Sunday, August 28, 2022

Four Pieces of Trading Wisdom to Turn Your Trading Psychology Around

Our perspective--on life and on trading--shapes our experience.  We can make trading a stressful roller coaster or we can make trading a rewarding development of our character virtues.  Here are four pieces of trading wisdom that have offered me the perspective to approach markets in a healthy, constructive, challenging, and fulfilling way:

1) Your uniqueness shapes your success - We are wired to find the exercise of our strengths to be energizing and rewarding.  The best thing we can do in our trading is try lots of things and discover what we do well and what speaks to us.  Your greatness can be found in the patterns of your success.  Yes, it's helpful to correct our weaknesses, but no one ever reached their potential by becoming less bad at something.

2)  If you want a fulfilling and successful career, lead a fulfilling and successful life - No one can live an impoverished life and expect success in their work.  The lives we lead are mirrors, and we internalize the images that we experience.  When we live good, generous, and caring lives, we experience ourselves as good, generous, and caring--and that naturally leads to our being good, generous, and caring toward ourselves.  We're most likely to find success if we lead lives that make us feel worthy of success.

3)  We become who and what we love - When we truly love another, we give them our best selves.  That leads us to constantly exercise the qualities that define us at our best.  When we focus on ourselves and our profits become our greatest love, we train ourselves to live self-absorbed lives.  Love for another person pushes us to step outside of ourselves and internalize the best of the one we care about.  It is difficult to overreact to markets if we have people in our lives so much more important that the ups and downs of profitability.

4)  Most trading psychology problems boil down to spiritual shortcomings - This is the thesis of the blog book Radical Renewal.  It is the intrusion of the ego into trading processes that leads to poor decisions and unwanted emotions.  The great religious and spiritual traditions of the world are a virtual crowdsourcing of wisdom for leading rich, productive, fulfilling lives.  A neglected spirit cannot yield a positive psychology.

Sadly, many traders look to tweaks in their "process" to find success and fulfillment in their work.  Of course, it's always important to learn from experience and improve what we do.  But no amount of tweaks will add up to living the right kind of life.  At some times, in some situations, you have been truly happy and fulfilled:  you have been your best self.  That--not any self-help platitudes--is your best starting point for turning your trading psychology around.

Further Reading:


Thursday, August 18, 2022

Improving Your Trading Psychology By Improving Your Trading

What if you had the patience to wait for clarity in the market's behavior?  

What if you only traded when a backtested pattern in the market was playing itself out in real time?

What if you rigorously reviewed each day's market behavior to become sensitive to the trends and cycles present here and now?

What if you didn't *need* to trade and only acted when there was clarity:  when larger and shorter time frames line up?

You see a market likely to go higher after a thrust in breadth.  You notice a trend higher on a particular time frame.  You see a pullback from that trend that can't meaningfully trace the prior rise; you enter for a retest of the prior high and possible trend continuation.  You follow a formula for taking partial profits at the prior high; letting a portion of the trade run to a short-term overbought extreme.

When you wait for clarity, trading comes to you.

Working on your mindset to improve your trading is not the key to trading psychology.

Working on your trading to improve your mindset is the promising performance path.

If you wait for clarity, you'll trade with focus.  

If you *need* to trade and *need* to make money, you'll never wait for clarity.

Further Reading:


Friday, August 05, 2022

The Key to Understanding and Overcoming Trading Tilt


I recently spoke on a YouTube video for SMB Capital regarding the dynamics of trading on tilt.  The example I gave in order to place the topic in perspective was that of a surgeon.  A surgeon performing a delicate procedure might feel frustration if things aren't going smoothly, but the surgeon never allows the frustration to take over.  (Can you imagine a surgeon on tilt, slashing away with no discipline whatsoever?!)  Why is it that the surgeon can maintain perspective and professionalism, but many traders cannot?

Tilt is a function of frustration; when we become frustrated, we're more likely to act impulsively.  This is why some of the most effective techniques for managing our tilt states involve physical control of the body.  If the body is calm, the mind finds it easier to maintain perspective and control.  As this video suggests, our frustrations typically stem from the need to be right.  In that sense, tilt is the natural consequence of our egos getting in the way of our best performance.  (See Radical Renewal for a detailed treatment of that topic; most trading psychology challenges are actually spiritual challenges in which we act from ego, not from soul).  

The key to understanding tilt is that the needs we bring to our performance ultimately dictate how we will respond to success, failure, and challenge.

What needs does a surgeon bring to treating a patient?  The number one need is captured in the physician's oath to "Above all else, do no harm".  The safety of the patient is always primary.  That is a soul-need.  It says, "I am a servant entrusted with this person's body".  It's not about me, it's not about how quickly I can do the surgery or how much I'll make from the procedure.  It's about the sacred responsibility of caring for another person. 

The successful trader brings to markets the need to trade well.  "Above all else, do no harm" means that our capital is valuable and that we need to manage risk and be able to accept expectable setbacks.  The trade is not about me; it's about identifying opportunity and acting decisively and responsibly to capture that opportunity.  If I bring ego needs to trading, every loss and every missed trade can become an ego threat.  If I bring my soul's need for growth and development to trading, I can take pride in my work and stay calm and focused, even when things aren't going according to expectation.

We can trade well and learn during a drawdown.  No one trades well with a wounded ego.

Further Reading:

Techniques for Overcoming Frustration

Facing Our Trading Fears