's best practice comes from Pier Luigi Pellegrino from Paris, France. He breaks down trading into four basic areas and then breaks down each of those into two sub domains and each of those into three specific performance elements. This creates a catalog of 24 performance functions of trading. Pier explains, "The daily trading routine is focused on a structured and regular implementation of the...24 performance elements."
Here is Pier's breakdown:
1. Vision (The Fund Manager)
INNER DRIVE
1). Focused Vision - create regularly the images of the financial goal to achieve
2) Intensity of Purpose - feel with intensity the will to succeed and the expectation to win
3) Intrinsic Motivation - being driven from within to reach high standards of performance
ELITE MASTERY
4) Self Efficacy - act with self confidence and self efficacy and belief in winning
5) Rage to Mastery - sustain the conviction of being an elite performer driven to reach mastery
6) Implicit Action - execute the trading strategy by accessing implicit and intuitive knowledge
2. Strategy (The Portfolio Manager)
PATTERN RECOGNITION
7) Portfolio Ranking - scan, select, and rank the best trend stocks with the proprietary screening tool
8) Pattern Monitoring - monitor price action and pattern development among the filtered stocks
9) Setup Recognition - detect playbook setups through implicit pattern recognition
MONEY MANAGEMENT
10) Risk Analysis - perform due diligence and risk analysis of potential trades
11) Capital Allocation - determine the capital allocated to the trade (shares and stop level)
12) Trading Frequency - trade only the best setups with the greatest opportunity
3. Execution (The Head Trader)
CONSISTENT ROUTINE
13) Mental Toughness - develop a strong and competitive mindset
14) Rituals - replicate consistently a structured and coherent daily routine
15) Zone State - enter on demand a zone state of focus and concentration during trading
FLAWLESS EXECUTION
16) Trade Implementation - execute the trade flawlessly with clarity and intuition
17) Order Management - utilize adaptive exit tactic with trailing stops and profit targets
18) Performance Niche - focus relentlessly on your strategy and discard other methods
4. Feedback (The Performance Coach)
DELIBERATE PRACTICE
19) Performance Training - train key performance skills with structured deliberate practice
20) Mental Rehearsal - isolate, rehearse, and integrate critical skills and optimal behaviors
21) Laboring Instinct - develop a mindset of continuous improvement and skill refinement
PERFORMANCE ENHANCEMENT
22) Continuous Debriefing - Debrief, monitor, and measure performance
23) Performance Diagnosis - Detect factors limiting performance and enhancing success
24) Feedback Implementation - Correct weaknesses and repeat winning actions
Now your breakdown of trading process might look different from Pier's (mine would be heavier on research processes and--ironically--less geared toward sustaining positive mindset), but the principle still holds: dividing trading into component actions enables you to look under the performance hood and observe what you're doing well and what could stand improvement.
Indeed, a breakdown such as Pier's 24 performance functions could anchor an effective end of day or end of week report card that could anchor goal setting the next day or week. That would be a best practice that embraces best practices!
Further Reading: The Rage to Master
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Saturday, May 31, 2014
Accelerating the Learning Curve - Part One: Reflection and Performance
The authors find that, "the automatic, unconscious process of learning by 'doing' becomes more effective if deliberately coupled with the controlled, conscious attempt at learning by 'thinking'" (p. 6). "In particular," they note, "we find that individuals perform significantly better on subsequent tasks when they think about what they learned from the task they completed." (p. 5).
Reflecting on one's learning--a staple of those who make rigorous use of trading journals--appears to help abstract and cement lessons derived from practice. Putting hours in front of a screen observing and trading will not necessarily generate maximum and learning and expertise unless there is also a processing of that experience. It is that processing that makes sense of the experience and frames future experience.
This helps to explain why mentorship and coaching are so important to learning in performance fields. There is the playing of the game, but there is also the watching of the game film after the game--and the use of game film observations to guide the next week's practice. Game film is the catalyst for turning doing into thinking and ultimately learning.
There is another important takeaway from the authors' research, however. Reflection provides emotional as well as cognitive benefits. Their study found that reflection resulted in higher levels of self-efficacy. When people reflect on their performance, they feel more capable of achieving and reaching goals. It is as if cognitive mastery imparts a personal sense of mastery.
This invites an interesting hypothesis: Effective reflection on successful experience might be particularly effective by keeping self-efficacy high and sustaining the flow state in which performers stay immersed in their craft. Such a hypothesis supports a solution-focused approach to coaching and mentorship.
Can traders guide their processes of reflection in the service of self-coaching? That will be the topic of my next post in this series.
Further Reading: Making Peak Performance a Lifestyle
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Saturday, December 12, 2009
Thoughts for a Saturday Evening
"There can be no self-esteem without a self: a well-defined sense of who one is and what one stands for. There are many false substitutes for self-esteem, including the approval of others and the size of one's trading account. Ultimately, however, self-esteem is a function of knowing yourself and remaining true to your values: possessing a vision of what can be and remaining faithful to that vision."
The Daily Trading Coach, p. 89
"A skilled trading mentor functions very similarly to the athletic coach. The difference is that the trading mentor utilizes historical and live simulated markets--not stationary bikes or punching bags--for the realistic rehearsal of skills. Simulated trading is the market learner's equivalent of a football practice field, the body builder's equivalent of a weight room. Trying to jump from initial learning of trading skills to actual trading is like making the transition from diagramming a pass play on the blackboard to running it in a football game. Graded simulation, progression from more controlled environments to more realistic ones, fosters the internalization of skills."
Enhancing Trader Performance, p. 88
"A major implication of the ideas presented thus far is that traders who are living for their trading will have difficulty trading for a living. Since writing trading columns, I cannot begin to count the number of desperate traders who have sought me out for advice, beginning their pleas with a statement of how trading is the most important thing in their lives. I am obliged to point out to them that this may be their very problem.
If it is true that much bad trading represents a spillover of unmet needs and desires, any failure to meet those needs invites future interference. The trader who lives for his or her trading may be neglecting basic drives for security, stimulation, affection, recognition, and spirituality. These are valid and important needs, but not ones that should be driving entry and exit decisions in the stock and futures markets. Rather than neglecting these needs, it is important to find constructive outlets for them so that they will not color moods and interfere with trading decisions."
The Psychology of Trading, p. 89
"My general experience is that traders tend to set goals, but tend to be lax in structuring their work on those goals. How we pursue self-improvement is every bit as important as the ends we seek. We are most likely to internalize a positive sense of self--a sustained level of confidence and conviction--if we are generating experiences of efficacy on a daily and weekly basis."
Self-Efficacy and the Effective Coaching of Traders
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The Daily Trading Coach, p. 89
"A skilled trading mentor functions very similarly to the athletic coach. The difference is that the trading mentor utilizes historical and live simulated markets--not stationary bikes or punching bags--for the realistic rehearsal of skills. Simulated trading is the market learner's equivalent of a football practice field, the body builder's equivalent of a weight room. Trying to jump from initial learning of trading skills to actual trading is like making the transition from diagramming a pass play on the blackboard to running it in a football game. Graded simulation, progression from more controlled environments to more realistic ones, fosters the internalization of skills."
Enhancing Trader Performance, p. 88
"A major implication of the ideas presented thus far is that traders who are living for their trading will have difficulty trading for a living. Since writing trading columns, I cannot begin to count the number of desperate traders who have sought me out for advice, beginning their pleas with a statement of how trading is the most important thing in their lives. I am obliged to point out to them that this may be their very problem.
If it is true that much bad trading represents a spillover of unmet needs and desires, any failure to meet those needs invites future interference. The trader who lives for his or her trading may be neglecting basic drives for security, stimulation, affection, recognition, and spirituality. These are valid and important needs, but not ones that should be driving entry and exit decisions in the stock and futures markets. Rather than neglecting these needs, it is important to find constructive outlets for them so that they will not color moods and interfere with trading decisions."
The Psychology of Trading, p. 89
"My general experience is that traders tend to set goals, but tend to be lax in structuring their work on those goals. How we pursue self-improvement is every bit as important as the ends we seek. We are most likely to internalize a positive sense of self--a sustained level of confidence and conviction--if we are generating experiences of efficacy on a daily and weekly basis."
Self-Efficacy and the Effective Coaching of Traders
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Sunday, May 25, 2008
A Simple Step That Turns Things Around
I recently received an email from a reader who reported his first solid, profitable week in a while. He was particularly happy that, during the week, he had tamed some of those trading demons that led him to overtrade and make bad decisions.
Interestingly, the trader didn't do anything radical to turn his trading around, and he certainly didn't change his fundamental approach to markets. I'll let the trader's own words explain the simple step he took to turn things around:
"I started to do brief meditation after each losing trade and it really helps to tame the demon. By keeping emotion in check helps me to avoid any trading disasters I had so many times in the near past."
