Tuesday, January 19, 2010

How to Become a More Consistent Trader

"How could I have traded so poorly?" a trader recently asked me. Looking back on his performance, he was shocked to see that he had made the most elementary, rookie mistakes.

"I prepared; I knew I wanted to buy if we held the lows. Why was I selling the market?"

What the trader didn't appreciate was that he prepared for the day in one state of mind, but was trading in quite another state. What he knew in one frame of mind flew out of his head once his state shifted.

Although we talk about having a "self" and experience the world in a continuous fashion, our actual experience consists of a number of discrete states. We face the world in one manner when we're energized and tap into an array of thoughts and behaviors. When we're bored, we face the world quite differently, entertain very different thoughts, and engage in quite different behaviors.

It's true of all of us: to some degree we possess "multiple personalities". I'm one kind of father when I'm happy and patient; quite another when I'm frustrated. The thoughts and feelings I experience when I'm alone walking in a forest are quite different from those when I'm commuting to work or managing a trade.

From Enhancing Trader Performance:

"The fact that we experience continuity in the self and yet can be so fragmented is the source of many of our emotional difficulties--and most of the problems we encounter in trading. Because of our sense of continuity, we identify with the states we are in; each, we think, is a reflection of reality...Quite simply, the 'me' in us--our sense of who we are--is stronger than our 'I'--our ability to intentionally guide our actions. To the extent that we are divided, we do not have a fully free will. We are at the mercy of environments and events and what those trigger in us" (p. 184).

So how do we increase our unity, our ability to sustain intention?

One powerful technique is to visualize the actions we wish to take *while evoking the emotional state that we are likely to be in*.

In other words, if we want to improve our consistency in honoring stop-loss levels, we should mentally rehearse stopping out of a trade while vividly imagining a market moving against us, evoking all the thoughts and feelings of being in a losing trade.

If we want to raise our trading size, we should mentally rehearse putting the larger trade on, while evoking all the uncertain thoughts and feelings of taking more risk.

Calmly talking about how you will handle stress doesn't help you in the heat of the action. You have to evoke that heat and *then* rehearse how you'll cope.

It is amazing how consistent you can become if you just rehearse your skills in the state of mind and body that you will be in during game time.