PSYCHOLOGICAL DEPOSITS: Growing the Forgiveness Account

Rapid decision-making in a sea of uncertainty takes tremendous courage, preparation, and the ability to accept what you cannot change. However, most traders I know have significant difficulty forgiving themselves after a poor decision has been made. 

Forgiveness is not a spiritual discipline, its a human necessity. 

The art of letting go of regret following an error in judgement is a sign of wisdom not weakness. Many traders I've coached have grown up with a rough & tough attitude that when a mistake is made, they kick themselves in the butt, express some intense choice words aimed at motivating themselves to get back in the game, to do the right thing, at the right time, in the right way, or else the butt gets kicked again. This method may have worked on the playgrounds but it's very destructive in the fields of markets and money. 


When a trader chooses to attack the self, they trigger the emotion of shame ("There's something deeply wrong with me."). This often goes un-noticed because shame feels so bad we tend to deny its presence. Depending on the cost of the error made, anger follows quickly behind, and its intensity (fists pounding, frowning face, f_ _ _ ing idiot) won't allow it to be denied, thus, it explodes for all to see or for those more inclined to squeeze tightly, it gets internalized and burns deep inside. Either way, this negative energy distracts the mind, destroys the heart, and denies re-entry to the opportunity flow. Getting back into the external market is not the solution, managing the internal market is where a traders attention needs to go. 


I have witnessed several traders who've earned the wisdom to know this difference and therefore made significant psychological deposits in their forgiveness account. One in particular occurred today that I'd like to share with emphasis on his recovery routine. I witnessed this trader have a conversation with himself via writing his observations in a google document we share; his words captured the message of forgiveness shortly after being stuck in a moment (U2).


The Scene: 
He titled his day "The Comeback" and started off strong with three 10-point wins out of 8 trades. Then he missed two trades on the sell side, one touching his entry and the other he hesitated on. He noted, "this caused anxiety to make something happen and I foolishly bid 75 as a potential slowdown point," resulting in a 7-tick loss. Then the onslaught of negative emotion and verbal put downs started to flow. "Why did you do that? That was stupid! You are not going to have a good day with that kind of decision-making!" Actually, his language today was not as crude as the typical self-flogging trader; guess the coaching process has been paying off a bit.


The Fix: 
He was aware damage control was necessary because the forgiveness theme was uppermost in his mind due to recent coaching conversations. He got his deposit in order, "time for some corrective reasoning and injection of good positive vibe and forgiveness." This written instruction was put in a google doc called "Psychological Capital" that helped him shift from self-awareness to quick self-regulation by talking himself toward positive actions that helped bypass the rapid withdrawal that self attack could have produced. He managed what he could influence, namely, his inner market, and once again became Even Keel. After a physical break from the screens he returned to trade again from a poised state of mind.  


Components of his self-regulation routine include biofeedback (em-Wave), listening to an audio feed of positively scripted forgiveness theme reminders, and when necessary, he'd use a protocol called EFT (Emotional Freedom Technique) to more deliberately detach from the emotional energy that could spiral into a huge emotional withdrawal. 


Bottom Line: 

"Trading is simple when the mind is not complex." 
Mark Douglas

"Be the change you wish to see." 
Gandhi

This trader lived up to both these insights and saw his way back into the flow. By forgiving himself for making an error he demonstrated the Psychological Capital factor Resiliency; he bounced back quickly. When he returned to the market in the afternoon he reportedly was chopped up a bit more, but also proceeded to make a few more winners for the day. In the end, he reminded himself to be grateful for what he learned. Small doses of gratitude and forgiveness are methods to keep the madness at bay. 

Keep Forgiving ~ Coach Ken

Perfect Trade ??

Trader Quest ~ What is a perfect trade?

Plot Course ~ Set up some simple guidelines to determine for yourself what constitutes perfect. One set of guidelines used recently with a trader amounted to the following statement, "A perfect trade is a controlled entry and a controlled exit." Another definition frequently used is, "I followed my strategy’s written entry and exit rules." What ever the definition that you come to use, make sure it’s defined enough so that you can fairly and consistently rate your trades.

Ride Wave ~ To put this into practice requires a definition as stated above, and also that you perform this review post trade. So for example, you made 15 trades today in the mini S&P. 10 trades you defined as perfect since you entered them per plan and were either stopped out or reached your positive target. The remaining 5 trades you did not count as perfect, and here comes a variety of reasons:

"I anticipated...I waited...I got out early, etc." 

Initially, it’s ok just to do the tally and score yourself 10 out of 15. The deliberative practice that will elevate your trading will be to begin to notice patterns in the non-perfect trades and analyze deeper into the conditions, emotions or biases that may have steered you away from the defined perfect trade. As coaches we strive for 80% perfect once the definition is set and 90% shortly thereafter. 100% means that you are an algo.

~ Keep Curious, Coach Mark

PSYCHOLOGICAL CAPITAL - Do I have it? Is it enough? How can I get more?

