Sunday, December 27, 2020

What Distinguishes Professionals From Amateurs

I see some traders tackle markets for years and never achieve even basic competence.  Then I work with others that achieve unusual success in their first years.  What makes the difference?  Yes, work ethic and skill/talent sets matter quite a bit, but what increasingly hits me between the eyes is the difference in the learning process between amateurs and developing pros.  Here are two of those differences that make a difference:

1)  Professionals keep score - Can you imagine a weightlifter who doesn't track how much they're lifting, how many reps they're doing, which muscle groups they're working, how much body mass they're adding?  Conversely, consider the golfer who uses sensors and apps to track their golf swings, identifying details of what they're doing right and wrong on various courses and holes.  Pro basketball teams review game film in agonizing detail; amateurs leave the game behind once they leave the court.  In trading, we can easily keep score, with performance stats ranging from how much heat we take on a trade to how much we make and lose for various types of trades.  What amazes me is that, when traders keep score, they learn about strengths and weaknesses in ways that they do not when they just review their weekly or monthly P/L.  As I recently shared in my article on building your personal process, I have been using the Fitbit Sense and MuseS units to track my sleep, exercise, stress levels, focus, and much more.  To my surprise, I might think that I'm calm and focused, but all the data sometimes tell me otherwise!  By constructing daily exercises and keeping score, I'm getting better and better at my own trading psychology.  If a psychologist needs to keep score to improve mindset, the odds are pretty good that most of us could benefit.  :)

A couple of tools for tracking performance and keeping score are TraderVue and Edgewonk.  What I find with the successful developing SMB traders is that how they use such tools makes all the difference.  When the score keeping leads to small, steady, consistent improvements in trading, the result is an amazing improvement in trading consistency.  Once that consistency is achieved, sizing can be increased without undue downside exposure.  The traders that simply track P/L and state global goals ("I need to eliminate my overtrading") simply do not make the detailed improvements that lead to consistency.

2)  Professionals emphasize logistics - An amateur plans a surprise attack on the enemy; a pro works out the details of how troop movements will be hidden, how to deliver timely air support, where to achieve quickest exit from the battle area, etc.  Similarly, amateurs talk about "setups".  Professionals identify precise ways to gauge real time price movement shiftsorder flow and sentiment to achieve superior reward relative to risk.  Professionals have different ways to trade different kinds of markets; amateurs approach the market with a one-size-fits-all mentality.  Tools such as Market Profile (volume traded at each price level and the distribution over time); Delta (volume traded at market offer and bid prices through the day); and anchored Volume-Weighted Average Price enable traders to take good ideas and turn them into great trades.  Brian Shannon's work on tracking opportunity across multiple time frames is an excellent example of how logistics make the difference between a successful tactic and an unsuccessful one.  Mike Bellafiore's work on "playbooks" also illustrates how work on trading logistics can become part of a robust trading process.

There will always be "gurus" who want to tell you that there are easy ways to make money in markets or that success can be found in chart patterns or mindsets.  The simple truth is that if the majority of traders pursued *any* performance field without keeping score and building logistics, they would fail.  Every professional starts as an amateur.  It's how they work on their craft that makes all the difference.

As we count down the wild year of 2020, I would like to wish all readers a happy, healthy, and successful 2021.  With fewer but more in-depth blog posts and Forbes articles and trading coach videos to support the ideas, my hope is to provide traders with the largest repository of free trading psychology materials in the world.  The great traders don't have a passion for trading; they have a deep and sustained passion for self-improvement.  Markets are simply the canvas upon which they paint their masterpiece.

Further Resources:


Sunday, December 20, 2020

How To Sustain A Peak Performance Mindset

This week's Three Minute Trading Coach video tackles the topic of "personal process" and what it takes to become more consistent at managing ourselves and keeping ourselves in peak performing condition. So what goes into a personal process?  The most recent Forbes article introduces the idea of "holistic development", in which our self-management pursues multiple areas of growth, creating powerful synergies.  Instead of setting different goals each day and never really working on any areas in a deep, ongoing way, we can turn personal development into a true personal process, where we work on key areas of growth day after day.

The idea here is that we can develop a peak performance mindset the same way we develop peak performance in trading.  Working with traders at SMB Capital, I've been impressed by the pace of trading success among developing traders who consistently keep score in their trading, track what's working and what's not, and make small but steady improvements in what and how they trade. These traders consistently review which trading ideas are working and which aren't; which times of day are most and least profitable; which ways of managing positions are working best; and so much more.  It's in collecting all this information through platforms such as Tradervue that traders can develop by making consistent efforts to do more of what works and change what's not working. 

When we make these steady, successful efforts at improvement, we generate a positive mindset based on growth.  In that peak mindset, we are energized and most likely to see and act upon opportunity.  I recently spoke with a trader who perceived opportunity in the late-day trading when TSLA was added to the S&P 500, but did not act on the opportunity because of fatigue and fear of loss.  When we are in peak performance mode, the sense of impossible becomes a mindset of "I'm possible", helping us take advantage of current opportunities and perceive emerging ones.

The same scorekeeping that works for developing traders can also anchor our personal processes.  In the coming year, I will be working intensively with Fitbit and Muse to collect data on my stress levels, focus, fitness, sleep quality, and much more.  That information will help me tailor eating, sleeping, exercise, work routines, and social activity to maximize positive emotional experience, energy, and productivity.  My hypothesis is that the resulting increased well-being will spill over to a variety of life areas, from trading to personal relationships and professional ones.

Many traders want to work on their psychology by reducing negative emotional experience.  There is an entire horizon of development that they miss by not maximizing their mindsets and creating a peak performance lifestyle.  The process that creates trading success is the same one that fuels life success.  We have the tools available to turn excellence into a lifestyle.

Further Resources:


Sunday, December 13, 2020

What Are Your Goals For 2021?

I recently offered a Three Minute Trading Coach video on the topic of setting effective trading goals.  Now that we're wrapping up the challenging 2020 year, it's only natural to think about goals for the year to come.  Here are several pitfalls that I'm observing among the traders I'm speaking with:

1)  Exhaustion - A number of traders understandably just want this year to be over with.  After the pandemic, crazy political gyrations, and shifts in market themes, many traders simply want a break.  Indeed, taking time off at the end of the year and renewing energy and focus is itself a worthwhile goal.  The risk, however, is that we so focus on the needs of here and now that we don't formulate powerful visions and goals for the coming year.  Once we've rejuvenated, it's important to perform a thorough review of the year, identify clearly what you did well and what needs improvement, and then set specific plans for growth in 2021.  Perhaps you want to expand the opportunities that you pursue in markets; perhaps you want to refine your network of colleagues to generate better discussions and ideas; perhaps you want to grow your risk-taking:  defining specific goals that excite and scare you will provide you with energy to tackle the new year.  The right goals and goal-setting *gives* energy.

2)  Setting Narrow P/L Goals - While 2020 was a difficult year for many people personally, it in fact has been a profitable year for many traders, especially shorter-term traders that benefit from expanded volatility and the speculative flows that have entered the stock market.  I'm working with quite a few traders who have had record years in 2020 and phenomenal monthly returns in November, as SMB recently shared.  It is only competitive human nature to want to build upon such performance and define even more lofty performance goals.  This can be a trap, however.  We don't know what the market environment for 2021 will be.  Could we have known in December, 2019 what 2020 would bring?  If we increase our risk-taking in the wrong environment, we could expose ourselves to quite a setback.  This is why setting process goals is more important than setting absolute P/L goals.  (See the upcoming Three Minute Trading Coach video on setting process goals). 

