Monday, October 31, 2022

Trading Psychology Advice - 2: Pursue Your Development The Right Way

The greats in any field hear a different music than their peers.  That can make them seem a bit crazy.  One of my favorite examples occurs when a great musical group completely reinterprets a great song.  Consider the folk classic by Joan Baez and then the metal version by Judas Priest.  By the time we get to 3:50, we have a completely new song, a completely new experience.  Or take the dance classic Billie Jean by Michael Jackson and then listen to the same soulful song by Chris Cornell.      

Expert performers hear a different music, dance a different dance.

I recall a meeting years ago with a market great, Victor Niederhoffer, who experimented with turning market time series into musical sounds.  Done the right way, you could follow the market "music" and become exquisitely sensitive to shifts in pace, tone, etc.  Good traders look at charts and market data uniquely.  Great traders look at unique things. 

An important step in my trading development occurred when I encountered the work of John Ehlers and began to view market time series as multidimensional, incorporating elements of trend and cycles.  Understanding those dimensions made it far more clear when markets can be expected to continue their recent direction and when they can be expected to reverse.  Volume dictates the pace of movement; trends and cycles define the path.  It's a kind of music a trader can "dance" to, but the odds are good that the dance will seem insane to those looking at one-dimensional chart patterns or fundamental relationships.

An important thesis of the Trader Performance book is that our performance proceeds in two phases:  the development of competence and the development of expertise.  The process of building competence involves what we saw in the last post:  mirroring the actions of capable mentors.  Expertise development is quite different.  That begins when we synthesize the inputs and influences of multiple mentors and experiment with the insights that result from this synthesis.  Many problems in trading psychology and performance occur when we do not follow this developmental sequence.  We try to figure out markets on our own without proper mentoring.  We settle for copying others without finding our own integration of their ideas and influences.  

Pursue your development the right way:  first find and copy the masters and then hold onto pieces of what they teach you that truly resonate.  Those are the practices that mesh with your strengths and that ultimately hold the greatest potential for your performance.  Others won't hear your music and may view you as a bit insane when you dance to your own tune.  That's OK.  No one ever achieved great things by staying safely within the realm of consensus.

Further Reading:

Radical Renewal - an online book on the spirituality of trading

Sunday, October 23, 2022

Trading Psychology Advice - 1: Get the Right Kind of Help

Many times traders fail to reach their potential because they seek the wrong kinds of help.  Early in a trading career, what is needed is mentoring, not primarily psychological coaching.  Consider a young person who is early in their development as a baseball player.  The most helpful help will come from mentors who are familiar with the game and can teach proper ways to stand in the batter's box, pitches to swing at and let go, ways of adjusting the swing to the placement of the defensive players, ways of recognizing different kinds of pitches, etc. etc.  In copying the guidance of a mentor, the novice performer learns the fundamentals of performance.  Only later in their development do they modify those basic actions based upon experience.  It makes little sense to focus on self-help, psychological advice if performance problems are due to a lack of mastery of basics.

Conversely, the experienced player doesn't necessarily need to be shown basics.  The problem is implementing those basics with consistency.  This requires coaching from one familiar with the performance domain.  For instance, an experienced trader might have difficulty adapting to a new set of volatile market conditions and become frustrated when losses are larger than expected.  Coaching in such a situation might include techniques for mastering frustration as well as solution-focused efforts to reduce trading size, structure trades for better risk/reward, improve diversification, etc.

Here's a good way to think of ways to get the right kind of help:

If you lack experience, you need a mentor to show you what to do and how to do it.

If you have trouble drawing upon the experience you have, you need a coach to help you identify what you already do well and how to expand that.

Many developing traders have never seen a bear market, have never traded consistently volatile markets, and have never traded proper trends.  They need to go back to basics and obtain mentoring from those who have been there and done that.  

