Sunday, June 25, 2023

Making the Transition From Discipline to Commitment

How we think, feel, and act at one stage of development in our lives is different from how we approach situations later in life.  As a child, I related to my parents as authority figures and (for the most part!) did what they told me.  Later, in young adulthood, I related to my parents as role models and flexibly integrated parts of them into who I was becoming.  Still later, I became a parent myself and could relate to my own parents as peers and as valued family members offering mutual support.  As we grow, our roles evolve.

Similarly, there was a time early in adulthood when dating was fun and there were lots of people I wanted to meet.  If a relationship became more serious, I often had to hold myself back and rely on discipline to not go after other possibilities and opportunities.  When I met my wife-to-be, Margie, I recognized early on that there was something special in our relationship.  The idea of possibly losing that or watering it down with frivolous involvements was a complete non-starter.  I felt a commitment to Margie and to our relationship and that was all that mattered.  Other possibilities were not temptations.  I did not need discipline to be a loyal boyfriend and husband.  So it's been for the past 39 years.

Early in my trading career, markets were exciting and there were *so* many possible ways of making money.  Out of that enthusiasm, I traded and traded and overtraded.  I also lost money.  With time, I discovered the kind of trading that made sense to me and that was successful for me.  I worked on deepening what I was doing, eventually performing research on short-term price behavior and market breadth that gave me demonstrated edges in my trading.  As I became committed to that style of trading, all the other things became less interesting to me.  I didn't stop overtrading because I had become a ridiculously disciplined person, but because I became deeply dedicated to the best in me.  My faithfulness to good trading was very similar to my commitment to my life's partner.

Just as we undergo a developmental sequence in our relationships with parents and potential life partners, we typically go through developmental stages in our trading.  Perhaps overtrading is like overdating.  It's what we need to do to find what's best for us and that can anchor our sense of loyalty, commitment, and dedication.  Our relationship to markets evolves in ways similar to the evolution of our relationships with our parents and our romantic relationships.  Focusing on discipline to short-circuit this developmental process may be a mistake.  It's not what we need to stop doing that should be our priority, but rather identifying the best of us and pursuing that, because that will inspire our commitment and generate our consistency.

Further Reading:

To Increase Your Discipline, Focus on Your Fulfillment

Two Proven Methods for Building Happiness


Friday, June 16, 2023

How to Advance Your Development as a Trader: Key Ideas


I recently participated with Mike Bellafiore of SMB Capital in an excellent conference organized by TraderLion.  The topic of our presentation, which you can watch via video, was trader development:  the best ways of improving our performance in financial markets.  Here are a few key ideas that we touched upon in the session:

1)  Your niche in markets has to be discovered - Only by experimenting in different markets, on different time frames, with different sources of information can you figure out what makes sense to you and what you are good at.  In medical school, students rotate through various clinical services, such as internal medicine, surgery, psychiatry, and family medicine, to experience those specialties first hand.  It is only after experiencing all the major areas of medicine that students make a decision about specializing in a particular area during their residency training.  Similarly, if you're learning markets, you want to try out various "specialties" and discover your potential niche.  Many times, developing traders are so eager to make money that they place their capital at risk right away and try to emulate what they hear from would-be gurus.  That is not how expertise development works.  Trading various ways in simulation mode and with small size allows you to discover who you are and what works for you before you run through your capital.  Because markets are always changing, we must always develop as traders and return to the modes of discovery and learning.

2)  Learning trading is a team sport - There is a reason successful trading firms such as SMB and essentially all successful hedge funds are organized in team structures.  A team leader is an experienced, successful trader who creates a group of more junior traders to assist in the trading process.  The junior members bring unique skills to the team and track opportunities as they arise.  The team leader benefits from the input of team members and serves as a mentor to them, showing them in real time how their ideas are translated into trades and managed as positions.  As a result, the most important learning occurs at the desk, seeing markets and ideas and trading in real time.  The saying in medical school is "each one teach one".  In a successful team, everyone learns from one another.  And if you're an independent trader?  Your challenge is to network with other independent traders who are traversing their learning curves.  This is where trading communities and trading conferences can be particularly helpful.  Share your best ideas online and you'll find that others with good ideas will reach out to you.  That is the start of the kind of teamwork that accelerates learning and development.

