Change (and the Enemy Within)

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I am of the opinion that once you become versed in the financial markets and find a strategy that works for you, the mental aspect of trading is where the vast majority of the battle lies.  How you choose to approach the market is  really irrelevant.  If you can consistently stick to your plan and control your losses, you are going to be successful.  Of course that sounds simple, but there are countless traders that have great plans, great money management skills, and superior focus who end up hindering or ruining themselves with trades gone awry.

How does this happen?

Why is it so easy to relapse into destructive patterns of behavior that we KNOW are wrong, yet we go through with them anyway?

Lastly, how can one enact change to minimize (or, ideally, prevent)  this from happening in the future?

Change

The starting process of change is the easiest part.  Finding a way to maintain the effort to change is the challenge.

Trading is a unique occupation, there is no paycheck.  A trader’s quality of life is determined by his or her success or failure at the end of each trading day.  There are a million different ways to try and make money in the market, and all of them are potentially viable.

After reading a ton of literature about traders, the common denominator for success, universally, is a) having a profitable plan that revolves around sound risk management b) sticking to the plan and, most importantly, c) having the mental fortitude to stick to the plan when the more primal urges of avarice inevitably arise.

Rest assured, they (the urges) are always there, and they will always prey on you when you are most vulnerable.  Having a rough year?  Instead of sticking to the plan and chipping away, you look for the “hanging curve”, put on too large a position based on the unreasonable expectation that you can nail this one and get back into the game.  Guess what?  Invariably, those are going to be your worst trades.  They will lose the most money and be the most difficult to shake.

How do you summon the mental perspective required to change this behavior?

This business is about making money, so greed will always be nagging at you.  Just like losing weight, you know what you have to do, but how come it is so hard to press on and break though?  In order to enact change, one must take the result of the change and make it part of your being, part of who you are.

For example, if you are struggling to lose weight, and you go to the doctor and come to find out that you have type II diabetes, high cholesterol, high blood pressure, etc. It is not surprising that a brush with mortality can be the kick in the ass one needs to push through the resistance that will inevitably arise once the initial motivation to change passes.  Now change is required to continue to live a happy and reasonably healthy life.  Change and the consequences/results are no longer an idea or concept, they are real.  Years were spent knowing that something needed to be done, ‘wanting’ to change, but never doing anything about it.  The prospect of a bleak and unhealthy future is the catalyst needed to fuel the need for change.

What is the catalyst for traders to go from making the same mistakes over and over again, to a place where change can be enacted to avoid those habits in the future?

If one repeatedly makes similar mistakes which result is the realized loss of capital, then losing money is not, alone, a very effective agent of change.  This is what makes trading so difficult.

In other fields of competition there is a clearly defined opponent(s) that you compete against and try to defeat.  In the markets, for the most part, there are no competitors looking to defeat you.  We trade against ourselves.  I think that this dynamic makes trading much more difficult than trying to outsmart or outplay someone else.  I know all of my tricks…and that evil voice is oooh so sultry, tempting and hard to resist.  As long as one is trading, that opponent will always be there, watching, lurking, tempting you, providing you with false confidence in the face of ruin.  The ability to change one’s perspective and drown out this voice is imparative to sustained success and is a lifelong pursuit.

Goals

The easiest (and most direct) way to overcome and subdue this challenge is to set goals.  Start by setting long term goals.  Then figure out intermediate term goals that will help you reach your long term goals.  Now you can drill down to daily, short term goals that can help you reach your intermediate term goals, which, in turn, can help you reach your long term goals.

Write your goals down and/or use your phone (or something) to record your voice saying them.  Read them or listen to them regularly.

This process helps to keep the mind focused on the task at hand.  If you concentrate your time on trying to achieve your goals, you are going to spend far less time being unfocused and greedy.

Rest assured, no matter how strong you think you are, no matter how focused you are on your goals, the temptation to relapse will always be lurking around the next corner.

How are you going to carry the momentum of change through these moments?  How will your goals be used to combat these moments?  Will you focus on building a strength?  Controlling or modifying a weakness?  Learning from a mistake you made yesterday?  Repeating something you did well yesterday?

You have to keep your goals realistic and manageable.  Saying that you want to make ass-loads of money is a reasonable long term goal, but is worthless in the short term.  You need to figure out what you are going to do on a daily basis to guide yourself on the path to being wealthy.  This is the foundation of a manageable and sustainable approach to long-term success.

I think the power of visualization is vastly underused in trading.  Have you ever watched a bobsled driver prior to their run?  They visualize navigating the course flawlessly many times.  Entering a relaxed state of mind and visualizing using your strategy productively can be very effective.  This practice helps to block out the noise and focus on the task at hand; mainly: how are you going to accomplish the goal you set for yourself today?

In order to have staying power, your goals need to be based an emotional force, not a desire.  If you set goals based on a desire, once that desire is fulfilled, you will lose focus and your momentum will weaken and even fall apart completely.  What happens next?  You find yourself caught in the loop of questionable focus and bad habits.  At that point relapse is all but inevitable.  You need to feel your goals deep within your being, as if anything short of accomplishment can be considered failure of you, as a person, not just as a trader.

Yes, that is harsh, but as I have mentioned, the enemy within is always there lurking…waiting for a slip up.

My best to you all.

-EM

http://youtu.be/Ry6CJOEmSeI

4 Responses to “Change (and the Enemy Within)”

  1. Good write-up. At the end, dedication and persistence are the two essential attributes that will carry one over the hump.

    • Thanks for reading.

      True, but my point is that the journey is one “hump” after another. Greed is always lurking in the shadows…trying to jam you up.

      • “Greed is always lurking in the shadows…”

        Agreed. Hence the dedication and persistence…

  2. i clap for you

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