7 professional coaching lessons - FX Trader Magazine...coaching techniques and strategies that i utilise with my own clients to help you to raise your own trading game. High Performance

b y S t e v e Wa r d

TRADER MAGAZINE

Reaching high PeRfoRmance

Copyright © 2012, FX Trader Magazine, Riflexo7 professional CoaChing lessons

c o a c h i n g l e s s o n sto reach your trading goals

7 professional

Solution focuSed tRading

dev e loPi ng R e Si li e nce

l o S i n g l i k e a W i n n e R

imPRove tRading deciSionS

oveRcoming PeRfectioniSm

mental tRaining foR SucceSS

LESSON 1 - REACHING HIGH PERFORMANCE 05

Sport, Trading and Poker - Where high performance meet

- high Performance is multi-dimensional- trading Performance Profile- create the conditions and opportunities for Success- Performance is State dependent- confidence is key- decisions making- learn to handle losses like a Winner- conclusion

Practice: 6 Exercises to “Raise Your Game”

LESSON 2 - SOLUTION FOCUSED TRADING 11

Getting the Biggest Bang for you Buck

- identifying Strengths- utilising Strengths- focusing on and Building on Strengths

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7 Professional Coaching Lessons To Reach Your Trading Goals

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LESSON 3 - DEVELOPING RESILIENCE 15

Trader Toughness Training - Developing resilience to cope with losses, setbacks and tough times

- Resilience, the key to long term trading success- mindset: the middle man of your experience- lessons from cognitive Psychology and the uS military- two other dimensions to trading Resilience- get tough!

Practice: 2 Exercises for Developing Resilience

LESSON 4 - LOSING LIKE A WINNER 20

3 Steps to Help You Deal With Trading Losses More Effectively- Step 1: Reduction- Step 2: Responding- Step 3: Recovery- Summary

LESSON 5 - OVERCOMING PERFECTIONISM 24

trading is not a game of Perfect

- Perfectionism, a trading vice- do You have Perfectionist tendencies?- 7 Ways to overcome Perfectionist tendencies

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FX TRADER MAGAZINE Special Supplement 3

LESSON 6 - MENTAL TRAINING FOR SUCCESS 27

Practical Exercises for Managing Emotional States, Developing Focus and Conditioning Positive Trading Behaviours

- emotional State Regulation- getting into the trading Zone- visual Power- Your mental training Plan

Practice: 3 Mental Training Exercises

LESSON 7 - IMPROVING TRADING DECISIONS 31

3 Steps to Improving Your Trading Decisions

- introduction- The 3 steps: . understanding . awareness . management

CONCLUSION 35

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ABOUT THE AUTHOR:

Steve Ward is currently one of the most respected trading performance and psychology coaches, who works with traders, trading desks and fund managers at investment banks, funds, energy companies and proprietary trading groups across the globe providing coaching, training and consulting services. His previous background was in sports and performance psychology where he worked with elite level athletes and teams up until 2005 when he began working with traders.His work utilises techniques and strategies from sports and performance psychology, cognitive behavioural and performance coaching, mindfulness, and behavioural finance in a pragmatic and practical approach that helps traders to maximise their trading performance.Steve is the owner of ‘High Performance Global Ltd’, the author of ‘High Performance Trading : 35 Practical Strategies To Enhance Your Trading Psychology and Performance’ and has written extensively for many leading trading publications.


the answer is that there are many different connections between the three which i have been able to see first hand in my work as a former sports psychology consultant who has for the last six years specialised in working with financial traders and more recently added poker players to the roster as well. in this article i would like to share with you a few insights into some of the psychological and performance factors that successful people in all three areas share and to provide you with some of the coaching techniques and strategies that i utilise with my own clients to help you to raise your own trading game.

High Performance Is Multi-Dimensional

at the highest levels performance in sports, trading and poker are not simply about skill, there are other factors that determine success.

in sports we can look at performance across four areas or pillars:• skills/technical• physical/fitness• tactical/strategic • mental/psychological

i utilise a similar framework in trading where the categories are skills/knowledge, strategy, risk management and psychology (see ‘trader Performance Profile below) and i also apply this to poker with risk management becoming staking.

Winning at professional sport… Profitable financial trading… Successful poker... What is the connection?

Trading Performance Profile

10

10

10

10

0 strategypsychology

risk Management

skills/Knowledge

Diagram : Trader Performance Profile

Sport, trading and poker Where high performance meet

fXReaching high PeRfoRmance


Cre ate The C ond iti ons a nd O p p or tun it y For Suc c e ss

“Victorious warriors win first and then go to war, while defeated warriors go to war first and then seek to win.”Sun tzu (from The art of War)

in th e b o o k ‘ th in k l i ke a W inn er ’ auth or Ye hu da S h inar ta l k s a b o ut ‘cre ating th e conditions and opportunities for success’, what i o f ten re f er to a s ‘s ta c king th e o d d s in y o ur f avo ur ’. W h en y o u turn up to p lay in sp or ts or p o ker or tra d e th e marke ts e ven b e f ore y o u start there are thing s that you can do or not do that wi l l e i th er in cre a s e y o ur c han c e s o f su c c e ss or d e cre a s e th em . on e o f th e m o st b a s i c an d f undamenta l performance processes that i tr y an d insti l wi th in my c l i ents i s to ensure that th e y ‘warm-up’ or ‘prep are ’. in tra d ing th i s means the research and analysis you do, planning an d strate g y d e ve l opm ent , l o o king at p o ss i b l e scenarios that may occur and how you will react to th em ( ‘ W hat if S c enari o’ p lann ing ) , an d a l s o ensuring that y o u are m enta l l y an d p hy s i ca l l y re a d y, in a p o s i t i ve s tate .

Per f orma nc e Is St ate D ep end ent

it ’s th e la st f e w s e c on d s o f th e g am e an d th e basketball player has the ball on the free throw line to make the winning shot. What influences wh e th er h e s c ore s or m i ss e s ?

it ’s a f a st m o ving marke t an d th e f inan c i a l tra d er ha s a f e w s e c on d s to ma ke a d e c i s i on a s to whether to place his trade or not, and if he does , to exe cute i t corre ctly. What inf luences wh e th er th e tra d er e xe c ute s we l l or n o t , may b e e ven f at f ing er s ?

☑ RAISE YOUR GAME

Complete the Trading Performance Profile by rating your current abilities out of a maximum of 10 on the diagram, where a 10 would be your ‘best possible’.

Once you have marked your score on each of the four scales join the points together to create a diagram that gives a visual representation of your overall scores (see below).

Look at your relative areas of strength and areas for development,

1. Build on your strengths.

2. Address the key areas for development. Take action. Implement new ideas, read, ask people, get some training, mentoring, coaching.

☑ RAISE YOUR GAME

What can you do before trading that ‘stacks the odds in your favour’?

How can you prepare most effectively to trade the markets?

Have you considered the ‘What If’s?

Trading Performance Profile

10

10

10

10

0 strategypsychology

risk Management

skills/Knowledge

Diagram : Example Trader Performance Profile Showing Relative Strengths/Areas For Improvement

Reaching high PeRfoRmancefX


it’s a key hand in poker and the player has to decide whether to play or fold. What influences what th e p lay er d o e s ?

in a l l the above cases the one common denominator i s their mindset . in a l l thre e i t i s important to have the re quire d ski l l s , abi l i ties and knowledg e to perform to a hig h level , howe ver at the moment of exe cution the most important factor i s what i s g oing on interna l ly and how this ma kes them fe el . our fe el ing s , our state , underpin our performances . When a profess iona l g olfer misses a short putt to win a big tournament or a tennis player double faults on match point it is not because of a lack of a skill or abi l i t y – it i s be cause their state has chang e d and their performance is inhibited. When traders don’t pul l the trig g er, pul l the trig g er too of ten, trade too big , cut profits , run or chase losses i t i s not be cause the y do not know what to do, but be cause the y are ‘unable ’ to do so be cause their state has chang e d, and their abi l i t y to act in rationa l and log ica l ways i s compromise d throug h a process known as cortica l inhibition where blood f low to the fronta l lobes – smart brain - is reduced and the emotional brain takes over. discipline trading is as much a function of emotiona l mana g ement as any thing e lse .

“ Poke r i s m ath , i ntuit i on , ne r v es a n d a n aly t i c al th i nki ng. The mome nt that e mo ti on e nte rs the eq u ati on i s u su al ly the e x a c t mome nt whe n the tra d e r a n d the p oke r pl ay e r s ta r t to l os e mone y .”Pe ter k arro l l , c e o o f i a m c or p.

o ur em o ti ons have a b i g imp a c t on h ow we think and this means that being able to make the b e st d e c i s i on un d er pre ssure can b e d i f f i c u lt . th e b e st p o ker p lay er s an d tra d er s are a b l e to ma ke th e ir d e c i s i ons b a s e d on l o g i ca l , s trate g i c thought, with minimal interference from their em o ti ons . B e ing a b l e to l e arn to ke ep c o o l and coherent under pressure i s a ke y ski l l to a c qu ire .

in the world of high performance sport the need to help players to reg ulate their emotions i s widely recognised as being critical to success and many teams/nations are now beg inning to uti l i se biofeedback and neurofeedback training alongside traditiona l sports psycholog y inter ventions to ass ist with this . this i s a process that i am currently utilising myself with my own clients, enabling them to develop the ability to establish performance enhancing states on demand and to bui ld res i l ience to cortica l inhibition and what i s sometimes terme d as emotiona l ‘h ijacking ’.