In other words, the trader taught himself some meditative techniques to slow down his mind and body, and he stuck with these techniques until he could calm himself down in a very short period of time.
He then took the meditation a step further and used it to center himself proactively after each losing trade. Instead of waiting for himself to become frustrated and risk making bad decisions, he didn't allow frustration to build in the first place. By repeating this through the week, he began the process of creating a routine that, eventually, can become a positive habit pattern.
This is one of the simplest, but most effective psychological techniques I know. It is very difficult to become controlled by emotions when you're keeping mind and body in a controlled state. What is really happening is that you're building your sense of control and self-efficacy. Over time, using a technique such as this, you internalize the confidence of knowing that you are in control of your trading: one loss doesn't have to spill over to affect subsequent decisions.
For specifics about behavioral exercises to interrupt negative trading patterns, check out this post; this follow up blog article; and my two trading books. The trader's unique application is to utilize these methods before he can become frustrated and make poor decisions. This proactive use of psychology can be applied to any situation that triggers trading problems, from performance anxiety scenarios to periods of overconfidence.
RELATED POSTS:
* Building Self Efficacy
* Questions to Ask When You're in a Slump
Interestingly, the trader didn't do anything radical to turn his trading around, and he certainly didn't change his fundamental approach to markets. I'll let the trader's own words explain the simple step he took to turn things around:
"I started to do brief meditation after each losing trade and it really helps to tame the demon. By keeping emotion in check helps me to avoid any trading disasters I had so many times in the near past."
In other words, the trader taught himself some meditative techniques to slow down his mind and body, and he stuck with these techniques until he could calm himself down in a very short period of time.
He then took the meditation a step further and used it to center himself proactively after each losing trade. Instead of waiting for himself to become frustrated and risk making bad decisions, he didn't allow frustration to build in the first place. By repeating this through the week, he began the process of creating a routine that, eventually, can become a positive habit pattern.
This is one of the simplest, but most effective psychological techniques I know. It is very difficult to become controlled by emotions when you're keeping mind and body in a controlled state. What is really happening is that you're building your sense of control and self-efficacy. Over time, using a technique such as this, you internalize the confidence of knowing that you are in control of your trading: one loss doesn't have to spill over to affect subsequent decisions.
For specifics about behavioral exercises to interrupt negative trading patterns, check out this post; this follow up blog article; and my two trading books. The trader's unique application is to utilize these methods before he can become frustrated and make poor decisions. This proactive use of psychology can be applied to any situation that triggers trading problems, from performance anxiety scenarios to periods of overconfidence.
RELATED POSTS:
* Building Self Efficacy
* Questions to Ask When You're in a Slump
Tuesday, October 23, 2007
Core Self-Evaluations and Trading Success
A fascinating study tracked 7000 young people over a 25 year period to examine their success during the middle of their careers. The researchers found that young people who exhibited positive core self-evaluations earned significantly more than their lower self esteem counterparts. Family socioeconomic status and academic achievement were also positively correlated with career success decades later.
Perhaps the most striking finding was that self-evaluations facilitated success by enabling young people to take advantage of their socioeconomic and educational advantages. When those advantages were present among lower self-esteem individuals, higher incomes were not achieved.
In this study, self-esteem was one element of core self-evaluations. Also included were self-efficacy (belief that one can achieve one's goals); emotional stability; and locus of control (the degree to which one perceives an ability to control life outcomes).
The authors stress that we need certain advantages to achieve success (socioeconomic advantages, educational attainment), but that we also need to view ourselves in ways that enable us to make use of these advantages.
Interestingly, the authors suggest that those with low core self-evaluations may avoid opportunities, simply because these could be threatening to their self-views.
The implication for trading is that two traders could begin with the same "edge" in the markets--the same ideas, the same trading system--and achieve very different results based upon their core self-evaluations. It is difficult to imagine a trader taking advantage of an edge if he or she did not truly experience themselves as worthy and efficacious.
Perhaps this is why research finds that the four dimensions of core self-evaluations are highly correlated with job satisfaction and job performance. When we think we can make a difference, we are most likely to pour ourselves into our work and find it fulfilling. Perhaps, too, this is why so few traders succeed in making trading a career: their learning process undercuts, rather than boosts, their core self-evaluations by failing to structure the learning in a way that promotes experiences of mastery.
RELEVANT POSTS:
Building Self-Efficacy
Goal-Setting For Traders
.
