Sunday, May 26, 2024

You Are The Entrepreneur Of Your Life

You are the entrepreneur of your life.

From the moment you wake up, from the start of each week, you are in startup mode.

What is your mission?  What is your life's purpose?  (If I asked you, right here and now, to write your life's mission statement, could you do that?)

What is your business plan for achieving your mission?

Who is on your team that provides practical and emotional capital for your life's venture?  Whose ventures do you support, and how do those inspire and enlighten what you do?

What role does trading play in the enterprise of your life?  What incubator helps you grow your trading in ways that grow your life?

You are the entrepreneur of your life. 

Right now, this every day, how are you innovating?



The Psychology of Growing Your Trading Business


Monday, May 20, 2024

Focusing on the Quality of Your Reps

During my recent workouts at my gym, I've noticed how much more I get out of the weight machines if I take my time going through the reps.  I have a standard circuit that I go through, beginning with legs, then upper body, then flexibility.  When I slow down my pace at each of the stations--and especially when I take my time extending my body fully through each of the exercises--I get much more out of each set of reps.  On a bench press, for example, it's what I do at the very beginning of the press and at the full extension of my arms that makes the difference.  Taking my time at the most challenging points in the exercise provides a much better workout.

In trading, the reps we put in are our reviews of markets, what we did, and what we could/should have done.  When I worked with active traders in Chicago, I was impressed by the time they spent reviewing the past day's trade bar-by-bar in replay mode.  They didn't just go over charts and whiz through their reviews.  Rather, they slowed down the review, talked out loud what they were seeing bar by bar, and rehearsed making the right decisions.  As I learned from my workouts at the gym, the quality of the reps determined what they took away.  

A review of performance, to be effective, must be a workout.

We build our trading psychology in the course of performing and engaging in deliberate practice.  We can solicit advice from others, but ultimately it's the workouts that make the winners.  Jeff Holden of SMB Capital and I have been challenging developing traders to write up their daily takeaways to cement their learning.  Similarly, experienced traders at the firm put together daily report cards of their trading and monthly reviews.  Some of the writeups are nice summaries.  Others are workouts.

The time and effort we put into our reps determine our level of fitness.  Focusing on One Good Trade is what builds good trading.


Further Reading:

What Makes an Expert Performer


Monday, May 13, 2024

An Effective Technique for Mastering Trading Stress

A key to understanding trading psychology is the recognition that trading is a performance activity.  Like sports or performing arts, we practice and prepare and then comes the performance event.  It's natural to have some jitters before the big moment and sometimes in the middle of performing.  That is why this form of stress is known as performance anxiety.  There are medications that can be of assistance in extreme cases of performance anxiety, such as beta blockers, but the majority of people can benefit from a simple psychological technique known as stress inoculation.

Inoculation, of course, is when we inject ourselves with a weakened form of a virus and activate our body's immune system.  This then helps us fight active viruses.  In stress inoculation, we use guided imagery and cognitive therapy to anticipate stressful events before they occur--and then to imagine ourselves coping successfully with those.  So, for instance, before a big public speaking event, I might visualize my audience and mentally rehearse the beginning of my talk.  I might follow that visualization with a scenario where audience members seem uninterested in the topic or imagined situations where I lose my place in the talk.  With each stressful situation, I walk myself through how I would handle it.  Like with medical inoculation, this arouses our psychological defenses--our coping abilities--so that we're prepared for difficult situations in real time.

This technique requires regular practice, but can be a regular part of daily preparation for active traders.  We can imagine our position going against us and getting near our stop; we can visualize not getting filled at our desired level; we can imagine negative thoughts that might intrude during the trade; etc.  During each mental scenario, we vividly imagine how--specifically--we would handle the situation.  By the time trading actually begins, we've been there and done that.  It is difficult for frustrations to get the better of us if they cannot surprise us.

In my next post, I'll share how this technique--and other stress management methods--can be integrated into our ongoing development as traders.

