8/29/2025 - I recently spoke with a hedge fund manager who had maximized his overall psychology by maximizing his *cognitive* strengths. It's not well appreciated that making the most of how we process information helps us understand the world better and that brings us insight, opportunity, and excitement. This portfolio manager took the extra steps of writing out his ideas, sharing with a couple of valued colleagues, and processing their responses interactively. Many times this helped him cement conviction in his ideas and make the most of them. The interactions also helped him make important modifications to his ideas.
Improving his trading process improved his trading mindset. By processing information in more and different ways, he honed his ideas and grew his capacity for conviction and sizing. Think of every way of processing ideas as a station in a gym. We get the best workout by making full use of each station. If we don't challenge our own ideas, the market will challenge them for us.
8/28/2025 - We can maximize our psychology by broadening our opportunity sets in trading. Both at hedge funds and proprietary trading firms, I've noticed that the most successful traders--and the ones with the best mindsets--are those that take many different types of trades in many different markets. They move from market to market or stock to stock depending upon the opportunity set at the time. They don't specialize to the point of only trading one market or strategy. By flexibly shifting and trading where they see greatest opportunity, they are always opportunity focused. On some occasions they might be very short-term in their trading; on some occasions they might be playing for breakouts and trending moves; on some occasions they may be playing response to news catalysts. Opportunity comes and goes in any given market or strategy or time frame. When we broaden our search for opportunity, we stay opportunity focused.
8/27/2025 - Here's another best practice for making the most of our trading psychology. Several years ago, I conducted a study of the personality traits most closely associated with trading success. The questionnaire assessed the "big five" traits and found many significant relationships. Interestingly, different traits predicted success for different trading styles. More on that topic in an upcoming post. At the suggestion of a bright, successful trader, we added a questionnaire to the study measuring a sixth trait: entrepreneurship. Interestingly, entrepreneurship wasn't highly correlated with any of the big five, but it did significantly predict trading success. Like anyone starting a business venture, the trader checks the boxes when it comes to questionnaire items such as:
* I enjoy challenging projects
* I like taking risks in most aspects of my life
* I spot opportunities where others don't
* I'm good at defining priorities and making an action plan
* I love creative problem solving
* I'm always looking for new ideas
* I always try to learn lessons from my failures
The implications of this finding are profound. The goal of our work should not be to catch this or that move in the market or to manage this or that emotion. The goal should be to improve ourselves as entrepreneurs and develop the skills that will enable us to build a lasting, growing business.
As I describe in my upcoming book, a key to trading success is to discover the markets, strategies, and connections to others that bring out the best in what we do. Frustrations and impulses are not the problem; the problem is that we never take the time to explore and experiment and find out what we're really good at. When we structure our time positively, we bring energy to everything we do--including our learning and our trading. As Professor Diener explains above, "Happiness is an ongoing process of fresh challenges".