Diagram : Our Performance Is Underpinned By Our State

☑ RAISE YOUR GAME

One very simple way to begin to manage your emotions is to begin to create an awareness of how you are feeling and the impact on your trading throughout the day.

On a 1-10 scale where 10 is your ‘Ideal Trading State’ (how you feel when you are trading at your best) and 1 is the other end of that scale, regularly ‘check in’ and gain awareness of how you are feeling.

Good questions to ask yourself to increase your awareness are:

• Where would I rate myself right now 1-10?• What is it I am feeling that lets me give myself that score?• What am I doing to feel this way?• What is the potential impact of this on my trading?• What, if anything, do I want to change?



Conf idence Is Ke y

W h en e ver i work wi th sp or ts p e op l e , tra d er s or p o ker p lay er s an d we are d i s c uss ing m enta l or emotional states it is an absolute g iven that the word confidence will appear. confidence is probably the key ingredient cited by my clients a s b e ing cr i t i ca l to p er f orm ing we l l .in sport, confidence ena b l e s y o u to p lay y o ur b e st an d p ut y o ur s e l f into g am e winn ing s i tuati ons - y o u are wi l l ing to step -up. in p o ker, wh en y o u have g ood cards, confidence a l lows you to back y o ur s e l f an d e ven to g o ‘al l in’ wh ere re qu ire d . in trading , confidence enables you to back your own ju d g em ent , to ta ke g o o d tra d e s , b ut a l s o importantly confidence enables you to have the d i s c ip l in e to b e s e l e c ti ve in y o ur tra d e s , to wa i t f or opp or tun i ti e s . intere sting l y on e o f th e ke y o utc om e s o f b e ing c o n f i d e n t i s a g r e a t e r w i l l i n g n e s s t o t a ke r i s k .

th e b e st ath l e te s , tra d er s an d p o ker p lay er s are a l l wi l l ing to ta ke r i s k , to step o ut o f th e c omf or t z on e . th i s r i s k ta king i s n o t re c kl e ss , i t i s ca l c u late d an d inte l l i g ent . em bra c ing r i s k is a key factor visible not just in top traders and p o ker p lay er s b ut in su c c e ss f u l p e op l e a cro ss a l l spectrums of l ife. Psycholog ical ly however

most people prefer c omf or t an d s a f e t y to r i s k . Pe op l e wh o lack confidence are l e ss wi l l ing to ta ke r i s k , th e y are m ore pron e to stay ing c omf or ta b l e an d safe, and as a result rare l y p er f orm to

th e ir p o tenti a l .

D e cis i ons Ma king – K no w W hen To Ho l d Em , K no w W hen To Fo l d Em

there i s a larg e e lement of randomness in poker - y o u d o n o t g e t to c h o o s e th e card s that y o u are dea lt – and variance i s h ig h . it i s possible

☑ RAISE YOUR GAME

Here are 5 steps that you can take to develop and build confidence:

• Develop your trading skills and knowledge – competence is the key underpinning to confidence• Be prepared – the feeling of being ready and prepared plays a big part in creating confidence• Learn to attach confidence to how well you have traded and not just to how much money you have made. A tough one for traders, but for those who make the transformation it is a powerful and positive one.• Become aware of the self-talk you use – your thoughts when negative can be very destructive to your feelings of confidence; aim for a more positive and optimistic explanatory style• Build on your strengths and successes.

learn to attach confidence to how well you have traded and not just to how much money you have made

☑ RAISE YOUR GAME

In his book ‘Success Principles’ Jack Canfield introduces the following formula:

E + R = O

Events + Reactions = Outcome.

We cannot control the events that happen to us, but we can control our reaction to those events and therefore we can influence the outcome. It is important to recognise that sometimes we have to let go of ‘ideal’ outcomes as the events we are encountering will not allow for them, and so the goal when faced with any given event is go for the ‘Best Possible Outcome’. Having the mental flexibility to be able to react in more positive and performance enhancing ways is a skill shared by top performers, after all our experience of any event we encounter is purely in relation to our own perception of that event.



to have r uns o f ‘ b a d card s’ an d l i ke wi s e r uns of ‘g ood cards’ and al l you can do at anytime is p lay th em a s b e st a s y o u can . l i ke wi s e in sp or t an d in tra d ing we cann o t a lway s d e term in e what e vents an d opp or tun i ti e s c om e o ur way, we cannot predict the cards as such, so the real skill , and the key to success is how you respond to th o s e e vents wh en th e y o c c ur.

fo c uss ing on th e d e c i s i ons ma d e , an d n o t th e results of them, is one of the fundamentals of en han c ing tra d ing p er f orman c e . th e ke y to su c c e ss in any p er f orman c e arena i s an a b i l i t y to be able to focus on the process – the how of p er f orman c e – an d to b e a b l e to s ep arate o ut the process and the outcome when you come to e va luating y o ur p er f orman c e . Yo u can p lay we l l in sp or t an d l o s e an d y o u can p lay b a d l y an d win. likewise in poker and trading where the d e c i s i ons y o u ma ke d o n o t a lway s have an e qua l re a c ti on on th e re su lt or g uarante e su c c e ss .

a s k y o ur s e l f n o t just ‘ how mu c h m on e y have i ma d e or l o st ? ’ b ut ‘ how we l l have i tra d e d ? ’

“ The i mp a c t o f the co a ch i ng ha s b e e n that I a m more at ea s e a n d conf i d e nt . I a m m aki ng b ette r tra di ng d e c i s i on s . Th i s ha s l ea d to a l ea p i n P & L as the result of consistent good trading is positive P & L o v e r t i me .” tra d er, f X for ward s , d e uts c h e Ban k

R e s i l i enc e – L e a rn To Ha nd l e L o ss e s L i ke A W inner

ver y f e w p e op l e in sp or t win a l l th e t im e ; g o o d tra d er s can b e wrong at l e a st ha l f o f th e t im e ; in p o ker th e var i an c e i s s o g re at that ver y f e w pe ople at the top le vel win consistently. on top of this, athletes may also face not getting picked, or g e tting in jure d , tra d er s may f a c e e xten d e d periods of drawdown and poker players l ikewise can o f ten have l ong p eri o d s wi th o ut a g o o d finish – especially in tournament play. What this m e ans i s that d e a l ing wi th l o ss e s an d s e tb a c k s i s a key part of the g ame and this requires a person to be resil ient, to be able to ‘ bounce back’, and i d e a l l y a s qu i c kl y a s i s p o ss i b l e .

POKER AS A TOOL FOR TRAINING TRADERS

Susquehanna International Group (A US trading group) has been using poker to teach its new traders since it was founded in 1987, said Pat McCauley, who heads the privately held firm’s trader-development program.

Susquehanna has held in-house poker tournaments to recruit traders and monitor decision-making skills.

The trainees learn to use information they see in the marketplace to infer what motivates others, helping them make better prices. It’s the same way poker pro Phil Ivey, considered among the game’s greats, makes bets based on what he sees among his opponents, McCauley said.

“What professional poker players are really good at is taking this information that’s relatively subjective, quantifying it and making it objective, and that’s what trading is about,” McCauley said.

Source: Bloomberg News: “Harvard Poker Pro Says Texas Hold ‘Em Can Teach Traders to Fold”

☑ RAISE YOUR GAME

I see trading resilience existing on three levels, and ideally you want all three to be strong. Take some time to check your resilience and address any areas possible to raise your threshold.

1. Financial ResilienceHow much capital you have available.

2. Physical ResilienceHow much physical energy you have available.

3. Psychological ResilienceYour ability to mentally and emotionally deal with losses and setbacks.



http://www.bloomberg.com/apps/news?pid=newsarchive&sid=alximP6.Eta8

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=alximP6.Eta8

no on e l i ke s to lose , our eg o certa inly doesn’t l ike i t , and so learning to accept this and be able to move on, i s a ke y ski l l , but not ne cessari ly an easy one.

Conclusion

Success in sports , poker and trading are ver y rarely accidenta l and random, it i s instead a f unction of de veloping the re quire d ski l l s , knowle dg e and importantly mindset . in any hig h performance arena there wil l be some commona l ities among st the hig hest performers

as i s e vident across our thre e areas here and as the s imilarities of the arenas c lose tog ether as with poker and trading where ma king de cis ions under risk and uncerta int y are ke y then the cross over be comes e ven more s ig nif icant . Sports psycholog y has be en use d to help traders and poker players . Poker psycholog y has be en use d to help traders . traders have use d their ski l l s and abi l i ties to be come successf ul at poker.

