Sunday, July 26, 2015

Why We Fail To Trade Our Plans After We've Planned Our Trades

A reader recently asked the question of why we so often don't trade our plans after we've gone to the trouble of planning our trades.  The usual answer to this question is that emotion gets in the way, which naturally leads to strategies for yet more planning, "discipline", and the dampening of emotion.  As an interesting article on motor sport makes clear, however, it may well be that we lose our plans when we lose our concentration.  Instead of working to control emotions, it makes sense to cultivate expanded levels of focus.  After all, an athlete can be fired up emotionally *and* wholly focused on the game:  emotion can facilitate performance.  Indeed, it's the football or basketball team that comes to the game "flat" that is apt to fall short in performance.  Quite literally, their heads are just not in the game.

In the aforementioned article, the author speaks of "concentration styles".  This is a very useful concept.  Not all people focus in the same ways.  For example, I work with extroverted traders who are very skilled at processing information interpersonally.  When they are at the trading desk, sharing ideas with others, they are in their zone.  Alternatively, I also work with more introverted traders who are very skilled at analyzing situations in markets.  They concentrate best when they tune out chatter from others and place themselves in a quiet environment.

Concentration benefits from a distraction-free environment, but sources of distraction vary as a function of concentration style.  If internal cues (stray thoughts and feelings) are distracting, staying socially focused can facilitate good decision-making.  If external stimuli (sights, sounds) are distracting, staying in a neutral environment can be most helpful to performance.  For a visually oriented trader, focusing on charts and other visual displays could yield superior information processing.  That would not be the case for many quantitative traders.

In short, we fail to trade our plans when we lapse in our concentration, and we lapse in our concentration when we stray from our information processing strengths.  When we exercise those strengths, we strengthen them further.  In that sense, focused trading can become excellent training for our concentration.  Conversely, when we approach trading in a haphazard manner, we fail to cultivate our ability to focus and become easily swayed emotionally.  I've never known a trader operating "in the zone" who has complained about emotional disruption.  Show me an Olympic champion and I'll show you someone emotionally charged *and* performance focused.  

Further Reading:  The Key to Making Changes:  Training the Brain for Performance