3)  Learn from your strengths - Particularly if you're an experienced trader looking to develop your expertise, you want to study what you do best and where your successes have come from.  Research in psychology points to the "flow state" as a unique state of consciousness that occurs when we are immersed in activities that provide optimal challenge and interest.  It is in the flow state that we are most productive, and the flow state fuels our creativity, broadening our perception and helping us detect unique opportunities.  The exercise of our strengths creates the flow experience, so that when we're absorbed in trading in rewarding, meaningful ways, we are most likely to be tapping into the best of us.  When we work in teams with others who have different strengths but who also tap into their flow modes, we find work to be energizing and inspiring--not something that burns us out.

What we do frequently, we absorb.  If we pursue trading the wrong way and create frustrations, we absorb a frustrated mindset.  If we engage trading as an adventure--an opportunity to discover who we are and what we do best--our trading can enrich our lives in many ways and provide a lasting experience of fulfillment.


Sunday, June 04, 2023

The Greatest Challenges of Trading Psychology - III: Mindset


In the first post of this series, we took a look at how one of the greatest challenges to our trading psychology comes from approaching the process of expertise development the wrong way, unwittingly creating stresses and trauma that impact our subsequent learning and trading.  The second post examined how we often view financial markets incorrectly, looking for our edge in trading without properly recognizing that these edges are continually changing.  Doing the same thing again and again in the name of discipline is a great way of getting run over--and damaging your mindset--when markets shift.  

In this post, we will explore how the wrong view of mindset leads traders to trade poorly and ultimately hurt their psychology.  Many traders seek an optimistic and even aggressive mindset in the desire to make meaningful money.  By emphasizing the outcome of trading, they ensure that their mindset will rise and fall with their P/L.  An important performance principle is that focusing on the outcome of performance typically gets in the way of performing.  Does a great painter, while creating a work of art, spend time thinking how much the painting will sell for or whether it will be displayed in a famous museum?  Does a surgeon, performing a procedure in the emergency room, dwell on how wonderful the outcome will be?  Positive self-talk may have its place in our psychology, but surely not in the middle of our performances.  For peak performance, we don't want an aggressive mindset, a positive mindset, or an excited mindset.  We want a focused mindset.

This doesn't mean that we eliminate all emotion from performance.  The flow state is one in which we are so absorbed in the doing of an activity that we lose our sense of time and our self awareness.  That is a pleasurable state in itself and a powerful motivator for those who love what they do.  It's in that flow state that we're most likely to be productive and achieve our best efforts.  Interestingly, the flow state is also our greatest source of creativity.  Quite literally, we see markets better when we are highly focused on what markets are doing.  Our self-talk takes us out of flow and often places us in an aroused, fight-or-fight mode in which narrows our perceptual frame.  It's when we're focused and in a state of emotional well-being that we're most likely to act on opportunity.

This is why a major theme of the Radical Renewal online book is that great trading comes from the soul and not from the ego.  When we are outcome-focused, we are ego-focused and that takes us out of the zone of the flow state.  The right trading mindset is absorbed in markets, opening us to the intuition of implicit learning.  It is not coincidence that my research has found that intellectual curiosity is a number one predictor of trading success.  The truly successful traders are motivated by the process of doing and learning, not just by the outcomes of trading.  When we value learning and growing, we can always extract reward from trading, even when profits aren't there.  

As Earl Nightingale points out above, we are always programming our minds.  What we focus upon, we become.  From that perspective, if there's nothing more important to you than profits and losses, you've already lost.

Further Reading: