Wednesday, November 12, 2008

Self-Coaching and The Sound Training of Traders

As we saw in the recent post, sustaining sound decision making during the heat of battle can be a major challenge for traders. Many traders try to correct that situation by writing in journals or simply by vowing to do things differently the next time. When the next time arrives, however, they are in a completely different state of mind and body and end up making the same mistakes. Working on decision-making under stress while you are cool and calm is not effective; you can't learn to operate under pressure unless you rehearse proper trading practices while you are under pressure.

This is why sports teams scrimmage as a form of practice; why military troops drill under battlefield conditions. If there is a single principle that governs sound training, it is this: rehearse skills under progressively realistic conditions. Talking with coaches does not, in itself, change traders. What changes traders is the right kind of experience in "the heat of the battle". Training builds trader mindset; no amount of mind games--in Olympic sports, elite military, chess, or performing arts-- can substitute for learning by doing.

When you are functioning as your own trading coach, you are also acting as your own trainer. You are creating a directed program to train yourself to perform more effectively under given sets of emotional and market conditions. This is why so many traders fail to change their behaviors, despite the best of intentions. They operate as if a coaching session--with self-talk or journal entries--can correct their problems, when what they really need is an ongoing process of training.

So how do you train yourself to operate in the heat of trading? A very effective technique is to dedicate at least 15 minutes each day before the start of trading to guided imagery work. In this exercise, you recreate in your mind as vividly as possible actual situations that have triggered your worst trading behaviors. For example, let's say that missing a market move has triggered frustration for you, leading you to chase trends and execute trades with very poor risk/reward. You would want to keep yourself relaxed and focused, sitting still and breathing deeply and slowly, while you vividly imagine missing a market move.

The key word in the above is "vividly". You want to picture the market running away from you without your being on board. You want to imagine the frustration you feel in that situation and the thoughts that go through your head. Most of all, you want to summon that feeling of wanting to jump into the market to make the money that you missed out on. All the while, during this imagery work, you are keeping yourself physically still and calm, with the help of deep breathing.

This is where I find biofeedback to be especially helpful. When you're connected to a biofeedback unit, you can actually monitor your body's level of arousal, so that you're able to keep yourself cool physically, even as you're mentally rehearsing scenarios under the heat of battle. (I will post a biofeedback linkfest to the new blog shortly, for readers who are interested in making use of this technology).

Once you've been successful in recreating those thoughts and feelings associated with your problematic trading, you want to imagine just as vividly how you would like to respond to those situations. So, for example, if perfectionism is leading you to feel pressure because you missed a market move, you would want to visualize yourself feeling the desire to jump into a "revenge" trade, reminding yourself that this has lost you money in the past, stepping back from the screen, telling yourself that there is plenty of future opportunity, patiently waiting for your next setup, and executing that next trade with a clear mind and favorable risk/reward.

What you're doing with the above exercise is training yourself to stay calm, focused, and disciplined while you're immersing yourself in stressful trading scenarios. The key to success is repeating this exercise, varying the details of the scenarios, every day before you start trading until the thoughts and behaviors you're rehearsing become second nature. It's not at all unusual for this to take a month of daily work, devoting at least 15 quality minutes to the exercise. Remember: this is training and no one trains themselves for performance events overnight. The time you devote to reprogramming your responses to trigger situations, however, is an investment that will yield impressive returns throughout your trading career.