Further Reading:

Three Causes of Trading Stress and What to Do About Them


Wednesday, May 08, 2024

A Powerful Framework For Improving Your Trading


The most recent post pointed out that our trading psychology challenges evolve as we move from being rookie traders to consistently profitable ones.  Newbies wrestle with the challenges--and inevitable frustrations--of learning markets and weathering periods of risk and reward.  Experienced traders look to build businesses and find themselves tackling new learning curves as they branch out to different markets and strategies.  The reality of a trading career is that the progression from startup trader to experienced one is not a linear path.  Because markets are ever-changing, the winning methods that we discovered at one period may lose much of their edge over time.  I've worked with experienced hedge fund managers who have had to remake themselves as their old strategies became overcrowded.  The learning curve of traders is thus more of a spiral than a straight line.  We always go back to learning, but at higher and higher levels.  

Over time, those who can't evolve become extinct.

The really, really good traders I've worked with continually try new things.  They are like business startups and incubators, innovating and uncovering what works.  I found that a good question to ask traders during the hiring process is to ask them to lay out their pipeline of new ideas.  Just as I would want to invest in a company with a large and promising pipeline, so I look to hire traders that are continually developing.

The most powerful framework for improving your trading is to imitate those innovative traders:  Try lots of new things, see what works, and then build on success.  In psychology, this is known as a "solution-focused" framework.  Over time, identify and study what you are doing when you're not having trading problems and when you're not losing money, because the odds are good that--at those times--you're doing something well.  "Do more of what works" is the motto of the solution-focused psychologist.  Whether you're a developing trader or an established one, look for opportunity, try new things to capture that opportunity, and then focus on and do more of what works.  

Quite simply, this is a formula for evolution.  If you cultivate more and more "mutations" of your trading, inevitably you'll find some that are uniquely effective.  A powerful framework for improving your trading is to discover and then do more and more of what you do well.

Further Reading:

Solution-Focused Trading

Thursday, May 02, 2024

Developing a New Trading Psychology


It's not well appreciated, but trading psychology is a developmental psychology.  The issues we face as noobs are not the issues we face as experienced traders seeking to be consistently profitable, and those issues are not those we encounter after years of success.  We evolve and our challenges--emotionally and in trading--grow with us.

Yesterday I went through a list of the traders, portfolio managers, and analysts I've met with over the past month.  Almost all are part of teams at very successful hedge funds.  All are managing portfolios of hundreds of millions of dollars if not more.

None spoke to me about FOMO, emotional trading, or issues of discipline or mindset.


Please hear me out:  It's not that those issues are unimportant.  Rather, they are not dominant issues for those who are well along their expertise curves.  For example, beginning medical students are quite nervous about interviewing patients and performing even simple procedures.  Their emotions can interfere with developing a good rapport with patients.  Experienced residents in medicine no longer deal with that kind of nervousness.  They struggle to sort out complex diagnoses and unexpected reactions to treatments.  As they move along the path to expertise, their issues are less about themselves and more about mastering their work.

So it is in trading.

Once we achieve a high degree of self-mastery, our next challenges involve market mastery.  We learn to sort out supply and demand, risk and reward, across different time frames.  We learn to use the movements of other markets to help us understand our market.  Most of all, we learn who we are and what we do best and we become better and better at applying our strengths to our trading.

As beginners, we struggle with the inevitable negative psychology that accompanies risk, reward, and frequent losses.  As experienced traders, we wrestle with our positive psychology and discover who we are and how we perform at our best.

That is why the book I'm writing is about positive trading psychology.  It's about finding our unique, distinctive strengths and applying them to how we process market information and find superior risk/reward opportunities.

Greatness is more than the absence of mediocrity.  

Success is more than the absence of mistakes.

Expertise is more than a positive mindset.

Our challenge is to uncover who we are at our best and leverage that in the marketplace.  As we grow, we move from a focus on negative psychology to one of positive psychology.

Further Reading:

Greatness in Life and Trading