Monday, February 09, 2015

The Greatest Psychological Mistake a Trader Can Make

When you take a look at a trader's journal, what do you typically see?  Many traders use journals to document the mistakes they make, often venting about the problems they are having.  In such cases the journals are little more than listings of problems that the trader has encountered.  It's the rare journal that takes the next step and turns the identification of problems into the creation of concrete, practical goals.

The greatest psychological mistake a trader can make is to stay problem focused.  By devoting attention to problems only, traders reinforce the notion that they are beset with problems.  It is important to address shortcomings in trading, to be sure, but if all you do is focus on problems, you miss out on the most important part of your development--all the things that you do right!  Elite performance is not simply a function of minimizing our weaknesses.  It is an outgrowth of our strengths.  We become successful by leveraging our talents and skills, not just by making fewer mistakes.

A little while ago, I conducted a review of my winning and losing trades.  The best predictor of whether one of my trades was successful surprised me:  it was the length of time since I had placed my previous trade.  When more time had elapsed between trades, it meant that I had waited for everything in my research to line up.  Those tended to be the most profitable occasions.  When I carried a pre-existing view to the next trade and did not wait for the view to emerge from the research, the trade was much more likely to fail.  Patience was a key, but it was more than patience at work:  I trade best when I truly understand what markets are doing.  My strength, as both trader and psychologist, is the capacity to understand.

I recently began a new blog for Forbes which will focus on specific psychological techniques for identifying and maximizing our strengths.  A wealth of research in the field of positive psychology provides us with tools and techniques for leveraging what we do best.  Addressing our mistakes and problems is great.  We can equally learn from what we do well in markets.  Who are we when we are trading well?  What are the best practices that lead to our best trades?  

When we reverse engineer our wins, we discover a blueprint for ongoing success.  I think you'll find the new blog to be a useful toolkit for self-coaching.

Further Reading:  The Source of Trading Success