Perhaps the most striking finding was that self-evaluations facilitated success by enabling young people to take advantage of their socioeconomic and educational advantages. When those advantages were present among lower self-esteem individuals, higher incomes were not achieved.
In this study, self-esteem was one element of core self-evaluations. Also included were self-efficacy (belief that one can achieve one's goals); emotional stability; and locus of control (the degree to which one perceives an ability to control life outcomes).
The authors stress that we need certain advantages to achieve success (socioeconomic advantages, educational attainment), but that we also need to view ourselves in ways that enable us to make use of these advantages.
Interestingly, the authors suggest that those with low core self-evaluations may avoid opportunities, simply because these could be threatening to their self-views.
The implication for trading is that two traders could begin with the same "edge" in the markets--the same ideas, the same trading system--and achieve very different results based upon their core self-evaluations. It is difficult to imagine a trader taking advantage of an edge if he or she did not truly experience themselves as worthy and efficacious.
Perhaps this is why research finds that the four dimensions of core self-evaluations are highly correlated with job satisfaction and job performance. When we think we can make a difference, we are most likely to pour ourselves into our work and find it fulfilling. Perhaps, too, this is why so few traders succeed in making trading a career: their learning process undercuts, rather than boosts, their core self-evaluations by failing to structure the learning in a way that promotes experiences of mastery.
RELEVANT POSTS:
Building Self-Efficacy
Goal-Setting For Traders
.
Monday, January 04, 2010
Trading Psychology: The Best of TraderFeed 2009 - Volume One
Well, it's that time again: I'll be going quarter by quarter to highlight the best TraderFeed posts from 2009. Below are links to top trading psychology posts from the first quarter. If you want to look back, here are links to the quarterly best posts of 2006, 2007, and 2008. Also check out posts on trading techniques.
* The Strengths of the Emotionally Intelligent Trader
* Questions to Ask When Emotions Interfere With Trading
* Psychometrics and Trading Psychology
* Anxiety and Micromanaging Your Trades
* The Power of a Single Premise
* The Importance of Self-Efficacy in Trading
* Becoming Solution-Focused in Your Trading; also More Keys to Being Solution-Focused
* Managing Your Energy as a Trader
* A Fresh Look at Coaching Traders; also Developing Trader Success and Coaching and Supervision
* Listening as a Trading Skill
* Profiting From Trading Mistakes
* Turning Trading Rules Into Commitments
* Why Traders Can't Follow Their Plans
* Rules for Life
* Finding Our Own Heroism
* Best Practices for Staying Focused
* Managing Trading's Psychological Risks
* The Benefits of Psychological Diversification
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* Questions to Ask When Emotions Interfere With Trading
* Psychometrics and Trading Psychology
* Anxiety and Micromanaging Your Trades
* The Power of a Single Premise
* The Importance of Self-Efficacy in Trading
* Becoming Solution-Focused in Your Trading; also More Keys to Being Solution-Focused
* Managing Your Energy as a Trader
* A Fresh Look at Coaching Traders; also Developing Trader Success and Coaching and Supervision
* Listening as a Trading Skill
* Profiting From Trading Mistakes
* Turning Trading Rules Into Commitments
* Why Traders Can't Follow Their Plans
* Rules for Life
* Finding Our Own Heroism
* Best Practices for Staying Focused
* Managing Trading's Psychological Risks
* The Benefits of Psychological Diversification
Sunday, January 31, 2010
Preparation, Performance, and the Look of Success
Thanks to Bella of SMB Trading for this link that illustrates what lies behind greatness. We see a young basketball player like JaShaun and we think of inborn talent. What we don't see is the many hours, days, weeks, months, and years of preparation needed to hone that talent into skill.
Each weekend I spend several hours scouring my indicators, reading the best blog posts and articles I can find, and reviewing my trading performance from the past week.
Out of that comes a tentative game plan: an idea of where I think markets are headed, an idea of alternate scenarios, specific plans for trading those scenarios, and concrete goals for improving my trading over the past week.
Week after week, that preparation adds up. It builds a sense of mastery and fuels confidence. There is nothing that beats the feeling of stepping into the arena and knowing that you *deserve* to win because you are prepared.
I used to have that feeling in college. I'd spend all-nighters studying for tests, while others slept or partied. I'd be exhausted sitting for the test, but it didn't matter. Sheer adrenaline--and the knowledge that I knew the material cold--pushed me through the exam. I knew that if I didn't have a 3.5 cumulative average, I wasn't going to clinical psychology grad school. That pushed me, and I pushed harder as my college career progressed. My GPA in my last two years was just shy of 3.9.
When I walked into the exam room, I *knew* I had a good shot to ace the test. It was a great feeling. Later, I would have that feeling as a psychologist. As a new professional, I would ask for the toughest emergency cases--the suicidal clients, the difficult to treat problems--because I knew I had a preparation edge. I wanted the ball in my hands when the clock was ticking down.
It's not overconfidence, and it's not cockiness. It's being prepared and knowing that deep in your being. It's the greatest feeling in the world, and it's the one that I see in the eyes of so many great, great traders.
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Each weekend I spend several hours scouring my indicators, reading the best blog posts and articles I can find, and reviewing my trading performance from the past week.
Out of that comes a tentative game plan: an idea of where I think markets are headed, an idea of alternate scenarios, specific plans for trading those scenarios, and concrete goals for improving my trading over the past week.
Week after week, that preparation adds up. It builds a sense of mastery and fuels confidence. There is nothing that beats the feeling of stepping into the arena and knowing that you *deserve* to win because you are prepared.
I used to have that feeling in college. I'd spend all-nighters studying for tests, while others slept or partied. I'd be exhausted sitting for the test, but it didn't matter. Sheer adrenaline--and the knowledge that I knew the material cold--pushed me through the exam. I knew that if I didn't have a 3.5 cumulative average, I wasn't going to clinical psychology grad school. That pushed me, and I pushed harder as my college career progressed. My GPA in my last two years was just shy of 3.9.
When I walked into the exam room, I *knew* I had a good shot to ace the test. It was a great feeling. Later, I would have that feeling as a psychologist. As a new professional, I would ask for the toughest emergency cases--the suicidal clients, the difficult to treat problems--because I knew I had a preparation edge. I wanted the ball in my hands when the clock was ticking down.
It's not overconfidence, and it's not cockiness. It's being prepared and knowing that deep in your being. It's the greatest feeling in the world, and it's the one that I see in the eyes of so many great, great traders.
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Tuesday, May 29, 2007
The Most Important Step in Becoming Your Own Trading Coach
Before you read this post, I'm going to ask that you review my previous post on "The Devon Principle". It is very, very relevant to a question recently asked of me by a trader: "I know I can't afford to hire a private trading coach. What do I need to do to coach myself for success?"
The Devon Principle states that we are what we eat and that, psychologically, we are always digesting our experience. Internalizing our experience makes us who we are.
If we have negative experiences, we internalize that and develop a loss of confidence and motivation. If we have positive experiences, these become part of our outlook on ourselves and our world.
To mentor yourself, your most important step is to create positive learning experiences that will sustain your motivation, interest, and sense of efficacy.
Every trading session should involve working on a specific, doable goal and making progress toward that goal.
We can't control how markets move, so we can't control whether any single trade we make will be profitable or not. But we can control how we make trades: how we enter, how we size positions, how we exit, and how we contain losses. Having rules about all of those helps us set specific goals about the process of trading, rather than about the outcome.
The goal of your learning is to trade well, just as the goal of a pitcher is to make a good pitch. If you do that often enough, you'll win your share of outings.
But the equally important reason for setting attainable, concrete goals is that--as your own coach--you are creating the experiences that you'll be digesting. By setting yourself up for success, you build a positive identity as a trader, day by day.
Without goals, there can be no sense of attainment. Without the sense of attainment, there can't be an internalization of competence and confidence. You generate your own sense of control by--trading session by trading session--controlling your own pursuit of trading goals.
RELATED POSTS:
Becoming Your Own Trading Coach
Letting Profits Run: Becoming Your Own Coach
The Devon Principle states that we are what we eat and that, psychologically, we are always digesting our experience. Internalizing our experience makes us who we are.
If we have negative experiences, we internalize that and develop a loss of confidence and motivation. If we have positive experiences, these become part of our outlook on ourselves and our world.
To mentor yourself, your most important step is to create positive learning experiences that will sustain your motivation, interest, and sense of efficacy.
Every trading session should involve working on a specific, doable goal and making progress toward that goal.
We can't control how markets move, so we can't control whether any single trade we make will be profitable or not. But we can control how we make trades: how we enter, how we size positions, how we exit, and how we contain losses. Having rules about all of those helps us set specific goals about the process of trading, rather than about the outcome.
