Saturday, July 16, 2016

Trading Psychology for the Experienced Trader

A problem with much of the theory and practice of trading psychology is that it is grounded on the experience (and issues) of retail traders and relative newcomers to markets.  I suppose that's inevitable, as a sizable proportion of writers and practitioners have not actively traded themselves and many have not routinely worked with trading and investment professionals.  A result of this limitation is that much of trading psychology focuses on such issues as controlling one's emotions and following a defined process.  Those are important issues to be sure.  But limiting trading psychology to those is like limiting the coaching of baseball to holding a bat properly and getting in front of ground balls before fielding them.  Great stuff for the noobs, but not exactly what the experienced, successful folks are working on.

Here are a few areas of trading psychology that I find to be of much more relevance to traders well along their developmental paths:

1)  The cognitive side of trading - How do you process information most efficiently/effectively and how can you refine your market preparation to better leverage your information processing strengths?

2)  The epistemological side of trading - How can you most effectively integrate quantitative data on markets (predictive models) with an experienced feel for markets?  How can you best blend analysis and intuition?

3)  The tactical and strategic sides of trading - How can you quickly identify when markets are changing and adapt to those changes?  How can you stay true to how you trade without becoming so inflexible that you become a dinosaur when markets evolve?

4)  The personal side of trading - How can you best manage your personal life and maximize your experience outside of trading so that you are best able to maximize your focus and energy while you are trading?

In my book, I refer to an ABCD focus:

*  Adapt to changing markets
*  Build on cognitive and personality strengths
*  Cultivate creativity
*  Develop best practices and processes from your successful experience

I find that difficult periods of trading offer the greatest opportunities to work on these areas.  Most of the time, trading is difficult because we have not sustained that ABCD focus.  Somewhere in the cognitive, epistemological, tactical/strategic, and personal sides of trading, we're not making the most of our strengths.  That becomes our path for development.  The expert sailor has learned from stormy seas:  skill development is one of the most powerful paths to psychological development.

Further Reading:  The Single Most Important Trait of Successful Traders