Thursday, September 08, 2016

Three Techniques for Building Positive Trading Patterns

In the last post, we took a look at negative patterns that impact trading and how we can disrupt them and gain greater control over decision making.  But what are some ways of building positive patterns for ourselves?  When I assembled a cookbook of time-tested self-help strategies for traders, three approaches stood out:

*  Behavioral - Here we teach ourselves strategies to enhance our focus and to slow ourselves down physically.  Meditation can be very helpful for this, as can relaxation exercises, especially when paired with biofeedback.  The idea is that we learn to sustain states of mind and body that are incompatible with the fight-or-flight responses of stress.  When we slow down our bodies and focus our minds, it is very difficult to overreact to situations and make impulsive decisions.  In the calm, focused state, it's also easiest to view our situations from a different perspective, as in the cognitive approach below.  An advanced behavioral method is exposure therapy, in which we expose ourselves to stressful situations (either in real life or through vivid imagery) while sustaining our calm, focused state.  This helps to literally reprogram our emotional responses to situations, which is very helpful in dealing with performance-related stresses.  

*  Cognitive - As the Aurelius quote above illustrates, the cognitive perspective on stress is that it is our interpretations of events--and not the events themselves--that turn normal trading stress into the kind of distress that could impair our decision-making.  In cognitive work, we use journaling and other methods to become better observers of the habitual thought patterns that can interfere with sound performance.  Some of us have learned perfectionistic ways of thinking; others have learned worry patterns or overconfident ways of processing information.  When we use a journal (or meetings with a coach) to think about our thinking and actively challenge non-constructive thought, we unlearn those distorted ways of viewing situations and can learn to replace them with more helpful self-talk.  Cognitive exercises can also be used for brain-training:  developing greater resources for willpower and purposeful behavior.

*  Solution-Focused - In behavioral and cognitive methods, we learn to change negative patterns that interfere with trading.  Solution-focused methods come at self-development from the opposite angle:  identifying occasions in which we are *not* experiencing problems and looking to those occasions for what we're doing right.  Often, when we're performing at our best, it's because we're drawing upon our best practices and our greatest strengths.  What are we doing when we're managing risk well, following plans effectively, adapting to market changes, and generating great trading ideas?  In reverse engineering our successes, we can often find the solutions to the problems that impact our current trading.

Of course, these three approaches can be integrated very easily.  For instance, we can mentally rehearse our best practices (solution-focus) in our calm, focused state (behavioral) and then imagine ourselves using those best practices in challenging trading situations (cognitive).  That would help turn those best practices into our best routines.  There is so much more to trading psychology than writing in a journal and telling ourselves to be more disciplined or more attentive to our gut.  It is through behavioral, cognitive, and solution-focused methods that we can truly become our own trading coaches.

Further Reading:  Every Great Trader is a Player-Coach