Saturday, December 30, 2017

Overcoming the Triggers to Poor Trading

I've been doing quite a few end of year reviews with traders I work with.  Here is an example of something a trader might say as part of their review:

"I took too many trades this past year and didn't make the most of my best ideas.  I need to limit my number of trades in 2018 and size up my best ones."

That's great as a goal.  The question remains:  How are you going to make these changes?

There is much more to changing behavior patterns than simply stating goals.  Goal setting is only one step in the change process.  Creating a plan for making the change comes next.

Where traders fall short in planning is that they view their poor trading as *the* problem, when it almost always is the result of an actual problem.  If the trader is taking too many trades, the question becomes:  What triggers this pattern of overtrading?

It's the triggers that are the actual problems.

This is a key insight.

Here's another crucial insight:  Your best trading occurs in a distinctive state of mind and body.  Trading well is state-dependent.

Triggers sabotage trading by nudging us out of our ideal states for processing market information.

When we become frustrated or bored or distracted, we enter a different cognitive, emotional, and physical state.  In that new state, we often process information reactively, impulsively.  This is true whether we're in a heated marital argument, driving in heavy traffic, bored in a slow market, or feeling the pressure of performance on the final hole of a golf tournament.  The situation triggers a state-shift and that colors what we do and how we do it.

So back to our trader who wishes to overcome overtrading.  Good intentions and efforts at "discipline" won't cut it.  What is needed is a careful analysis of the situations that are triggering the overtrading, so that these can be anticipated and intercepted.  If I know that a losing trade to start the day can trigger fear and negativity and prevent me from properly acting on subsequent opportunity, then I can develop a routine for constructive self-talk after any early loss.  

In other words, we first become good at identifying our triggers and then we progress by pausing from what we're doing to reset our mindframe and return to the state in which we do our best trading.  Your edge in markets is never *just* your ideas and research.  Your edge is also your ability to clearly see those ideas play out and act upon them in the right way.  The right state of mind might not be sufficient for winning in markets, but it is necessary.       

Our triggers distract us from our best ideas and taking advantage of these.  Truly, we cannot accomplish big things if we're distracted by little things.  When we fear our triggers more than we fear missing market movement, we've taken a huge step toward gaining self-control and consistency in our trading.  There are skills we can learn to intercept triggers and state shifts and rapidly bring ourselves back to our trading equilibrium.  Developing those skills is one of the most powerful plans we can create for supercharging performance in the new year.