Saturday, February 27, 2021

Three Ways To Improve Your Trading--And Your Trading Psychology

Here are three things you can evaluate right here, right now to help your trading and improve your trading psychology:

1)  Look at how much heat you take on your trades relative to how much they move your way - In other words, examine each trade you place and see how far the position went against you during the life of the trade and how far it went in your favor.  This tells you if you are truly achieving good reward relative to risk in the execution of your ideas.  If you tend to undergo meaningful downside before positions work for you, how might you refine your entries?  Studying what would have been more optimal entry points will help you reduce downside during your trades and that promotes a sense of mastery.  On the other hand, if you tend to take little heat on your trades, are you sizing up positions adequately when you do enter?  Might it make sense to size the entries larger and scale out of positions as they go your way, creating more consistent and larger profitability?  That can help our psychology as well.

2)  Look at the productivity of the time you spend when you are *not* trading - There are many junctures during the trading day and week when opportunity is slim.  Do you use this time to research new ideas, update existing ones, and review performance in detail?  Or do you find yourself staring at screens, worrying about P/L or searching for trades to put on, even if those aren't necessarily in your wheelhouse?  When we are productive in our time outside of trading, we create wins every single day, and that bolsters our mindset.  Using the time unproductively reinforces a sense of self that fails to achieve.

3)  Look at what happens to your positions after you exit them - After you've exited a trade, what tends to happen to your positions?  If you took a profit, did the positions move meaningfully further in your favor?  If you took a loss, did the positions reverse and eventually prove profitable?  Many times we exit positions and leave considerable money on the table.  Might it make sense to exit positions in stages, rather than all at once?  Might it make sense to hold portions of profitable positions longer for further potential gain?  Would it make a difference to hold those portions of positions in the form of options, reducing capital at risk?  Many times we enter for sound reasons and exit for emotional reasons.  Studying and optimizing our exits gives us greater control over our risk, enhancing our sense of efficacy.

The bottom line is that some of the best ways to improve your trading psychology is to improve the mechanics of your trading.  All the positive self-talk and work on mindset cannot substitute for skill and its consistent execution.

Further Resources:


Sunday, February 21, 2021

How We Tranceform The Mindscape

In The Psychology of Trading, I wrote about "Tranceforming the Mindscape", which was my way of describing how we can cultivate alternate states of consciousness as a way of expanding our ways of thinking, feeling, and behaving.  Although many turn to drugs and alcohol for this purpose, the reality is that there are many disciplines we can learn to live life more intensely.  The right kinds of dance and music can shift our awareness.  Mastering meditation can be another path.  In the recent Trading Coach Video, I describe the use of self-hypnosis as a way of expanding our repertoire.  Especially relevant is the recent Forbes article, which describes the technique of anchoring and how we can employ it to improve performance. 

Suppose you want to be a winning race car driver.  You work on different techniques of driving, different ways of passing cars, different ways of pacing yourself.  All are fine, but you're still driving the same car.  That's the challenge of most traders.  They are looking to improve their psychology, but they're operating with the same brain, the same states of awareness.  Does anyone truly rewire themselves simply by writing notes and goals in journals or casually reviewing charts?

To win, we need to be driving a better car.

In the Radical Renewal blog book, I describe ways of programming our minds for stillness and extreme quiet.  There are ways of radically quieting the mind that enable us to reprogram ourselves and create new connections of thought, feeling, and action.  This "trance-forming" of our mindscapes involves entering very different states of mind and body and then rehearsing desired patterns--and directly experiencing our best selves--in these fresh states.  For instance, I recently wrote about brain wave biofeedback and techniques I'm learning to keep myself in hyper-focused states.  While highly focused, I simply walk myself through the things I want to accomplish in my day or in my trading.  Incredibly, everything I rehearse comes back to me vividly once I return to the focused state.  So, for instance, one of my trading goals is to hold winning positions longer under defined conditions.  Rather than keep myself "disciplined" to achieve this goal, I keep myself focused.  The right trading actions are anchored to the state of high focus.