The goal of your learning is to trade well, just as the goal of a pitcher is to make a good pitch. If you do that often enough, you'll win your share of outings.
But the equally important reason for setting attainable, concrete goals is that--as your own coach--you are creating the experiences that you'll be digesting. By setting yourself up for success, you build a positive identity as a trader, day by day.
Without goals, there can be no sense of attainment. Without the sense of attainment, there can't be an internalization of competence and confidence. You generate your own sense of control by--trading session by trading session--controlling your own pursuit of trading goals.
RELATED POSTS:
Becoming Your Own Trading Coach
Letting Profits Run: Becoming Your Own Coach
Monday, September 03, 2007
Overtrading and Other Ideas for a Labor Day
* Why Do Traders Overtrade? - Overtrading is a term traders loosely use to describe a situation in which they either trade too often, too large, or both. The idea is that they are trading more than objective opportunity (and their trading rules) would normally dictate. I was recently asked about the personality traits that are responsible for overtrading. While there are indeed personality factors that affect risk assumption and aversion, my experience is that the main cause for overtrading has nothing to do with personality per se. Rather, traders overtrade because they are trying to make a living from relatively small account sizes. They cannot trade large and thus cannot make much money per trade, so they hope to compensate by trading more often. It's a clear road to ruin.
* Markets Anticipating More Volatility? - Adam Warner sees a persistently high VIX, higher than one would normally expect given the recent rally. This fits with my earlier stated scenario of a volatility bottom during 2006, not unlike how we came out of the 1994-5 period with rising prices, but also rising volatility.
* Looking for the Wrong Solution? - A recent NYT article examines doubt that a Fed cut in short-term rates would address the underlying concerns about credit. Indeed, Mish finds a lot to be skeptical about in all the housing bailout proposals. Abnormal Returns links several articles that offer perspective on the housing situation, including a skeptical look at the President's proposal. Barry Ritholtz, in his weekly review, also finds several articles expressing doubts about the efficacy of Fed easing in this situation, including an interesting look at what happens to stocks when the Fed makes an easing step after a period of tightening.
* Trader Mike Strikes Again - Lots of good updated links from Mike, including a look at how the mortgage situation could affect advertising revenues for GOOG and others. See also Mike's link to the interesting (and skeptical) Economist.com story on Google's growth.
* How Will the Election Affect Stocks? - A Dash of Insight is beginning a look at the stocks that would benefit under various election scenarios. Here's the Election Stocks site.
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* Markets Anticipating More Volatility? - Adam Warner sees a persistently high VIX, higher than one would normally expect given the recent rally. This fits with my earlier stated scenario of a volatility bottom during 2006, not unlike how we came out of the 1994-5 period with rising prices, but also rising volatility.
* Looking for the Wrong Solution? - A recent NYT article examines doubt that a Fed cut in short-term rates would address the underlying concerns about credit. Indeed, Mish finds a lot to be skeptical about in all the housing bailout proposals. Abnormal Returns links several articles that offer perspective on the housing situation, including a skeptical look at the President's proposal. Barry Ritholtz, in his weekly review, also finds several articles expressing doubts about the efficacy of Fed easing in this situation, including an interesting look at what happens to stocks when the Fed makes an easing step after a period of tightening.
* Trader Mike Strikes Again - Lots of good updated links from Mike, including a look at how the mortgage situation could affect advertising revenues for GOOG and others. See also Mike's link to the interesting (and skeptical) Economist.com story on Google's growth.
* How Will the Election Affect Stocks? - A Dash of Insight is beginning a look at the stocks that would benefit under various election scenarios. Here's the Election Stocks site.
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Monday, June 04, 2007
Brett Steenbarger's Appearance on NBC Today Show
Just a quick note to let you know that I'll be part of an NBC Today Show segment on personal finance on Thursday, 6/7/07 at the 7:30 AM hour. Today's Jean Chatzky has done a fine job of addressing the psychological challenges faced by investors trying to navigate their way to retirement. Interestingly, many of these challenges are similar to those faced by active traders, particularly with respect to the need to cultivate self-efficacy. In upcoming posts, I hope to elaborate on the Today segment to further address the need for investors to take control of their finances and craft a secure retirement. At a time when Social Security appears to be less than secure and baby-boomers are hitting those retirement years, it's a crucial topic for those working Americans who will be supporting the system.
Thursday, July 24, 2014
The Single Best Predictor of Sustained Trading Success
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 horizons. A 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
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