3)  Setting Goals Without Setting Up Plans and Procedures - As the saying goes, a goal without a plan is merely a wish.  I see many traders setting lofty goals--and then providing no detail about how, specifically, they will pursue those goals.  Here's an important principle:  if you are really serious about your goals, you are doing something *every day* to pursue those goals.  If our goals aren't alive daily, then they are nothing more than good intentions.  If your goals are worth pursuing, they should be alive and active every single day.  That is true for your personal goals just as much as your trading goals.  Many traders are great at setting goals and not so great and keeping those alive day to day.  It's the daily work on goals that helps us internalize new attitudes, behaviors, and skills.

One more observation, this also based on my observation of the traders at SMBI'm seeing huge growth in trading skills, experience, and profits when the right traders team up with one another.  When traders with different skills and perspectives but similar trading styles share ideas, everyone makes everyone else better.  Proof of that has been that some of these team efforts have led to joint trading books among the SMB traders, where the positions come from the independent thinking of two or more collaborating traders.  When multiple smart people who do good research come up with the same idea independently, the odds of them all being wrong are pretty small.  Those joint books have been phenomenally consistent and profitable.  In 2021, you might ask the question:  Who can I team up with to make them better and to make me better?  Great things can happen when we approach trading as a team sport!            

Further Resources:


Sunday, December 06, 2020

How To Overcome Self-Critical Thinking and Tilt Trading

For many traders, their greatest enemy is the harsh self-criticism they heap upon themselves after losing money or missing opportunity.  Self-criticism occurs when we channel normal and natural frustration (which any competitive trader is apt to feel from time to time) as anger directed toward ourselves.  When we turn our frustrations against ourselves as anger--telling ourselves that we're no good or not good enough, that we'll never succeed, that others are doing so much better than us--we create emotional distractions and a loss of focus that can only lead to subsequent poor trading.

If you read through the most recent Forbes article, you'll notice an interesting set of findings:  Leadership and management work best when they are expressed through positive people skills.  Being a caring leader or manager is just as important as being a tough and challenging one.  Tapping into the goals and visions of others is just as important as projecting organizational goals.  Caring about people brings out the best in people.  That is true at work, and it's certainly true in our home lives.

So why should it be different in managing ourselves and our trading careers?

We channel frustration as anger when we make losing unacceptable.  If losing is a threat and a failure, then the aggressive, competitive parts of ourselves will turn against us.  It's a great example of how we can take a strength too far and turn it into a vulnerability.  The only way we can balance that aggressive and competitive strength is to balance it with a very different strength:  self compassion.  Just as we would empathize with another trader who goes through a difficult trading period, we want to be able to empathize with our own situation during inevitable periods of drawdown.  

This is why I emphasize the importance of treating losses as potential learning lessons and actually *embracing* them in our reviews.  From the vantage point of deliberate practice, setbacks are the very fuel of growth.  If we are coaching ourselves, we want to be our greatest support systems--especially during difficult times.  It works in the management of organizations, and it works in our self-management.  We can overcome self-critical thinking by replacing it with constructive thinking--and we can turn constructive thinking into a positive habit pattern by developing sound review processes.    

In my upcoming Three Minute Trading Coach video, I will describe a centuries-old technique for cultivating self-compassion and defusing self-directed frustration.  

One more thought, however:

Trading on tilt is often not a primary trading problem, but a reaction to a deeper, underlying problem.

We typically go on tilt after a setback in our trading ignites our frustration and our frustration ignites anger and a very negative sense of ourselves.  We go into overtrading/tilt mode to try to make the money back, and we try to make the money back to try to restore our emotional equilibrium and feel better about ourselves.  

In psychodynamic terms, tilt trading is a defense.  It's a way of attempting to ward off damaging self-criticism triggered by losses and missed opportunity.  Of course, such trading on tilt only deepens the losses, leading to serious emotional setbacks.  

If we want to eradicate tilt trading, we need to balance that aggressive drive to win with an equally assertive sense of self compassion.  Once in balance, we can channel frustration in ways that enhance us and further our learning in markets.  It sounds strange, but drawdowns can be gifts, teaching us something about markets, something about ourselves, something about our trading ideas, something about how we trade those ideas.  The goal is not to avoid loss; the goal is to keep learning and get better and better and better.

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