Archive for August 2013
I’ve been talking for quite some time that the purpose of trading isn’t about the money. When I say that I often get a look from traders akin to placing my head on the coffee table and continuing the conversation. Impressions aside, I’m on record having promoted this thought for a while. Money is Not The Focus of Trading, and my thoughts on Money Management are just a couple of the posting I’ve had on the subject.
The core of the issue isn’t that trading should be an academic exercise. We absolutely want to be profitable at this venture, even if for no other reason than to trade for another day. The issue is that 98.5% of coaching in the trading world is focused on only making money and less than 2% is on what motivates you to trade. Humans are very complex beings. We’ve evolved beyond the primal need of food, shelter and procreation to want happiness in our lives, to have a sense of purpose, fulfillment and satisfaction beyond the bottom line. Study after study has shown that humans need more than just the monetary reward.
To provide some evidence of this, I found a presentation from David Pink on his bestselling book Drive where he discusses some of the science around what motivates people in the work place. Even though his discussion relates to workers in organizations, the underlining information is valid for self-directed traders.
To paraphrase Mr. Pink, finding your purpose is key to your success in the markets. Most traders that I work with are pursuing trading as an avocation. Therefore, trading needs to fit into their lives and not the other way around. Defining the purpose of your trading is the first step in becoming a profitable trader.
As I said in the inaugural posting, the focus of this blog will be to understand your trading decisions in the market and their affect on your trading results. One of the things I’ve learned in my coaching practice is that if you’re not aware of an issue, you can’t acknowledge it and if you don’t acknowledge, you certainly can’t change. (I know that sounds like Dr. Phil but it’s not, trust me.) The beginning of awareness is education. The next several postings in this series will be dedicated to education. The focus will be learning about seven filters* or states of mind that collectively act like a lens we naturally use when we make decisions. Let’s talk about the nature of these filters.
We daily make thousands of judgment calls, or decisions, on a variety of topics. Some of these decisions are trivial, like what to eat for breakfast, to highly significant like how much money to invest in market. The weight of the decisions may change but the lens is the same. The lens can constrict or expand the options available to us for the decisions we make.
We use this lens unaware that we’re doing so and even less aware of how it constricts or expands our view of the world. The lens is developed over a life time based on our experiences, assumptions, interpretations and belief systems. The filters or syndromes that make up this lens are not inherently good or bad, but they have characteristics that are positive and negative.
As we go though our day, we unconsciously cycle through these filters on a regular basis. So the question becomes, what if we created such an awareness of our state of mind that we knew what filter we were using at any moment? And by having that awareness, we could choose a different filter, effectively changing your perspective of a decision? What if changing your perspective was the difference between a winning or a losing trade?
The beginning of changing your trading decisions is being aware of what filter you are using right now, in the heat of the moment. This is the outline for the next several postings. Over the coming weeks we will:
- Learn about these seven different filters,
- Learn the characteristics of these filters,
- Learn how they effect our decision process,
- Create an awareness in the moment when you are using a particular filter,
- Create some strategies on how to change the those filters and, essentially, change the options available to you.
I am very excited to put this material together and to share it with you. I welcome your thoughts and comments . Our next posting will be the introduction of the filters, the first one being The Defeated Trader Syndrome.
*The educational material contained is gratefully adapted from the training received at the Institute for Professional Excellence in Coaching (iPEC), its founder Bruce D Schneider, and his bestselling book Energy Leadership.
As traders, making decisions is the crux of most trading dilemmas. When to get in the market, when to get out, how big of a position to take, where to take profit, and so on are just the few of the hundreds of decisions traders face. Add in a hint of insecurity or self-doubt and the anxiety produced can compound the number and intensity of the decisions.
It’s no wonder that traders are attracted by the claims of internet marketers in the trading world. The allure of better trading results is often the shiny object that traders are drawn to when frustration has them searching for new and improved methodologies or strategies. The caveat that marketers won’t tell you is that all strategies will fail at some point. Strategies are designed to take advantage of certain market conditions. When those conditions are absent, so are the winning trades. This over-analysis of decisions is often what leads to a new search and, more often than not, more frustration, more time wasted, and more money spent on new methods and more money lost in the market.
So what if we start taking back control of our decision process. Instead of buying, learning, and adapting to yet another trading strategy, why not adapt yourself to what you have in front of you right now. Change the way you think rather than spend money to have someone else tell you how to think. As humans we can get caught up in over thinking a decision, be that which peanut butter to purchase or which trading method to invest in. Lauren F. Friedman in Psychology Today writes in Pick One Already! that making decisions with more confidence and speed is a better option to brooding over a decision. I’m particularly fond of paragraphs Don’t Overthink and Stop Rationalizing.
In a similar vein, consider my earlier posting entitled, More Methods Does Not Mean More Profit.
When making your trading decisions this week, keep in mind that the Fed will be closely watched. This is a good time to ask if your trading decisions support or distract from your goals. If you don’t know what your trading goals are, this is a great time to ask the question.