Whate ver your ‘g ame’ you can ra ise i t by focussing on and de veloping your approach to performance and the menta l and emotiona l c omp on ent o f i t .

dea l ing with losses and setbacks i s a ke y part of the g ame and this re quires a person to be res i l ient



Sean was a trader who was very capable but who’s P&l returns did not seem to be reflective of this. i remember sitting down with him in one of our early coaching sessions and conducting some analysis of his trading looking at where he tended to make money and where he tended to lose money, where he traded well (made good decisions) and where he traded not so well. as we went through this process it soon became evident that Sean’s profits and best trading decisions were centred around market events such as economic releases, announcements, speeches and higher volatility conditions. Where he tended to lose a disproportionate amount of money was in trading markets that were less event-driven, less volatile and more range bound.

What were the options for Sean going forward?

• Stay the same.• Work on developing his trading in range bound conditions.• Look to maximise his opportunities in the volatile markets he thrives in.

one of the key underlying principles of my coaching practise is what is called a solution focussed approach essentially helping clients to build on their strengths and successes to enhance their performance. This is somewhat paradoxical when you consider that the majority of self-referring clients come for coaching because they believe they have a problem. however traders, as with people in sports, business and any performance activity, are most likely to succeed where they play to their strengths, and so starting coaching from this perspective is a very effective approach, and where people ultimately get the biggest bang for their buck.

Solution focuSSed trading

getting the BiggeSt Bang for Your Buck

fXSolution focuSed tRading


there are three key phases to adopting this solution focussed approach:1. identify your strengths2. utilise your strengths3. focus on, and build on your strengths

But what about my weaknesses i hear you ask? When tennis legend Steffi graf was a junior she had a very strong forehand and a not so strong back hand. The coaches had a decision to make – develop the backhand or develop her game to enable her to play to her natural strength – the forehand. the proviso was that the back hand had to be good enough that it did not become a weak link in her game. over the years the coaches harnessed graf ’s forehand into a phenomenal force which was assisted by playing to another of her strengths her extreme athletic ability which enabled her to ‘run around’ the shot to hit the forehand, and they developed a backhand that kept her in the game and wasn’t adversely ‘hurting’ her performance. What would had been the case had she worked and devoted time and effort to developing a good backhand at the expense of having the ‘killer’ forehand? We will never know, but without the legendary forehand she would have certainly have been a different player.

the same is true for your trading. develop and play to your strengths first and foremost, then notice what happens, what is left over in terms of ‘weaknesses’ and then decide to what level they need to be developed , if at all, so that they are not ‘hurting you’.

identifYing StrengthS

in my experience as a coach one of the most difficult questions for people to answer with sufficient depth seems to be ‘What are your strengths?’. this is even more interesting in comparison with the ease at which people can answer the question ‘What are your weaknesses?’. one of the reasons behind this is our biological conditioning and bias towards negativity as a survival mechanism, helping us to assess risk and worst case

scenarios, another maybe cultural conditioning where self-deprecation of our character is often seen as more acceptable than ‘blowing our own trumpet’.So how then can we effectively elicit our trading strengths? the answer lies in recent developments in

As a junior, Steffi Graf had a very strong forehand and a not so strong backhand

Solution focuSed tRadingfX


fXSolution focuSed tRading

the world of interviewing which has seen a move away from traditional style interview questions such as ‘what are your strengths?’ and towards an approach known as behaviour based interviewing where you ask questions that are focussed on actual experiences and then elicit the answers you are looking for from it. for example in trading instead of asking ‘What are your strengths?’ we would ask, ‘tell me specifically and in as much details as possible about a time when you traded really well or made a great trading decision (regardless of the outcome)’, and then listen to the reply for evidence of what strengths enabled that success/decision. I have noticed significant differences in both the quantity and the quality of information that i have been able to elicit from clients using this approach. try it for yourself.

Think back to three great trades, trading days or trading decisions (these could be times when you have reduced losses or been disciplined as much as the times when you made big money) that you have made. Recall the events in as much detail as possible. What do you notice? What were you thinking, feeling, doing? What helped you to achieve those successes? is there anything in common? What do those experiences say about you as a trader? Write down your responses and insights.

utiliSing StrengthS

once you have identified your key strengths the next stage is to ensure that you are fully utilising them and leveraging them. one important way of doing this is to ensure that they are reflected in your trading, that you are where possible hitting the sweetspot, trading at the centre of your own personality and strengths and the markets and strategies that are most inline and supported by them.

here are some questions to ask yourself to help you to identify your trading sweetspot:

• What are your strengths?• What do you enjoy doing?• What are you most

interested in, and motivated to do?• What do you do best in the markets?• Where have you been most profitable?

of course the market conditions, your strategies and indeed even yourself will not remain constant over time, and so staying in the sweetspot , or close to it, becomes a dynamic process. one of the keys to longevity in the market is the ability to be able to stretch and flex, both in the short term and in the long term, to be able to adapt to changing conditions and keep performing.

focuSing on and Building on StrengthS

like any good performance behaviour repetition of it is the key to making a habit and an integral part of your trading. it is all too easy to drift away from a focus on trading to your strengths and becoming overly focussed on areas of perceived weakness, so here are a few key questions that you can ask yourself on a daily/regular basis to help you to continue to build on your best performances.Pre-trading:‘how will i utilise my strengths and be at my best today?’Post trade:

“A shoemaker makes shoes. You have to stick with what you’re good at.”

Steve Cohen, SAC Capital


‘What went well with that trade?’end of day:‘What did i do well today that i can build on tomorrow?’

asking yourself these questions may feel strange to begin with as they are run counter to most of our natural responses which tend to be little evaluation when things have gone well, and delving into more significant analysis and introspection when our performance is not going as well as we would like. adopting any new behaviour can leave us with that uncomfortable (i.e. unfamiliar) feeling, and our natural response is often to head back to the comfort of our old ways, however persisting with these questions and indeed with the solution focussed approach can have a very positive impact on your trading

performance and profitability.

WhAt About SeAn?

the outcome of the meeting with Sean was that he decided to focus on increasing position sizing around his core strengths and strategies, and focus his efforts and energies on making sure that he was optimising his returns in these event driven more volatile conditions, and that he would still trade the quieter markets but would work on developing different strategies and approaches to do so and would take less risk with these trades enabling him to maintain a feel for the markets, develop his trading abilities and minimise his losses.

Solution focuSed tRadingfX


ReSilience – the keY to long teRm tRading SucceSS

it would be hard to find any experienced trader who has not endured tough periods in their trading career and whilst at the time these periods are obviously not that enjoyable it is interesting that in retrospect they often add to a traders ability, knowledge or psychological strength, and in some cases can also be significant turning or launching points to greater success. in fact a very useful technique that i teach my clients when they are having a tough time which utilises this perspective is to ‘use the long lens’ or the ‘wide lens’ (see below).

trader toughneSS training

developing reSilience to cope With

loSSeS, SetBackS and tough timeS

Resilience In Action : ‘Using The Long Lens and Wide Lens’

• Think of a loss/setback/error you have encountered recently. Look at it with a long lens – go six months, 12 months, 2 years into the future and imagine looking back on the event - what do you notice? What perspective would you have on it from the future looking back?

• Think of a loss/setback/error you have encountered. Look at it with a wide lens – ‘What can I learn from this?’ - what do you notice?

fXdeveloPing ReSilience


trading presents you with much challenge, pressure and often periods of adversity. traders lose, they make mistakes, they encounter tough periods in the market, they go through drawdown and they have setbacks. What separates those who ‘ bounceback’, who keep going and eventually make it through and those who get beaten by their situation? toughness – resilience is the deciding factor.

“I can think of no psychological characteristic more important to long-term trading success than psychological resilience. Resilience has been defined in a number of ways, sometimes as a process, other times as a trait. In all cases, resilience presumes exposure to stressful conditions and an ability to maintain high levels of social, emotional, and vocational functioning throughout this exposure.My experience with traders suggests that even the most successful ones go through periods of drawdown. Sometimes these drawdowns are extended, either in time or in the amount of money lost. Some traders bounce back from these losses ; others don’t.”Brett Steenbarger, traderblogspot.com

think back over the last few months of your trading . When, and how, have you been resilient ?

mindSet : the middle man of YouR e XPeRience

Psychological resilience is a mindset – it is about how you mentally deal with tough situations. What you chose to think and say to yourself in those events and what beliefs, attitudes and perceptions you have that underpin them.

the diagram below shows how your mindset operates. an activating event such as a loss is filtered through the traders mindset in terms

Exercise : Resiliency Rating Self-Assessment

Answer each one of the following statements either TRUE OR FALSE

1. I have future trading goals which I feel motivated and excited about achieving.

2. I find it easy trade again (in a disciplined way) after a loss or an error.

3. I don’t give up when progress is slow or get put off achieving an objective by tasks I find boring or unpleasant.

4. I find creative ways of rising to challenges.

5. Under pressure I rarely feel helpless or fatigued.

6. I don’t let difficult periods, with few wins, affect my confidence.

7. When challenged, I am able to summon a wide range of positive emotions engage my fighting spirit and maintain a sense of humour.

8. I know how to motivate myself under adverse condi-tions.

9. If I start out badly, with a losing trade for example, it’s easy for me to stay positive, confident and disciplined.

10. I can see slumps in performance as temporary.

The more TRUE answers you have the greater your resilience . Total up the number of times you have answered TRUE and then multiply by 10 to get a percentage score e.g. 6 True = 60%. This is your current Resiliency Rating.