As a trader, you're very familiar with the term "capital," it's money. You know, that stuff you seek on the other side of the risk you endure. You hope you win enough of it to keep you showing up in order to get more of it. Isn't that the purpose of trading, getting more and more capital?


Another kind of "capital" that I believe is foundational to the art of earning and maintaining the financial capital you seek, is PSYCHOLOGICAL CAPITAL. 


What is this stuff called Psychological Capital (PsyCap) anyway? Is it just a nice intellectual concept to make me sound smart, or you more secure or rich? Researchers in the field of positive psychology have come to define it as the positive and developmental state of an individual characterized by high self-efficacy, optimism, hope and resiliency (Luthans et al.). 


So the next questions to consider are:

• Do I have enough self-efficacy (confidence)?
• Do I have enough optimism (good things are on the horizon)?
• Do I have enough hope (I believe in positive outcomes)?
• Do I have enough resiliency (I can endure and bounce back)?

My experience coaching traders has taught me if I'm not addressing these questions in a pragmatic and deep level, I'm not helping a trader grow their psychological capital, and thus not helping them perform optimally to sustain a successful trading career. My job is to coach traders in the art of self regulation so they earn the confidence to manage what they can influence, i.e. their internal market. Once they experience a consistency to positively influence their inner market i.e., emotional arousal & decision making, they begin to shift into believing that good opportunity is on the horizon. When set backs occur, which they always do, traders recognize they're entering an opportunity to practice resiliency. Bouncing back and recovering perspective is imperative to maintaining a long, stable and prosperous trading career.  


Psychological capital can fluctuate just like P&L, thus, some days you have lots of it, while other days you can't locate it at all. Growing PsyCap requires a commitment to self awareness and self regulation, two core components of emotional intelligence (EQ). Knowing what to do and when to do it, like in trading, makes all the difference between being a winner or a loser. I have been on a several year journey researching what types of actions I need to coach traders into doing to optimize their ability to grow their capital, both psychological and financial. The psychology of human performance has demonstrated there are deliberate routines that when practiced, develops a performer towards expert status. 


In future posts, I will elaborate on what kind of deliberate practice seems to make a difference in growing a traders psychological capital. Rest assured, it's not going to be a simple recipe or a one-size fits all, but more so a customized fit to the unique qualities of each trader. A trader knows that without clarifying the components of their strategy into a written and executable format, they often cannot do what they think. Similarly, without clarifying the components of how to grow your psychological capital, you likely won't produce the state of mind that supports coherent and profitable decision making.  


~Keep Growing, Coach Ken

Maintain State of Mind in Slow Markets ??

Trader Quest ~ How do I remain in a state of mind where the market action seems to slow down, not speed past me where I am continually missing trades?

Plot Course ~ This frame of reference can happen for one of two reasons. First you are not getting enough trading repetitions or secondly, you are in some sort of slump; mentally burdened or emotionally off kilter. The cure lies in the quest for consistency. The more consistent you are at placing trades on each of your strategy’s signals, the more you will find that you are anticipating that next signal beginning to form.

Ride Wave ~ "That’s great" you may be saying, "I know I need to be more consistent, so does every other trader." Right, but perhaps you are experiencing some hesitancy that has morphed into anxiety and now you’re seeing set-ups late. By simplifying your trading down to its most basic components, by removing excess charts and indicators of the month, by turning off financial news feeds, you will remove the stream of distracting noise and allow yourself to “see” in real time, on one or two key charts, your trade set-ups developing right in front of you.

~ Keep Curious, Coach Mark

Tweak and Improve Current Strategy ??

Trader Quest ~ Where do I look for ideas to tweak and improve my current trading strategy?

Plot Course ~ You can set out to look at your market’s candlestick charts, price ladders, profiles, point and figures to find setups or new observations. That sounds like a lot of unfocused work. One smarter way is to review your trades setups each day, both the ones that  you actually traded and also the ones that you missed.

Ride Wave ~ One idea to consider is the use of digital recording of your trading screens to capture and zoom into the whole trading day just prior to, during and immediately after you trade. This could give you the ability to see how prices and quotes were moving, what a chart was indicating, or perhaps even recall what you were thinking at the moment. Sounds like a lot of painstaking work at the end of a long trading day you say, you're right, it is! Guess what, there are traders doing this work and variations on the theme and this is your competition. 


In a recent article in SFO magazine, Mike Bellafiore of SMB Capital stated "Technology has accelerated this business infinitely since I started, and it has transformed training for the trading stars of tomorrow. For example, today’s traders can videotape their daily trading and play back their work, just like a football team."


These type of traders work deliberately to remove glitches, hesitancy and doubt whenever possible. If you don't want to invest in video capture software, you can use a modified process with your trade journal or execution log from your trading platform to capture exact times. Most software can go down to a tick chart or even a one minute chart can be helpful. This method can work either for swing or position type traders by just lengthening the timeframes.
 
~ Keep Curious, Coach Mark