The fundamental idea behind Radical Renewal is that the world's great spiritual and religious traditions are collections of time-tested methods for transforming ourselves, overcoming our egos, and tapping into our souls.  It is difficult to find such a tradition that does not induce trance states through ceremony, prayer, meditation, and/or dance.  "Tranceforming the mindscape" means that we develop the ability to process the world in enhanced states of focus and awareness and then use this experience to expand our repertoires.  It is through the body that we program the mind; if we operate in a narrow range of mindsets, we will never expand ourselves.  To paraphrase Gurdjieff via Colin Wilson, the fundamental human situation is that we're watching the wrong movie, not realizing that we have been the projectionist all along, that we should be in the control booth.  

Life is too precious to be lived mechanically.

Further Resources:

Friday, February 12, 2021

Learning How To Lose


On the surface, it seems like a strange idea:  We become winners when we learn how to lose.  It's when we can't accept losing that we hold onto trades long after they've gone against us.  It's when we can't accept losing that we play small ball and never pursue meaningful rewards.  It's when we can't accept losing that we become frustrated during drawdowns and lose our focus and discipline.  It's when we can accept losing that the good entry in a trade is never good enough and we miss opportunity.

So many of the challenges of trading psychology are rooted in our inability to lose.

When we can accept--truly accept--that trading is a probabilistic game, that losing is part of those probabilities, and that we can trade well and lose, our egos no longer become attached to our P/L.  If we go to a Vegas casino and bet large when we hold two pair, we can lose when someone around the table comes up with three Kings.  We were right to bet large and, over time, that bet is likely to pay off.  If we can't accept losing, however, we will not just lose but be defeated.  That will prevent us from placing the next solid bet, or it could frustrate us and place us in revenge mode, betting even larger on a poor hand.

Learning how to lose means losing in a planned manner.  It means knowing when our trade has been proven wrong and exiting at a point that we have rehearsed and accepted.  It means sizing our bets so that the probabilities going against us won't take us out of the game.  If we run a 60% win rate with our trades over time--which would be quite good--the reality is that we will lose several times in a row many times during the year if we trade often, simply by random chance.  If we can't accept that kind of losing, can we truly hang in there to win?

Traders work on improving their trading and that is necessary for success.  Working on losing is equally important.  A great topic for a trading review is:  Did I do a good job of losing?  The odds can never work in our favor if we don't fully embrace those odds.

Further Reading:

Radical Renewal - Free blog book on trading and spirituality


Friday, February 05, 2021

The Best Way To Develop Trading Expertise


Yesterday I participated in a team meeting at SMB where the members reviewed their performance for January.  It was striking how many of the traders were working with team members to improve their trading, often by trading shared books.  In these shared books, the traders developed ideas jointly and worked through how to trade those ideas.  The performance of the joint books was off the charts, and many of those traders made six figures on the month.

What's going on here?

Consider three levels of learning:

1)  We can attend seminars, listen to podcasts, etc. where experts tell us how to trade;

2)  We can attend classes where experts teach us how to trade;

3)  We can work as an apprentice to experts to involve ourselves in learning.

What I have found is that the first option is good for conveying information, but has little value in terms of developing expertise.  The second option is helpful in terms of describing what to do, but is limited in terms of helping us actually achieve the doing.  The third option involves hands-on role modeling and mentoring and actually provides real time feedback on performance for deliberate practice.

The shared trading acts as a vehicle for mentoring and apprenticeship.  It creates a structure for using skills, getting feedback, and making improvements--every single day.  I see this at hedge funds, and I see it at proprietary trading firms.  Mentoring works.  Single shot seminars and classes inform, but do not build expertise.

Can we develop processes for mentoring ourselves?  In other words, what if we have a wise self that we can tap into as well as a reactive self that makes lots of trading mistakes?  Is there a way we can access this wise self and utilize our own experience as a vehicle for mentoring?  For many traders, this would be a game changer.  I will be developing this theme and providing examples in upcoming posts.

Further Resources:

The Three Minute Trading Coach - Using Checklists to Improve Performance

The Real Way to Develop Expertise

A Quick Checklist for Peak Performance