Sunday, September 06, 2015

Taking a Fresh Look at Your Trading Performance

The recent post described the most important characteristic of successful traders, illustrating one important difference between what I call Trading Psychology 2.0 and the traditional understanding of the relationship between trading and psychology. 

Another distinguishing theme in the new trading psychology is a reflection of the new directions that psychology itself has taken in understanding the positive dimensions of personal experience.  This positive psychology movement emphasizes the importance of happiness, life satisfaction, relationships, and energy level in our quality of life, health, creativity, and productivity.  Much of the blog I write for Forbes is an application of positive psychology to the world of finance and business.

The old version of psychology started from the premise that people have problems and the role of the psychologist is to help people understand and overcome their problems.  This is so ingrained in psychology that professional psychologists need to identify people's problems with the use of a Diagnostic and Statistical Manual in order to qualify for insurance reimbursement.

The new, positive psychology begins with a very different premise.  Each of us possesses signature cognitive, emotional, and interpersonal strengths.  Our fulfillment and success in life is a function of the degree to which we operate within the zones of those strengths.  When a person does not live or perform optimally, it is not necessarily a sign of an underlying disorder or set of conflicts.  Rather, that person may be unaware of their strengths or unable to consistently access them.

This has important implications for trading.  It is not at all unusual for a trader, frustrated with losing money, to seek underlying causes for their trading woes: everything from self-esteem deficits to mood problems.  They focus on these alleged problems and find little benefit in their trading.  Becoming more self-focused doesn't help one become better market focused.

When a trader is losing, the important question from the perspective of the new psychology is:  Do you show objective evidence of aptitude as a trader?  If the answer is no, all the psychological exercises in the world will not substitute for talent and skill.  If the answer is yes, then the question becomes:  What is the source of that aptitude?  What strengths are you engaging that provides you with an edge in financial markets?  How do you best access those strengths under various market conditions?

In other words, instead of placing a sole focus on your trading mistakes, you are intensively studying your successes.  You want to understand--deeply--how you operate when you are at your best.  If you can reverse engineer your successes, you have an opportunity to crystallize those into best practices.  If you have best practices, you have an opportunity to weave those into best processes.  

The goal is not simply to solve your problems, but to help you understand and be more consistent with your successes.  

If every day, you focus on your troubles and coping with those, you'll internalize the sense of being a troubled trader.  If you start with the idea that sometimes you are a great trader, then your goal becomes a positive one:  to understand that great trader as best you can and become ever better at being that person you already are when you're at your best.

Further Reading:  Positive Principles of Performance