Unfortunately, many people who start trading find success difficult to achieve, especially in the first few years after starting. Trading is a challenging endeavour that has torn people from across the world across generations, from every extreme of their emotions. It is our money that is directly involved in trading and therefore at risk, and the potential of making more money is our primary motivation for beginning this undertaking. Therefore, any emotions that we may associate with other endeavours are heightened because money is something that seems to accentuate any natural human emotions that we have. Ironically, it is the money that encourages the vast majority to attempt to trade yet it is the money that causes most people to fail.
It is common to see people who are naturally gifted at something or perhaps a professional who has studied and subsequently practiced his skill for many years, assume that the attributes and skills that they have can be naturally transferred to the trading arena. You may have a successful person or athlete who has ample self-confidence and is a leader in their field. Unfortunately, their self-confidence may not be well founded when it comes to trading. It is difficult to be confident without having competence. Being competent at trading is vital and this is nowhere more important than your mindset.
Many people who have traded have heard how important your psychology, or mindset is to your trading success. Books have been written, entire seminars presented and numerous tea breaks at trader’s club meetings across the world are devoted to the subject of the ‘psychology of trading’. Many traders would argue, I included, that your mind is the largest part of your overall trading success.
I always wonder however, how many people understand what it is they mean when they talk about it and its relationship with trading. Your mindset controls anything you do and consequently, any endeavour you undertake. Trading is no different and it could be argued that it is even more applicable in trading as your money is involved, and that triggers many other emotions inside of us.
Numerous examples that confront the mind and our natural emotions include wanting to be right all the time and getting our own way, having our opinion matter, and having some influence and control over what happens. In trading, these natural thoughts within many of us will place us in a position of disadvantage. These are just some examples of why our mindset and preparing our mind is so important to our overall success.
Furthermore, you would have thought previously about why some people are so successful in life and others are not. How many books have been written about having a positive attitude and taking action towards your goals? There is, and always has been, a single ingredient that separates people who are successful in life from people who are not. It is the mind and how we use it.
Think Outside the Box
An activity I will perform when I speak to a large group of traders about the mindset involves asking for a volunteer. I would have spent the last 10 minutes or so explaining how traders must often ‘think outside the box’. In other words, don’t think and act upon natural thoughts … they think beyond normal thought. I say to the group, “OK, for my next session, I need the assistance of a volunteer from the audience just for a few minutes. Can someone come up here and join me please?” When I say this, I make sure that I look down at the floor and don’t make eye contact with anyone.
After asking, I continue to avoid eye contact with the audience as I pretend to fiddle with my notes or have a drink of water. About 15 seconds pass and no one has made a move. I then look up at the audience and again, I ask for a volunteer for my next session. The atmosphere begins to become slightly awkward as the people in the audience begin to wonder whether my next session will go ahead without a volunteer presenting themselves. I stand there and wait, not saying anything but still determined to wait long enough until someone volunteers. Almost out of pity, someone will inevitably stand up and declare themselves the volunteer and make their way to the front to join me.
As they join me and I introduce myself to them, I provide them a copy of my book with my compliments, thank them for volunteering and then ask them to return to their seat. Often the person will then receive a round of applause as he makes his way back to his seat. This simple activity illustrates how most of us are perfectly happy in our comfort zone. When I ask for someone to come up in front of everybody else and therefore expose themselves to the possibility of embarrassing themselves, everyone feels uncomfortable and hopes that I don’t look directly at them. Therefore, nobody wants to act. Yet, to trade successfully and master the trader’s mind, we need to be prepared to think beyond natural thoughts and subsequently act based on those thoughts.
How do we do it then? How can we possibly prepare ourselves for long-term successful trading when it appears that the odds are against us right from the start?
Trading as a Game
Sport is a wonderful activity that many of us across the world of all physical types partake in, at some level. I believe sport and those who partake at the highest level and perform above all others at the highest level can teach us something about trading. I think many of us have traded under pressure before. Perhaps it is the pressure of our own expectations or the pressure that we may have another losing trade and you may have to accept sooner or later, that trading is not for you. Many emotions can flare up inside of us when we trade including anxiety, worry, fear, and perhaps panic. How can we reduce these emotions and ensure they do not adversely influence our decisions?
I think we should also consider trading a sport and our own activities as a game. This will hopefully ease the pressure off us and make us more relaxed when trading. It is fair to say that when the stakes are high and the pressure is beyond explaining in words, most of us mere humans, would be affected adversely in some way whether it is mental or physical. There are, and always will be the select few who have proven time and time again that they are almost immune to those influences and are able to continue to perform at an exceptionally high level regardless of the circumstances. How do they continue to perform when most around them appear to falter and wane despite their relative similarities in physical skill and attributes?
History has shown us numerous sportsman who have simply faltered, or choked, in pressure situations in games when the stakes have been high. The signs are obvious – they have not wanted the ball, they have made many simple skill errors, missed the 18-inch putt, or they have shown poor judgement in crucial situations. Unfortunately for them, whatever brilliance they had shown up to that point and reputations they had built, one game can break it all by what is perceived to be a poor performance in a critical game.
As I am currently enjoying watching the NBA playoffs, I am seeing players and teams playing at an elite level. Having just watched another team win by a player hitting a 3pt field goal as time expired, it makes me think about the preparation for that player to be able to perform under that pressure. His demeanour immediately afterwards was so calm. As if, it was nothing out of the ordinary.
Haven’t you noticed how some players forge a reputation as a ‘clutch performer’, by making big plays on numerous occasions in critical games, when the stakes were high and when some players around them were found wanting.
I have found myself intrigued by these player’s mental approach to playing and often it comes down to the game being fun and not taking it so seriously. When they don’t take it so seriously, and just smile and enjoy the game, they seem to relax a lot more and can perform better, especially under stress and pressure.
When these players treat it just as a game that they enjoy playing, they almost become immune to most of the pressure that is being felt by everyone around him.
Prepare Yourself for the Game
We can use this lesson in our trading. Many traders feel the pressure and can easily be adversely affected by that causing them to consistently make unsound trading decisions. The lesson is that if we can convince ourselves that trading is just a game to be won or lost, then perhaps we can dismiss the external factors that often influence us and firmly focus on the task of trading well with minimal distractions. We will be able to relax and think and act calmly as we execute our plan.
Perhaps we can continue the analogy one step further. If we compare our own trading with the performance of an elite sportsman performing at the highest level, then it is easy to consider the preparation that is required. Many of us will watch sportsmen and women perform but too often we lose sight of the effort and energy that has been expended to reach that level. We think these players just appear one day and walk onto the playing field and perform. What we easily overlook are the hours that he would have spent in a backyard somewhere, a playground when it was getting dark, or an empty gym where the only sound was a basketball bouncing, practicing and preparing for those moments. After all that effort, it becomes effortless to then perform in the game.
I believe that some winning traders consider trading a game. Trading can be a game and traders at all levels should prepare themselves accordingly. No one said that this process would be easy however I don’t remember anyone telling us that trading is easy. It will, however, be worth the effort as trading well can be tremendously rewarding and satisfying. It is a mindset issue and if preparing our mind for successful and disciplined trading is something we must do, then surely this could include preparing ourselves for the game.
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