Make a note of your rating and also the areas where you an-swered FALSE. These are key areas for development. Which one if you could change the answer to a TRUE do you feel would have the biggest positive impact on your trading perfor-mance? Make this your primary resiliency development goal.

develoPing ReSiliencefX



of their beliefs, attitudes, perceptions and this generates a feeling and a set of subsequent behaviours and actions which is then played out as the traders performance. the activating event can be the same for many different traders and yet the outcomes, how they perform could all be vastly different based on their mindset. it is therefore not the events that happen to us that actually determines our results but rather our mindset that dictates how we respond.

develoPing tR adeR toughneSS : leSSonS fRom cognitive PSYchologY and the uS militaRY

thirty years of research suggests that resilience can be measured and taught and the uS army is currently testing this with its ‘comprehensive Soldier fitness’ program, developed by prominent psychologist martin Seligman, which aims to build

a soldiers psychological fitness as well as their physical fitness. a key component part of this program is resilience training , building mental toughness, enabling soldiers to deal effectively with the traumas of war, and interestingly to enable soldiers to move away from PtSd (Post traumatic Stress disorder) to Ptg (Post traumatic growth).

Seligman has found that three factors were important in dealing with setbacks and being resilient. 1. Seeing the event as temporar y2. Seeing the event as local

3. Seeing the event as changeable (it’s going away quickly ; it’s just this one situation; and i can do something about it)

how you interpret the events that occur to you

US Army “Comprehensive Soldier Fitness’ program


is a critical factor in your experience of them, reaction to them and performance after them. the meaning of any event is the meaning you g ive it.

the research done by martin Seligman (learned optimism 1990) suggests that individuals with an optimistic explanator y style not only consistently outperform those with a pessimistic explanator y style but are also happier and live longer. an optimistic explanator y style, particularly about bad events, encourages perseverance : pessimistic people are more likely to lose confidence and motivation after a poor performance than optimists, and encouraging optimism in traders can therefore lead to perseverance which is of course a ke y p ar t

o f re s i l i en c e . W i th p e ss im i sti c tra d er s wh en a n e g ati ve e vent o c c ur s - f or e x amp l e , a b i g l o ss ; a susta in e d p eri o d o f d rawd own ; ma king an error ; an d s o on - th en th e ir e xp lanator y st y l e wo u l d prom o te l e ss p er s e veran c e , an d may b e re su lt in th o s e tra d er s n o t a c h i e ving th e ir f u l l p o tenti a l .

how d o y o u c urrentl y d e a l wi th s e tb a c k s ?

W hat m e an ing d o y o u g i ve to m i sta ke s , l o ss e s , s e tb a c k s ? how c o u l d c hang ing y o ur p er sp e c ti ve o f su c h e vents en han c e y o ur p er f orman c e ?

t Wo ot h e R d i m e n S i o n S to t R a d i n g R e S i l i e n c e

Ps y c h o l o g i ca l re s i l i en c e i s cr i t i ca l to l ong term tra d ing su c c e ss , h owe ver i f e e l that th ere are t wo o th er d im ens i ons to a tra d er s l e ve l o f re s i l i en c e that are imp or tant an d imp a c t on a tra d er s p s y c h o l o g i ca l f un c ti on ing .

• tra d ing cap i ta lth e s i z e o f y o ur tra d ing cap i ta l i s s i g n i f i cant b e caus e i t i s n o t on l y a d e term inant o f th e s i z e that y o u can tra d e an d th e p o s i t i ons that y o u can ta ke , b ut a l s o m ore imp or tantl y c ontri b ute s s i g n i f i cantl y to h ow y o u f e e l , y o ur l e ve l o f c onf i d en c e an d c omp o sure f or e x amp l e , an d su b s e qu entl y o f ten th e d e c i s i ons y o u ma ke an d th e r i s k s y o u ta ke , or d on’t ta ke , a s we l l a s y o ur a b i l i t y to c op e wi th f uture l o ss e s .

• Phy s i ca l en er g yYo ur p hy s i ca l en er g y imp a c ts on y o ur a b i l i t y to m o b i l i s e an d to susta in h i g h intens i t y em o ti ona l s tate s su c h a s m o ti vati on , c onf i d en c e ,

Martin Seligman, author of “Learned Optimism”

develoPing ReSiliencefX


enthus i a sm an d f o c us , an d to ma inta in c omp o sure un d er dure ss . W h en tim e s are to ug h y o u o f ten emp l oy s i g n i f i cant am o unts o f m enta l an d em o ti ona l en er g y to c op e wi th th e s i tuati on an d s o y o ur p hy s i ca l en er g y store s are m ore re a d i l y d ep l e te d an d y o ur re s i l i en c e l ower s .fo c us ing on m a i n t a i n i n g h i g h en er g y l e ve l s i s us e f u l f or a l l tra d er s , an d i s p ar ti c u lar l y i m p o r t a n t during p eri o d s o f h i g h er stre ss wh ere i n t e r e s t i n g l y an d c o unter p r o d u c t i v e l y y o u are m o st l i ke l y to g i ve up y o ur g o o d en er g y ha b i ts in ord er to sp en d m ore t im e f o c uss ing on th e marke ts .

th ere are f o ur ke y are a s to a d d re ss in ord er to b u i l d an d susta in p hy s i ca l re s i l i en c e :• S l e ep ( 6 - 8 h o ur s p er n i g ht )• nutri t i on an d hy d rati on (avo i d e xc e ss i ve sug ar an d ca f f e in e )• e xerc i s e ( 5 x 3 0 m inute s p er we e k o f m o d erate a c ti v i t y )• R e st an d re la x ati on ( re c o ver y an d d owntim e )( inf ormati on in bra c ke ts b a s e d on u k

g o vernm ent h e a lth a g en c y g u i d e l in e s f or g en era l h e a lth an d we l l n e ss )

g et to u g h !

in tra d ing , up s an d d owns are th e n orm n o t th e e xc ep ti on . having th e re s i l i en c e to d e a l wi th th e d owns an d to b e a b l e to ma inta in c o n f i d e n c e , c o m p o s u r e , f o c us an d d i s c ip l in e i s e ss enti a l to l ong term tra d ing su c c e ss .R e s i l i en c e i s s o m e t i m e s s e en a s a tra i t , h owe ver th e work o f S e l i g man an d th e uS mi l i tar y c o m p r e h e n s i v e S o l d i er fi tn e ss p r o g r a m d e m o n s t r a t e that i t i s a l s o b o th te a c ha b l e an d l e arna b l e .

c omp l e te th e re s i l i en c e a ss e ssm ent , b u i l d on y o ur re s i l i en c e streng ths an d a d d re ss th e are a s wh ere y o u have ans were d fa l S e , p erhap s uti l i z ing th e ‘ l ens’ c on c ep t to c hang e p er sp e c ti ve s or by l o o king at th e m e an ing y o u are g i v ing to th e e vents an d y o ur e xp lanator y st y l e a b o ut th em .

Your physical energy impacts on your ability to mobilise and sustain high intensity

emotional states



one of the fe w a spe c t s of t ra d i ng where you ca n e x per ience some cer t a i nt y i s t hat you w i l l have los se s . l os se s a re a pa r t of t ra d i ng a nd one of t he ke y d i f ferent iators of t he b e st t ra ders f rom t he re st i s not i n how ma ny los se s you have but i n how you de a l w it h t hose los se s . B e com i ng a g o o d loser i s t he ke y to b e com i ng a long ter m w i n ner.

how do you current ly dea l w ith your trad i ng losses? how do they a f fect you? W hat is the i mpact on your trad i ng per forma nce a nd resu lts?

l et ’s lo ok at a t h ree step pro ce s s t hat ca n help you to b e come b et ter at de a l i ng w it h you r tra d i ng los se s .

STEP 1: REDUCTION

t he f i r st s tep i n de a l i ng w it h los se s e f fec t ive ly i s ‘R e duc t ion’. R e duc t ion i s ke y b e cau se i f you g et t h i s pa r t r ig ht t hen you have le s s to de a l w it h a nd ma na g e i n steps 2 a nd 3 – it i s e s sent ia l ly a k i nd of i no c u lat ion .

t here a re t h ree a spe c t s you ca n re duce in your trading that wil l impact on how you deal with losses.

1. R e d u c e – t h e n u m b e r o f l o s s e s

R e d u c i n g t h e nu m b e r o f l o s s e s i s n o t a b o u t t r y i n g t o r e d u c e l o s s e s p e r s e a s t h i s i s n o t r e a l i s t i c , b u t r e f e r s t o f o c u s s i n g o n t r a d i n g y o u r s t r a t e g y, b e i n g d i s c i p l i n e d , a n d r e d u c i n g l o s s e s t h a t , f o r e x a mp l e , a r i s e f r o m t a k i n g t r a d e s t h a t a r e n o t a p a r t o f y o u r s t r a t e g y a n d a r e t h e r e f o r e a vo i d a b l e . a l o s s i n c u r r e d f r o m a d i s c i p l i n e d t r a d e i s e x a c t l y t h a t , a l o s i n g t r a d e , a p a r t o f t r a d i n g . a l o s s i n c u r r e d f r o m a n i l l - d i s c i p l i n e d t r a d e c o u l d b e s e e n a s a b a d t r a d e , a n d s o m e t h i n g t h a t w a s a vo i d a b l e .

2 . R e d u c e – t h e s i z e o f y o u r l o s s e s

t h i s i s o b v i o u s l y a l l a b o u t r i s k m a n a g e m e nt . i t i s i mp o r t a nt t o r e c o g n i s e t h a t b i g l o s s e s h a ve a g r e a t e r e m o t i o n a l a n d n e u r o l o g i c a l i mp a c t a n d c a n o f t e n d r i ve t r a d i n g b e h a v i o u r s t h a t a r e g e n e r a l l y n o t u s e f u l , s u c h a s r e ve n g e t r a d i n g . Yo u r p o s i t i o n s i z i n g a n d y o u r t r a d e e x i t s t r a t e g y w i l l d e t e r m i n e h o w b i g y o u r l o s s e s a r e s o m a n a g i n g a n d b e c o m i n g s k i l l e d a t b o t h o f t h e s e i s k e y.

3 . R e d u c e – t h e i m p a c t y o u h a v e m e n t a l l y a n d e m o t i o n a l l y t o t h o s e l o s s e s

3 Steps to help You to Deal With trading Losses More effectively

loSing like a Winner

loSing like a WinneRfX


fXloSing like a WinneR

Yo u r r e s p o n s e t o a l o s s i s a f a c t o r o f h o w y o u l o s t (w e r e y o u d i s c i p l i n e d o r n o t) , t h e s i z e o f t h e l o s s a n d a l s o y o u r p e rc e p t i o n a n d b e l i e f s a b o u t l o s s e s . i f you h a t e to lo s e , a nd f e e l t h a t you s hou ld not h ave a lo s i n g t r a d e or lo s e mone y t r a d i n g , t hen you r re s p on s e w i l l b e ver y d i f f erent f rom s ome one w ho h a s a more re a l i s t ic m i nd s e t , w ho a c c ept s t h a t lo s s e s a re a p a r t of t r a d i n g , t h a t t he out c ome s a re p r o b a b i l i s t i c , t h a t not e ver y t r a d e w i l l w i n .

d o you f u l l y a c c ept t h a t lo s s e s a re a p a r t of t r a d i n g?

d o you f u l l y a c c ept t h a t e ver y t r a d e h a s a non-g u a r a n t e e d , p r o b a b i l i s t i c out c ome?

STEP 2: RESPONDING

t h i s s t ep i s a l l a b out how you a c t u a l l y c op e i n t he moment onc e you re a l i s e you m ay h ave to t a ke a lo s s . ta k i n g a lo s s i s ver y r a re l y e a s y due to f a c tor s s uc h a s ou r e g o , ou r d e s i re to w i n a nd ou r hu m a n t end enc y tow a rd s lo s s aver s ion w h ic h i s w hy t he ‘ R e duc t ion’ ph a s e i s s o i mp or t a nt . howe ver, e ven w it h s t ep one i n pl a c e t a k i n g a lo s s c a n s t i l l b e d i f f ic u lt ,

e ven more s o i f we h ave h a d a pre v iou s lo s s or lo s s e s , s o i t i s u s e f u l t o h a v e s o m e s t r a t e g i e s t h a t c a n h e l p y o u t o s t a y c a l m , f o c u s s e d a n d d i s c i p l i n e d i n t h e h e a t o f t h e m o m e n t . f o r m a n y p e o p l e i t i s a f e e l i n g o f a n x i e t y o r a n g e r t h a t s t o p s t h e m f r o m g e t t i n g o u t o f a t r a d e w h e n t h e y s h o u l d . t h e

e m o t i o n t h e y e x p e r i e n c e d r i v e s b e h a v i o u r s t h a t a r e n o t t h e m o s t a p p r o p r i a t e o r d i s c i p l i n e d a t t h e t i m e . B e i n g a b l e t o m a n a g e y o u r e m o t i o n a l s t a t e i n r e a l t i m e , t o k e e p y o u r t r a d i n g b r a i n o p e n a n d a c t i v e , c o m p o s e d a n d d i s c i p l i n e d i s k e y .

o n e q u i c k a n d e a s y w a y t o m a n a g e y o u r e m o t i o n a l s t a t e i s t o m a n a g e y o u r b r e a t h i n g . W h e n y o u e n t e r s t r e s s b a s e d st ate s t y pica l ly you r bre at h i ng w i l l cha ng e – of ten b e com i ng qu ic ker a nd sha l lower – so t a k i ng some long er, s lower bre at h s , f rom t he d iaph ra g m , a nd w it h a long s low a nd control le d outbre at h (t he b o d ie s ’ nat u ra l re la x at ion re sp onse) ca n help to re verse t he stre s s re sp onse a nd keep you ca l mer a nd more comp ose d a nd i mp or t a nt ly d i s c i p l i n e d .

becoming a good loser is the key to becoming a long term winner


a l s o , t a k i n g a c o g n i t i ve v i e w, b e a w a r e o f y o u r t h i n k i n g i n s u c h s i t u a t i o n s . W h a t t y p e s o f t h o u g h t s d o y o u t y p i c a l l y h a v e w h e n y o u a r e i n a l o s i n g t r a d e ? ‘ t h e m a r k e t a l w a y s g o e s a g a i n s t m e ’ ‘ t h i s s h o u l d n ’t b e h a p p e n i n g ’. t h e s e a r e n o t u s e f u l t h o u g h t s a s t h e y h e i g h t e n y o u r s t r e s s l e v e l s . a s k y o u r s e l f ‘ W h a t w o u l d a g r e a t t r a d e r i n a s i m i l a r s i t u a t i o n b e s a y i n g t o t h e m s e l v e s ? ’ . t h i s c a n h e l p y o u t o d i r e c t y o u r t h i n k i n g a n d a s a r e s u l t a f f e c t y o u r f e e l i n g s a n d d r i v e m o r e p o s i t i v e b e h a v i o u r .

a n o t h e r w a y t o m a n a g e y o u r t h i n k i n g i s t o a c t u a l l y c r e a t e s o m e ‘c u e s ’ t h a t y o u c a n r e p e a t t o y o u r s e l f w h e n y o u a r e i n a s i t u a t i o n o f p o s s i b l e l o s s t o d i r e c t y o u r t h i n k i n g , f e e l i n g a n d e m o t i o n a n d t o a l s o o v e r r i d e a n y u n c o n s c i o u s a n d h a b i t u a l r e s p o n s e s t h a t y o u m a y h a v e d e v e l o p e d . R e m e m b e r t h a t w h e r e y o u p l a c e y o u r a t t e n t i o n i m p a c t s o n e m o t i o n a n d d i s c i p l i n e . f o c u s c u e s t h a t k e e p y o u r m i n d o n y o u r t r a d i n g p r o c e s s a n d o n d o i n g t h e r i g h t t h i n g ( p r o b a b l y n o t t h e e a s y t h i n g ) a t t h e

r i g h t t i m e f o r t h e r i g h t r e a s o n s c a n b e v e r y h e l p f u l f o r e x a m p l e ‘ i a m a w i n n i n g t r a d e r b e c a u s e i f o l l o w t h r o u g h w i t h m y t r a d i n g p l a n ’.

STEP 3: RECOVERY

t h e t h i r d s t e p i s a l l a b o u t ‘ R e c o v e r y ’ .

o n c e t h e t r a d e i s c l o s e d o u t a l o s s h a s b e e n r e a l i s e d w h a t c a n y o u d o ?

1 . c h e c k - i n . h o w a r e y o u f e e l i n g ? o n a 1 -1 0 s c a l e w h e r e 1 0 i s p o s i t i v e t r a d i n g s t a t e s a n d 1 i s t h e o t h e r e n d o f t h e s c a l e w h e r e a r e y o u r i g h t n o w ?

2 . e v a l u a t e a n d a s s e s s

t h e r e a s o n b e h i n d t h e l o s s . W h a t t y p e o f l o s s w a s i t – l o s i n g t r a d e o r b a d t r a d e ? i s t h e r e a n y t h i n g t o l e a r n f r o m t h e t r a d e , o r a c t i o n t o t a k e g o i n g f o r w a r d ? i f y o u h a v e h a d a s t r o n g e m o t i o n a l r e a c t i o n t o t h e l o s s t h e n n o w m a y n o t b e t h e b e s t t i m e t o e v a l u a t e a s y o u r m o o d w i l l b i a s y o u r e v a l u a t i o n . o u r m o o d f o r e x a m p l e h a s a

It is useful to have some strategies that can help you to stay calm, focussed and disciplined

in the heat of the moment

loSing like a WinneRfX


s t r o n g i n f l u e n c e o n m e m o r y r e c a l l .

3 . m a n a g e t h e r e a c t i o n . t h e r e a r e a nu m b e r o f w a y s t h a t y o u c a n m a n a g e y o u r r e a c t i o n t o a l o s s .

a t a c o g n i t i ve l e ve l y o u w a nt t o b e a w a r e o f y o u r t h i n k i n g a n d y o u r p e rc e p t i o n o f a n d t h e m e a n i n g y o u a r e g i v i n g t o t h e l o s s . t h e m e a n i n g o f a l o s s i s t h e m e a n i n g y o u g i ve i t . a l o s s d o e s n o t f o r e x a mp l e m e a n y o u a r e a

l o s e r . Yo u c a n t a k e a d i f f e r e nt p e r s p e c t i ve b y t a k i n g a w i d e r l e n s – w h a t c a n i l e a r n f r o m t h i s ; o r a l o n g e r l e n s – h o w w i l l i f e e l a b o u t t h i s a t t h e e n d o f t h e d a y, t h e e n d o f t h e w e e k , t h e e n d o f t h e m o nt h , i n 6 m o nt h s , a y e a r , i n 5 y e a r s?

a t a b e h a v i o u r a l l e ve l y o u c o u l d u s e b r e a t h i n g o r r e l a x a t i o n- b a s e d t e c h n i q u e s o r t a k e a w a l k o r g o f o r s o m e e x e rc i s e t o h e l p y o u t o m a n a g e t h e f e e l i n g o f t h e l o s s .

S o m e t i m e s , i t i s j u s t a m a t t e r o f t i m e . a s e s s i o n o r d a y o u t o f t h e m a r k e t s c a n o f t e n b e e n o u g h t o h e l p y o u t o s h a k e o f f s o m e o f t h e e m o t i o n , t o r e g a i n s o m e p e r s p e c t i ve a n d b e r e a d y t o t r a d e a g a i n .

4 . R e -f o c u s . t h i s i s a l l a b o u t g e t t i n g b a c k a n d r e a d y t o t r a d e a g a i n – t h a t m e a n s m e nt a l l y, e m o t i o n a l l y a n d a l s o s t r a t e g i c a l l y. R e m i n d y o u r s e l f o f y o u r t r a d i n g p l a n , t a k e a c e nt e r i n g b r e a t h a n d t h e n g o .

evaluate and assess the reason behind the loss. What can you

learn from it?

In Summary

If you want to be good at taking losses, to develop the skill that will help you to improve your chances of becoming a long term winner then remember:

• Reduce – inoculate against strong reactions to losses by reducing the number of avoidable losses, bad trades; by managing position size and exits; and by developing a mindset that has a more positive perspective on losses.

• Respond – by directing your thoughts and focus or managing your breathing to create states that enable disciplined trading behaviour.

• Recover – by checking-in, evaluating, managing your reaction and refocusing.

fXloSing like a WinneR


PERFECTIONISM – A TRADING VICE

there is a great scene from the introduction to the BBc2 tv program ‘million dollar traders’ where chloe, one of the traders, reaches for her phone to make a trade, she hesitates, reaches again, hesitates, reaches again, hesitates, reaches again, hesitates...and does not make the trade. She fails to pull the trigger on what was a well-researched trade.

is that something that you can relate too?

What stopped her? chloe, is trained as a vet, a highly intelligent young lady who has excelled academically and in her career and with strong perfectionist tendencies. this tendency has undoubtedly helped her to excel in her studies but this strength had become her trading weaknesses, her achilles heel.

there is a great book called ‘golf is not a game of perfect’ by dr Bob Rotella – a must read for those of you masochists who are also golfers as well as traders – from which i have taken the title for this article because trading, like golf is also not

a game of perfect. it is a game of ifs, buts, nearly’s, maybes.

You can probably think for yourself about times when you have exited a trade too early only to see it rocket to and perhaps beyond your profit target; or that time you got out of the market for a loss only to see it come back and go your way; or maybe the time you didn’t take the trade because the set-up wasn’t quite right, or it wasn’t quite at your level, only to see it go on to be a winner. likewise maybe there have been times when fortune has favoured you in similar situations. the

trading iS not a game of perfect 7 StepS to overcoming perfectioniSt

tendencieS

oveRcoming PeRfectioniSmfX


fXoveRcoming PeRfectioniSm

nature of markets and the nature of humans creates an environment of imperfection. Perfectionism is at heart an admirable quality, but it can often be destructive at it’s extreme and is quite likely to hinder you as a trader.

Brett Steenbarger in ‘the three vices of trading’ (www.brettsteenbarger.com) listed perfectionism as one of three qualities that have the biggest negative impact on a trader – the other two out of interest being ego and overconfidence.

DO YOU HAVE PERFECTIONIST TENDENCIES?

So the big question is do you have p e r f e c t i o n i s t tendencies?

here is how Burns in ‘the perfectionists script for self-defeat’ in Psychology today defined it: Perfectionists are people whose standards are high beyond reach and who strain compulsively and unremittingly toward impossible goals and who measure their own worth entirely in terms of productivity and accomplishment.’

does that sound like you?

Perfectionists suffer from setting

excessively high standards, a fear of failure, procrastination, never being satisfied with their successes and can become emotionally disturbed when their standards are not met, which can be often in trading, fear of competition, not learning, all-or-nothing thinking, being overly self-critical, being intolerant of mistakes

and also they can be prone to high levels of performance anxiety.

in your trading fear of loss, hesitation and not pulling the trigger, getting highly frustrated or angry when trades don’t work out or when your timing is out with the market, or being highly self-critical of your trading performance can all be evidence of perfectionist tendencies.one way of checking on your

perfectionist tendencies is to listen for ‘musts’ and ‘shoulds’ in your self-talk/thoughts.

7 WAYS TO OVERCOME PERFECTIONIST TENDENCIES

So, if you do have some perfectionist tendencies what can you do?

1. one of the most useful things and an important principle to remember is that you are a fallible (imperfect) human being and therefore also a fallible (imperfect) trader. holding this principle as one of your trading beliefs, a part of your mental map, can be very useful in keeping your reactions to events more realistic, and less emotionally intense.

2. as you are operating in an

imperfect, uncertain environment learning to think probabilistically is important. interestingly the research from Behavioural finance consistently shows that humans are not that effective at judging or thinking in probabilities so it is a skill that many people will need to develop. mark douglas covers this topic well in trading in The Zone where he talks about and defines the concept of having an edge ‘an edge is nothing more

the nature of markets and the nature of humans create an environment of imperfection


than an indication of a higher probability of one thing happening over another’ and that ‘each trade has a non-guaranteed probabilistic outcome’. a shift in thinking from perfection to probabilities will help to shape trading behaviour that allows for greater quality execution and response to events.

3. S t r i v e to do your best, to aim for excellence, rather than obsessing with being the best; aim and focus on becoming a better trader. focus on learning and i m p r o v e m e n t i n c l u d i n g ensuring that you embrace mistakes and learning from them.

4. focus on your trading process and not just on the outcome. By focussing on your trading process you remove some of the anxiety and frustrations that exist when you get too tied into your results. i remember one particular trader i worked with who was able to make significant shifts in his trading performance once he started to focus on how well he was trading alongside how

much money he was making or losing.

5. learn to embrace the challenge of trading and seek enjoyment in what you do. in the ‘inner game’ (see the ‘inner game of tennis’ by tim

gallwey) enjoyment alongside learning is seen as a foundation to performance. embracing the challenge also allows you to take a different perspective on the ups and downs of trading and this reframing allows for a different experience of them, creating less frustration and emotional disruption.

6. importantly, learn to see failures and setbacks as

opportunities for learning not self-condemnation. one of the downfalls of the perfectionist can be their adverse reaction to mistakes and errors and a lack of learning from them. mistakes provide important opportunities for learning and performance

i m p r o v e m e n t but only when they are seen as such.

7. and finally, but critically, learn to accept that your personal worth is not your net worth – that you are a worthy human being irrespective of your trading results at any given time. at a fundamental and deep level this is a key belief for optimal human

functioning, happiness and successful trading.

if you have identified yourself as having perfectionist tendencies, then taking on board some of the insights and perspectives in this article will probably be very helpful for you – remember you are a fallible human being in an uncertain environment – perfection is out; probabilities are in.

enjoyment alongside learning is seen as a foundation to performance

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in the heat of the markets it is your mental and emotional state that makes the real difference to your trading performance. if you take a moment to reflect on your own trading experience you can probably think of many examples of when your thoughts or your emotions got in the way of your trading performance, when you took actions that prior to, and in hindsight, you know you shouldn’t have done. it is my experience that in trading many traders often know what to do, but find that the real challenge is doing what they know; in following through consistently with their trading strategy.

trading is a mentally and emotionally challenging activity and if you want to achieve success then it is important to identify your own unique ‘process of success’ – take a

moment to consider what it takes for you to perform well in the markets – and then to condition it, to train yourself to focus on precisely what it takes to be successful, to develop the thoughts, feelings and behaviours that enable you to get your best possible results.

When i started working with traders in 2005 i noticed that many traders were frustrated with the lack of practical psychological techniques that they could use to improve their performance and overcome the challenges they were facing. There are many excellent trading psychology books but what they really wanted was simple, practical and defined mental training processes, a way to tangibly practise and develop their mental and emotional abilities.

mental training for trading SucceSS

Pract ica l exercises for managing emotional states, developing focus and conditioning positive trading behaviours

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This issue, I bring you three well-proven exercises that you can use as a part of your own mental training for trading success plan.

Emotional State Regulation

When we see top sportspeople miss crucial penalties in football, double fault on match point or miss short putts to win golf tournaments it is not because those players lack the skills or abilities to be successful in those moments but because their emotional state has changed – they are experiencing increased stress, anxiety or fear. The impact of feelings of stress, anxiety and fear also has a significant effect on trading

performance due to the impact they have on our cognitive functioning, reducing blood flow to the frontal lobes. This is often why under stress states traders make decision making errors, respond emotionally and later look back and ask ‘What did i do that for?’. Being able to manage your emotional state, to regulate feelings of stress, anxiety or fear can have a significant impact on the quality of your trading decisions and the results that you get. Practising emotional state management techniques on a regular basis can help you to increase your stress capacity and give you powerful techniques to manage how you feel pre, during and after trading. one of the simplest and most powerful ways to manage feelings of fear, anxiety and stress is simply by

When I started working with traders in 2005 I noticed that many traders were frustrated with the lack of practical psychological techniques that they could use to improve their performance and overcome the challenges they were facing.

mental tRaining foR SucceSSfX


fXmental tRaining foR SucceSS

learning to regulate your breathing. a very simple technique that you can use, and as taught to uS navy Seals to maintain composure, is a centering breath as detailed in the box.

Getting Into the Trading Zone

You can also practise highly effective concentration exercises that will enable you to sustain your focus for longer and becoming better at managing distractions and particularly any negative thoughts that you may encounter, the kind of doubts and worries that might get you out early from a trade or lead you to move your stop loss.

one of the key aspects of getting into the trading zone is an ability to be in the present, to be focussed in the now. By practising the specific concentration skills in this series not only will you improve your concentration and attentional skills, but you will also develop a greater awareness of being present, of being in the now, noticing and paying attention to the factors that are critical to your trading performance whilst being able to avoid the distractions and interference that typically lead to underperformance, frustration and ill-discipline.

Visual Power

Perhaps one of the most powerful and beneficial aspects of mental training is the use of visualisation, also commonly referred to as mental rehearsal or imagery.

every action, feeling and behaviour that you have is the result of the activation of a neural pathway in the brain. a neural pathway is a connection or series of connections between the neurons in the brain. essentially each pathway is the mental pattern for the skill, feeling or behaviour. These neural pathways are created and then developed and strengthened through practise and repetition, developing a mental blueprint, and after time they become automatic – habitual. it is a bit like taking a walk through a field of wheat. The more you walk down the same path the more down trodden the wheat becomes and the clearer and more visible the path is.

neural pathways can be developed and strengthened through the actual activation of the physical feeling or behaviour or interestingly, and importantly through the visualization of

Centering Breath

This is a great technique that can be used prior to trading to settle yourself and get ready before you trade, or in the heat of the moment, perhaps whilst managing a trade, and also after a stress event such as a loss to help to get you back into a good state before trading again.

This version of the centering breath I have taken from the book ’10 Minute Toughness’ by Jason Selk as it is simple and easy to remember and perform. It takes just 3 steps and 15 seconds to shift how you are feeling.1. Take a deep breath in filling your diaphragm (belly) and up through your lungs taking 6 seconds to do so2. Hold your breath for 2 seconds allowing the air (oxygen) to circulate around your body and to get to the brain3. Breath out slowly (the relaxation response) taking 7 seconds to do so.

Mental Training Target : Aim for 20-40 centering breaths per day to really flood the brain with oxygen and build your stress capacity.

Concentration Training For Getting Into The Trading Zone

1. Find a comfortable place to sit and allow yourself to relax.2. Begin by developing an awareness of your breathing. Noticing the in breath and the out breath. Just noticing how one breath follows another.3. Sustain this focus on your breathing for a pre-determined amount of time – 10 minutes is a good target to aim for.4. You will probably find that your mind wanders away from your breathing. This is natural and is what minds do. Simply notice your thoughts. Let them pass. And then refocus back on your breathing.5. Repeat until your allotted time is up.

This is a simple but very powerful exercise that helps to develop your ability to not only sustain your attention but also to be able to switch it. Two very important performance skills.

Mental Training Target : Perform the exercise for 10 minutes each day.


that feeling or behaviour. the mind at a neurological level cannot tell the difference between a real and an imagined experience, as evidenced through neuroscience studies using brain image scanning. in real life we can understand this by thinking about a time when you have had a nightmare. Was the fear any different to in reality? no. Your heart was pounding , you felt scared, you had clammy hands and were sweating. Your body responded just as though it was real. the utilization of specific visualization techniques can have a big impact on the speed at which conditioning of behaviour and emotional response occurs, and that the appropriate neural pathways are formed.

using visualisation can enable you to practise and get trading time in, even when you can’t get access to the markets, thus accelerating your progress. You can use it become more effective at dealing with losses or setbacks; overcome bad trading habits and condition new positive ones; access and build feelings of confidence; get mentally ready to trade the markets; or enhance the achievement of your trading goals.

visualisation should be multi-sensory (see, hear, feel) and is often best preceded by a short relaxation and performed in 5-10 minute concentrated bursts.

Your Mental Training Plan

mental training increases your trading performance potential and by practising regularly you can develop new neural pathways within your brain that increase your stress capacity, enable different emotional responses and condition new and desired trading behaviours.

my challenge to you is to commit to one of the training exercises from this article and practise daily for 6 weeks. look for signs of progress and of the benefits of your mental training regime to your trading performance.

Using Imagery To Overcome Trading Challenges

Here is an extract from a visualisation exercise that is designed to help you to develop your abilities to cope with specific trading challenges you have. You can utilise the technique below very simply by taking a moment or two to relax and then reading through the script. You will soon be able to perform this by memory alone.

And now take a moment to consider some of the setbacks, problems and difficult situations that occur for you in your trading… Picture one example now… Float forward into your imagination…. Imagine it happening to you sometime in the future….What is it? …Where?... Step into your body and imagine yourself responding positively to that situation…dealing with it effectively… Hear yourself making positive and useful explanations to yourself… Feel your self being confident about your ability to deal with these situations…. Composed and focussed…And experience yourself successfully resolve that problem/overcome the challenge… Coming out on top…

The mind at a neurological level cannot tell the difference between a real and an imagined experience, as evidenced through neuroscience studies using brain image scanning.

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INTRODUCTION

making decisions under conditions of risk and uncertainty is not easy. The findings of research in behavioural finance and neuro-economics have helped us to gain a better understanding of our decision making process and the factors that affect it but many traders have found this knowledge hard to implement consistently in real time.

in this article, which i am incidentally writing whilst on a tour of asia speaking to fund managers and traders about how to improve their decision making, i will share with you some of the key points of my presentations to them highlighting the need to go beyond simply understanding but also to increase awareness and utilise specific decision making techniques and strategies in order to improve the trading decision process.

THE 3 STEPS

When i am working with clients on helping them to improve their decision making i utilise three key approaches:1. developing an understanding of the decision making process and the factors that affect it2. creating an awareness of their own unique decision making processes, their strengths and weaknesses and the factors and situations that have the greatest impact on their decisions3. teaching some practical strategies and approaches to help them to improve their decision process

Understanding

let’s start with a question for consideration - What is a good trading decision?

3 StepS to improving Your trading deciSionS

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is it one where the trade was a winner? or one where the process was good?

trade outcomes can be classified under the following categories from ‘Winning decisions’ by Russo and Schoemaker (2002).

Good Outcome Bad OutcomeGood Process Deserved Success Bad BreakBad Process Dumb Luck Poetic Justice

an illustration of dumb luck would be playing blackjack, being dealt 18, where statistically your best option would be to stick, but choosing to take a card, getting a 3, and beating the dealer with your 21. good outcome but a poor process when executed over time.

a good trade is one where the process was good, where you followed your rules, implemented your strategy and were disciplined. assuming your process is good, and your strategy has a positive expectancy, then over time you will be profitable. ideally the aim is to keep your trading outcomes on the top row. i have in the past asked some of my clients to consider prior to the execution of a trade what the possible outcomes could be, which helps to raise awareness of times when a poor process has been used.

keith Stanovich at the university of montreal states that ‘if you teach intelligent people about the types of mistakes they might make in making decisions then in doing so you improve their ability to make decisions’. knowledge is certainly power, and by understanding more about how you make decisions and the types of traps that you may fall into then you can develop a level of inoculation against them.

The rise of behavioural finance has provided the perfect opportunity for traders to develop their knowledge of the process of making financial decisions and the factors that may affect them. i would highly recommend both ‘thinking fast and Slow’ by daniel kahneman and ‘Behavioural investing’ by James montier as core texts for developing your own understanding of decision making under conditions of risk and uncertainty and of the cognitive and emotional biases that affect them.

Awareness

‘know thyself ’...The concept of self-awareness is not a new one, in deed almost every self-help book ever written will urge you to be more self-aware; and they are right, but how do you achieve it?

for me awareness of your decision process occurs at three key levels:

Reflective Awareness - This is the process of reflecting back on the decisions you have made and evaluating them, recognising patterns and looking for opportunities to learn from your experience and improve your decision making capability.

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in order to do this effectively and with lower levels of hindsight bias it is important that you keep a record of your trading decisions, a journal or log. it is also worth noting that generally people are outcome biased and as a result of this we tend to spend more time looking at outcomes that were perceived as ‘bad’ and less looking at those perceived as ‘good’; we are also interestingly more prone to attribute success to ourselves when we get a good outcome and consider the role of luck and outside events less, whereas on the downside it is the reverse! Research conducted at harvard u n i v e r s i t y shows that there is a lot of value to be gained by looking at the times when we are successful, to look for patterns and factors that are consistent, and to then utilise them and attempt to replicate them.

Performance A w a r e n e s s – This is the process of c o n t r a s t i n g and comparing your best decisions with your worst to look for similarities and differences. What helps you to make good decisions? What helps you to make your worst decisions? is it your mindset, emotions, behaviours, or the context – market, work or life events. nB this process is only really possible if you evaluate your good trading decisions and outcomes with the same vigour as your bad ones.

Situational Awareness – This is the ability to identify in the moment at a given decision time what level of decision making error risk there is, deciding how vigilant to be, and managing your own thinking, feeling and behaviour accordingly. as the risk of decision making error becomes higher – this might include times when stress and pressure are high, there is greater volatility or uncertainty in the market, you are fatigued, your mood and emotion is at an extreme, following a big loss or win, following a string of losses or winners – you need to become more aware of your processing, and good advice is to counter the reflexive

instinctive part of the brain that wants to take over in such situations by also engaging the reflective, analytical part of the brain and ‘think twice’.

Management

a l o n g s i d e developing your knowledge of your decision making process and the factors that affect it and raising your awareness, there are also specific techniques and strategies that you can employ that can help you to make better decisions. i have included a few below.

• Focus on the process – identify the key components or stages of making a good trading decision, and the critical factors such as information or indicators you base them on, and focus on them as you go through your process. one reason for underperformance in trading decisions is performance anxiety, which is largely attributed to an outcome focus.

‘If you teach intelligent people about the types of mistakes they might make in making decisions then in doing so you improve their ability to make decisions’

Keith Stanovich


• Checklists – Harvard Surgeon Atul Gawande, author of ‘The checklist manifesto’ tells of how they reduced surgical error in hospitals significantly when they introduced checklists pre, during and post-op. Whilst checklist may not be sexy, and may have the feeling of ‘more paperwork’ the fact is that they work – would you want to fly on a plane where the pilots had not done their pre flight checks? – and gawande stresses that they should be short and effective. checklists can be particularly effective in reducing errors in situations which are common and where processes are more automated.

• Become more mindful – mindfulness is a phrase used by neuroscientists to describe the experience of being in the present moment and is the opposite of being mindless where little conscious attention is being paid to what is happening. mindfulness is a skill and can be gained through meditation or attention training and by actively focussing on having your attention in the moment – can be practised when you are eating, drinking, walking, exercising – and the research by neuroscientists shows that the benefits of such practise include greater cognitive function, a heighted awareness of unconscious processes, greater executive function, a stronger ability to control urges and impulses, greater behavioural control and improved ability to process information. The rise of the use of mindfulness over the last decade is probably best illustrated by its use by the uS marines who have utilised the 8 week mindfulness Based Stress Reduction (mBSR) course before deployment to active duty in war zones.

• Consider being a Satisficer rather than a Maximiser – Satisficer is a combination of satisfactory and suffice and is best summed by getting to the point where a decision is ‘good enough’. at the other end of the continuum is the maximiser,

where perfectionists live, where there is an almost endless search for all the required information to make a decision. generally satisficers are happier than maximisers and deal with bad outcomes to their decisions more effectively and are able to move on to the next one more quickly – anyone day trading would want to be more towards the satisficer end. einstein said it beautifully ‘keep it as simple as possible, but no simpler’.

• Regulate your emotions and energy – good decisions come from harnessing the right emotions; you cannot make a decision without emotion but you need the right

ones. Professor Sam Wang a neuroscientist at Princeton advises ‘try to avoid making a decision at an emotional extreme’ – extreme stress, extreme anger, extreme confidence even extreme happiness. developing the ability to manage your emotions is an important part of the decision process, recognising your mood and emotional state at decision points is a key skill, having the discipline to not trade if

you are at an extreme, and developing the ability to regulate your emotions through changing your self-talk and/or your physiological state such as utilising breathing techniques or other relaxation approaches. underpinning emotional management is energy management, being healthy and well which is helped by factors such as sleep, nutrition, exercise and getting sufficient rest and recovery.

SUMMARY

making trading decisions, under conditions of risk and uncertainty is not by nature easy to do, but by developing your understanding, increasing your awareness or implementing a simple technique or strategy you can enhance your decision making and improve your trading performance.

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over the years i have worked with traders at all levels of experience, all levels of success, across asset classes and across the globe, and the one thing that they all have is in common is their shared mental software and as a result the similarities in the challenges they face in trading the markets.

most traders who have been trading for any length of time quickly realise that there is no magic trading strategy that will bring them untold success, and that the real challenge in trading does not so much come from the outside as from the inside. it is these internal challenges that i have written about in this ebook, and by all means not comprehensive i hope that it has provided you with some practical strategies that may help you to improve your own decision making and performance in the markets. as with any learning it only becomes useful and makes an impact so i hope that you will take some action from what you have read. if you do and you would like to share your findings with me please feel free to get in touch by email to [email protected]. as a one stop reminder below are some of the key points from the articles, and a couple of additional ones, that you can utilise to build a framework for developing your own personal trading psychology and ultimately enhance your performance.

1. Remember you are a fallible human being – you will make mistakes, you won’t get it right every time (and you don’t need too); trading like golf is not a game of perfect

2. take responsibility for your trading outcomes – ask ‘how did i create that?’ rather than seeking to blame or complain.

3. Become fascinated with the process of achieving excellence – adopt a ‘growth mindset’ and an intense curiosity about trading and the markets, the mistakes that traders can make, and how you can become a better trader.

4. decide what type of trader you want to be and commit to behaving in line with this – ask yourself ‘how would i want people to remember me as a trader?’

5. create an awareness of your beliefs about the markets, trading and yourself – think of beliefs in terms of utility – useful or not – and actively seek to develop useful ones for you and your trading methodology and approach.

6. Get the ‘awareness advantage’ by using logs/journals to reflect on your trading decisions – look at not just how much money you made or lost but also how you lost or made that money. Remember that self-reflection precedes self-correction.

7. Be as prepared as possible before each trade/trading session – this is one part of your trading that is completely under your control and helps with confidence, focus and commitment - ‘create the conditions and opportunities for success’.

8. Balance the natural focus on P&l and outcomes with a focus on your trading process, particularly when you are in trades – a checklist can be useful for reminding yourself about key parts of you process and maybe even contain key questions to ask yourself to keep check of biases and behavioural tendencies.

9. embrace your emotions – emotions are integral to decision making; take time to notice how you are feeling and tune into your emotions rather than trying to suppress them.

10. get an energy edge – sleep, nutrition and exercise have a big part to play not just in terms of your overall well-being but also in how optimally your brain functions and in the case of sleep particularly in your risk perception.

11. learn to breathe – practising slow diaphragmatic breathing can help you with emotional regulation, preparing for, dealing with or recovering from critical or challenging moments.

12. Build on your strengths and successes – adopting a solution focussed approach rather than solely focusing on weaknesses and mistakes. above all keep trying to become better…this was the underlying motivation that i saw in the best sports people i worked with and it is a trait that i have seen in the best traders i have worked with. “The feeling of being on the borderline, of developing one’s potential, of constantly pushing back the limits. That’s what keeps me motivated.” michael Schumacher

Steve Ward


fXconcluSion SummaRY

12 PrACtICAL StePS to IMProveD trADInG PerforMAnCe

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if you would like to learn more about trading performance and psychology, to develop some further strategies and approaches that could help you to improve your trading performance then you may find the below very helpful. Blog: www.highperformanceglobal.com

Book: ‘high Performance trading: 35 Practical Strategies to enhance Your trading Psychology and Performance’ By Steve Ward, Published By harriman house

Online Training: each year Steve Ward runs a trading psychology program ‘tradermind’ via webinar, supported by email coaching and mental training audio downloads. find out more at www.highperformanceglobal.com/tradermind

Live Workshops/Seminars: live in-house workshops and seminars are available for institutions and organisations for traders and fund managers on a bespoke basis. Please get in touch to discuss your specific needs at [email protected]

1-to-1 Coaching: 1-to-1 coaching is available for traders and fund managers; for more information and to discuss your specific needs please contact Steve Ward at [email protected]

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http://www.highperformanceglobal.com/

http://www.highperformanceglobal.com/tradermind/

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7 professional coaching lessons - FX Trader Magazine...coaching techniques and strategies that i utilise with my own clients to help you to raise your own trading game. High Performance