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.