Experienced traders facing a new environment need to maintain a constructive mindset, focus on what they do best, and figure out how to adapt their strengths to current market conditions.  The right coaching helps the experienced professional become their best version of themselves.  

Turning trading around begins with seeking the right kind of help.  This is an important reason why success rates of traders at top trading firms are so much higher than among traders who try to develop entirely on their own.  When we are part of a team or trading community, we can learn from each other and achieve both mentoring and coaching.  Think of performance domains:  in sports, in the arts, in the military.  There is always mentoring and coaching to further the process of development.  It is very difficult, if not impossible, to find world-class athletes or musicians who are entirely self-taught.  That should tell traders something.

Further Reading:


Friday, October 14, 2022

What Trading Cannot Do For Us


To paraphrase Ms. Rand, the quest for self-esteem is the surest sign of its absence.  A common underlying theme of blog readers who reach out to me is their desperate need for trading success.  They don't just want to be consistently profitable; they want to be among the elite of the elite.  They proclaim their passion for trading and their complete absorption in finding opportunities to profit.

One question I typically ask is, "What in your life is more important than trading P/L?"  The speed and depth of the answer speaks volumes.  A life wholly dedicated to market P/L is an impoverished existence, a desire to achieve a self-esteem that is otherwise absent.  A common reason for overtrading is the absence of anything else meaningful to be doing.

The overfocus on P/L is an attempt to evade the reality of that absence.  Little wonder we then overreact to losses and extended drawdowns.  That is when we most need a full life to fall back upon.

Trading can make us financially successful, and trading can provide meaningful intellectual challenge and satisfaction.  What trading cannot do for us is substitute for our needs for a full and fulfilling life.  In the Radical Renewal blog book, I emphasize that good trading comes from the soul, not the ego.  Good trading emerges from a mindset of plenty; it cannot bear the burden of our self-esteem.  Mastering volatile markets is easier with a stable life; drawdowns are easier to accept when we profit from many life activities and interests.

Further Reading:


Friday, October 07, 2022

How Can We Stay Chill In A Volatile Market Environment?

When I began my career working as a performance coach for traders, the first poster I placed in my office was a signed photograph from a military sniper.  It showed the sniper lying in the weeds, well camouflaged, and looking dead ahead with rifle poised.  The absolute stillness and focus of the well-hidden figure was striking.  What makes the best snipers special is that, when battle conditions heat up, they have trained themselves to slow down.  It's when multiple high-value targets come into view that they breathe slowest and become most still.  Opportunity brings focus, not excitement.  

The most common psychological issue I'm hearing from traders today is how to stay calm and focused during volatile market conditions.  It's natural that directional traders view lots of movement as lots of opportunity.  The excitement that brings when markets start to move your way, the frustration that brings when markets reverse on you--all have the potential to disrupt our planning, our concentration, and ultimately our best trading.

It's under these conditions that I find training with biofeedback to be most helpful.  Below are some links that can get you started looking into the topic.  It's also a topic I discuss in The Daily Trading Coach, particularly in the sections on Cultivating the Quiet Mind and behavioral Exposure methods.  In exposure work, we first learn to slow our heart rate and lower our body's level of arousal through the help of such methods as heart rate variability feedback and brain wave feedback.  Once we learn what we need to do to keep us chill, we then actively visualize trigger situations that tend to stress us out.  For example, we might visualize a market going against us and having to stop out with losses.  We vividly imagine the disappointment and frustration of the situation--while keeping ourselves in a state of low arousal and high concentration and monitoring our feedback.  We do this again and again and again in our practice, until stressful situations no longer take us out of our zone.

This requires regular practice, but is amazingly successful in rewiring our emotional responses to situations.  Our job is to climb the mountain of success, not carry mountains of fears and worries on our shoulders.  It is indeed possible to rewire ourselves and reprogram our responses to challenging situations.  When we are encountering volatile and choppy market conditions, this enables us to become like the sniper:  more and more focused as opportunity presents itself.

Further Reading: