Wednesday, July 18, 2007

The Trader Coach Project: Changing Behavior Patterns

In the last post in this series, I outlined how Trader C and I redefined the concerns that brought him to coaching. We targeted three specific positive trading behaviors that he wanted to implement with consistency--his trade size, stops, and profit targets--and reduced the size of his longer-term positions to reduce the pressure from the intraday risk management (loss limits) at his firm. We also set up a structure by which he could grade himself each trading day on these three dimensions of improvement.

A good coach leverages the existing strengths of a trader. It turns out that Trader C has experience with meditation and utilizes it with some regularity. This provided us with an opportunity to adapt his meditation to our three goals. What I suggested is that he engage in his meditation routine--breathing deeply and slowly, keeping his mind focused--but that he *vividly* imagine himself trading and doing the things he needs to do to achieve an "A" grade in regulating his size, placing/honoring stops, and setting/following profit targets. Each day for 15-20 minutes prior to the trading session, Trader C's homework was to stay focused on different market scenarios--winning trades, losing ones--and visualize how he would handle each of these in order to give himself that "A" grade.

Such visualization, combined with relaxation and increased focus, provides repeated experience for the trader to cement the positive patterns. By mentally rehearsing his desired trading behaviors, he accelerates the building of positive habits through repetition. Moreover, by vividly imagining a variety of market scenarios for mental rehearsal, he facilitates the generalization of his positive behaviors to almost any situation he's likely to face.

A key aspect of this generalization is that I asked Trader C, during the trading day and prior to making any trading decisions, to consciously take just a couple of deep breaths before acting. The idea behind this is that he will be building an associative link between the focused, relaxed state and his rehearsed, positive trading. (See my Psychology of Trading book for a more detailed discussion of the role of state shifts in behavior change. The Enhancing Trader Performance book includes two chapters devoted to the how-to's to cognitive and behavioral change methods). By taking a moment to get himself calm and focused prior to making a trading decision, Trader C can improve his access to the "A" grade trading practices.

During the past week, Trader C largely earned "B" grades and better. Interestingly, it was a very good week for his trading and his annual equity curve hit a new high. The goal of our work is to turn his best trading into habit: to make it automatic. There's no need for "motivation" and "discipline" when positive behaviors are internalized and made routine.

In my next post, we'll follow up on Trader C's progress--including challenges he continues to face--and how we address those.


Accelerating Behavior Change With Imagery