Sunday, April 08, 2018

Making the Most of Your Internal Dialogue

A recent post suggested that our trading success is highly dependent upon our ability to leverage our information processing strengths.  One of our most basic modes of processing information is our internal dialogue:  the self-talk that we engage in throughout our waking hours.  It turns out that the quality of our internal dialogue is a critical element of our information processing.  It's only rarely, however, that we work on improving our self-talk.

Now, on the surface, it makes little sense that we talk with ourselves.  Why write ourselves memos and calendar reminders?  Why review plans in our heads or comment to ourselves, "Good job!" or "What were you thinking?"  How is it that we interact with ourselves as we would interact with others?

The answer is that we possess at least two information processing systems.  One is a fast, reactive system that helps us respond to situations in real time; the other is a slower, deliberate system that enables us to see larger pictures and plan for those.  Both are necessary for dealing with the real world.  We want to be able to plan a strategy for a football game, but we want to react quickly to changing conditions on the field.  Coordinating our two "brains" is a key element in performance success.

Imagine being in a self-driving vehicle.  It reacts to obstacles and traffic changes faster than we could.  There's only one problem.  It doesn't know where to go.  We have to program the destination information.  We have to align the fast, reactive mode with a bigger picture.  When we talk to ourselves, we program our GPS; our slower, deliberate, rational mind communicates with our quicker, reactive, pattern-recognizing mind.

Trading journals are a form of internal dialogue.  Our overt self-talk during the trading days is a form of internal dialogue.  Step back for a moment and think about you talk to yourself during the trading day.  How well are you programming your GPS?

A key piece of progress for many traders is turning their pre-market preparation into active, effective internal dialogue.  That is a major factor in transforming good intentions into concrete, actionable plans.  Imagine planning for the day by reviewing recent market behavior, dominant market themes, news events: out of those you generate a view that you will trade if you see it playing out.

That is well and good, but now imagine going an extra step and generating *multiple* scenarios and laying out plans for each.  Then, as you walk through the new day, you update each scenario and flexibly move to the ones that are displaying higher odds of playing out.  That gives you more ways to win.

But now take it a further step and imagine not just writing out the multiple scenarios, but actively talking them aloud with a peer trader, responding to feedback about the scenarios, and listening to your subsequent dialogue.  Still further, imagine taking your scenarios and actively *talking to yourself aloud* about those, saying to yourself, "Brett, if you see X occur, you need to be doing Y.  If you see A occur, you need to shift your thinking to B...etc".  Imagine talking to yourself with real feeling about those plans, the way a coach on the sidelines would talk to you.  

We retain information better when we encounter it multiple times.  We retain information better when we encounter it in multiple, different ways.  We think it, write it, discuss it, talk it to ourselves with feeling--all of these help the programming of our GPS.  

The speed and quality of self-talk is something I see among successful traders:  they are very good at programming themselves and quickly changing their programs.  This is something I'll be discussing in detail during Wednesday's free webinar.

Further Reading: