Here's an excellent letter, from a recent Worden Report, written by a TCNet user who shall now be known as Dame KMack:
We Dub Thee Dame kmackAny trader will find Dame kmack helpful in learning to control and direct emotion in a role of making important decisions under inescapable pressures. No one is totally immune from the destructive thrusts of a fickle and often seemingly malevolent market. The defenses of those who can survive are multi-pronged: refusal to succumb to over-complication, eschewing excessive pride, learning patience, practicing humility, among many others. Dame kmack attacks the mental problems directly, adapting the techniques of "sports psychologists" to the challenges traders face. We welcome Dame kmack to the Roundtable of Knights Who Think for Themselves. I hope that in Texas they appreciate Veuve Clicquot Ponsardin. -DW
Members of the High Court,"Are we there yet?"With summer vacations in full swing, this common plea of travelers seems timely. What comes to a trader's mind upon reading this intro? Most would probably think my question refers to whether a bottom (or top) has been put in - is a trade setting up?
Au contraire! I would direct your attention to yourself!! Herein I am addressing the mental aspects of trading. As Yogi Berra so aptly stated: "Ninety percent of the game is half mental."
So that we are all on the same page, let me differentiate between technical skills and mental skills. Within "mental skills" I am including emotions, perceptions, focus, concentration, confidence, discipline, etc. And even though technical analysis is mental, I would equate it to an athlete or surgeon's physical skills for our study.
Once you reach a certain level of competency, mental skills become as important to performance as physical (technical) skills, if not more so. I would propose that 90% of our game, as traders, is half mental. Yet, very few of the Worden Reports address the mental skills a trader uses. How much of your time is spent on mental training? How many books have you read in this area? "What area?" you might ask.
Look to sports psychology, excellence, and military strategy. What do elite athletes, surgeons and fire fighters have in common with traders? Trading is a performance activity. We deal with stress and pressure on an ongoing basis. If you want to perform your best, you must prepare for it. Sports psychology has been called the science of success because it studies what successful people do. From the training room, to the corporate boardroom, let's take these ideas to your trading room.
In "Excellence in Surgery: Psychological Considerations", Terry Orlick and Judy McDonald concluded that all seven elements of Orlick's "Wheel of Excellence" (commitment, belief, positive imagery, mental readiness, full focus, distraction control, and constructive evaluation) were clearly evident for elite surgeons. I find it fascinating that traders and surgeons face similar mental challenges. In an article coauthored by Linda Raschke, Brett Steenbarger, and Brace Barber, training from the US Army Ranger School is applied to trading:
"When Linda needed a model for guiding her recent training project for traders, she did not turn to the fields of finance or psychology. Rather, she turned to the military and the writings of Colonel John R. Boyd. During his career, Col. Boyd developed his approach to airborne combat into a comprehensive philosophy of military strategy. He described combat decision-making as a function of Observing, Orienting, Deciding, and Acting (OODA). These processes form loops, with new actions providing fresh observations and requiring renewed efforts at orienting and responding. The goal of military training, Boyd stressed, is to accelerate OODA loops, becoming more efficient than the enemy."Let's focus on "John." Remember John? (Worden Report April 1, 2004). John was a "pre-novice" trader with a simple goal of making $50 on each trade. What is so wrong with that?
Sir High Roller responded appropriately in Worden Report dated April 8, 2004:
Your letter indicated to me that your primary motivation is making money... Instead, program your mind into the art of the trade. Put together trades that have the best possible entry point and the maximum yield on every sale. Put together trades which are strong working plans and develop the discipline to see them through. At the same time, be flexible enough to allow for change in your plan when the underlying assumptions on entry become invalid...
John's error was that his goal was outcome oriented instead of task oriented. Sir High Roller gives John good advice: "program your mind into the art of the trade", "develop discipline", "be flexible enough to allow for change." But, how does one go about doing these things? In addition to military strategy, veteran trader Linda Bradford Raschke looks to sports psychology and positive mental imaging. "The most important aspect a player must have is mental toughness." Mia Hamm.
With real time charting and the ability to network, traders are becoming better technicians. Many eyes are watching the swing pivots and the major moving averages. What differentiates you from the others? You are correct, DW in speaking of John:
"Nobody would be doing him a favor by sparing him the realization that this is a hard game, and that it's easier to lose $500 than to make $50 if you haven't paid your dues in the form of study and practice and hard knocks." (Worden Report, April 1, 2004)
I submit that a trader's technical analysis training needs to be supplemented with mental skills training.
Why do traders, after a large windfall trade, often end up giving a large portion of it back?
In addressing this question, a trader can be compared to a professional tennis player that has just broken serve. (For those not knowledgeable about tennis, pros usually win their serve. They have an advantage when they are serving. To win a set they need win only one of the games where their opponent is serving, assuming they win all of their own service games. At the pro level, "breaking serve" is the player's goal.) Yet, after a service break, the server often fails to win the following game (his own serve) to "consolidate" the service break. Why? His physical (technical in a trader's case) skills haven't changed... but his focus of concentration has. He is focusing on the score (outcome) rather than his skills execution (task). In tennis, this is called "choking."
Similarly, a trader on a winning streak, or after a windfall profit, often gets sloppy. Instead of directing his focus to the present task, he takes marginal trades, or he may take on more risk by increasing size or using a wider stop. He is distracted by thoughts of his equity balance and his past trading success. Without mental toughness, he loses his focus on the task and allows all sorts of negative (negative, in the sense that they are distracting) thoughts to enter his head. Just like "John", he becomes outcome oriented. A huge part of making money is learning not to give back your profits. Preparing in advance to deal with the mental challenges you will face can help you retain those hard earned gains.
For an excellent introduction to mental training, I recommend Mind Gym: an Athlete's Guide to Inner Excellence by Gary Mack. It is the only book I have finished and then immediately started rereading...it is that good! Wherever you see mention of an athlete (pitcher, golfer, Olympic skater)...substitute "trader." It's a short, easy, enjoyable read...abundant in quotes and mental skills training. (Gary Mack is a leading sports psychology consultant who has worked with professional athletes in every major sport.) For further study, see the "summer reading list" below. (Aren't we all students?)
I want to take this opportunity to thank WBI for TCNet chat, especially Kuf who monitors chat 24/7 to ensure the high quality of the chat stream...(no, he never sleeps!) There is an old saying: "Smart men learn from their mistakes; Wise men learn from the mistakes of others." I know absolutely that there is no better learning environment anywhere. TCNet has an abundance of experienced traders that are generous in sharing their time and the knowledge they've gained from countless years of experience. My TCNet colleagues span the globe: Alaska, California, Brazil....I have learned much from many; they know who they are. Thank you all!! I won't mention names because whenever I list them, I invariably leave someone out. To have so many talented traders on TCNet chat, I think Martha would say, is a "good thing"!!
For TC2000 users who want to expand their technical skills, I would recommend TCNet even if you are not online during market hours because the logs are archived; templates (now with custom indicators) can be accessed in notes, and cutting edge technical analysis is presented. Through "clubs" you can direct your focus. Many traders are online for lessons and questions after hours and on weekends. I am seeing more and more traders with "day jobs" in other fields switching from TC2000 to TCNet.
"Are we there yet?" Our mission is excellence: trading at our personal best. Are you ready to challenge yourself?
Most humbly submitted,
kmackSummer Reading ListMind Gym: An Athlete's Guide to Inner Excellence by Gary Mack and David Casstevens
The Psychology of Trading: Tools and Techniques for Minding the Markets by Brett N. Steenbarger
Toughness Training for Life by James E. Loehr
The New Toughness Training for Sports: Mental, Emotional, and Physical Conditioning by James Loehr, Chris Evert, and Dan JansenIn Pursuit of Excellence: How to win in sport and life through mental training
Terry OrlickWinning the Mental Game on Wall Street by John Magee (well known for his technical analysis)
Trading in the Zone: Master the Market with Confidence, Discipline, and a Winning Attitude by Mark Douglas
**A "must read" for all new tradersBody Mind Mastery: Creating Success in Sport and Life by Dan Millman
Sources of Power: How People Make Decisions by Gary Klein
Intuition at Work: Why Developing Your Gut Instincts Will Make You Better at What You Do by Gary Klein
