Trading Psychology - The Only Thing It Is Good For
Working on the way you think about trading can pay off big time.
Today's post is by Richard Friesen, CEO of Mind Muscle for Traders. Richard works with financial professionals and independent traders to increase their consistent profits using neuroscience. His online courses and intensive trading boot camps are well-known throughout the trading community.
Trading psychology is one of the few targeted psychology arenas that has hard metrics to determine success. Over the years, I have been a family therapist, workshop leader and individual therapist.
I have used Gestalt therapy, Reichian Therapy and NLP or neuro linguistic programming along with traditional analysis.
In all my experience, trading psychology is a psychology practice whose results can be measured in dollars and cents. As a result, the only thing that trading psychology is good for is ... duh...monetary results! (see footnote)*
So if this is the case, then we can start to work backwards from current trading results to what we need to improve those very results. We can measure our progress for active traders on a day by day basis. This hard metric feedback cuts the crap out of our profession. We can't hide behind the inner child, the traumatized teenager, the Id or the Ego. We can't afford to spend years in analysis trying to grasp why we are who we are.
What we want is simple: a consistent and expanding equity curve.
As a result, in some ways, being a trading psychologist allows us to focus on the behaviors that result in a shifting equity curve.
For the trader, nothing else matters. Now that we can focus on that one thing, we can then look at both what stops the average trader from the success they want, and what new behaviors they need to excel.
It turns out, that with our modern understanding of neuroscience and brain plasticity, we don't have to understand why we are doing the things we do.
We just become aware of mechanisms and old patterns of behavior that no longer serve us. We understand that these old behaviors were created with positive intention when we didn't have many other alternatives.
As a result, we don't need to judge ourselves or try to discipline ourselves. We just need to simply understand the mechanism for creating new behaviors that serve us better and how to execute them rather than the old behaviors that stop us from the success we want.
Thus as trading psychologists we have a clear path. First documenting the existing behaviors that no longer serve us. (The closer we get to real-time analysis while a trader is trading, the more accurate this documentation becomes.) Once we have this list then we can make another list of each of the behaviors and beliefs that we want to replace the old ones that no longer serve.
Now we have something we can tangibly measure even though it is born out of a psychological state. We can be fairly accurate as to how well we are doing in making the mindset shift.
This mindset shift and the associated behavioral changes will reflect themselves in the trading results. Thus we have two sets of metrics - the behaviors and the trading results.
By working with both of these we can now start to isolate any problems that show up.
If the strategy itself is a problem, this will show up once we clean up the trading behaviors. If the strategy itself, when properly executed, works well, then we can focus on the behaviors and beliefs needed to execute that strategy consistently.
In my behavioral change model, all practitioners of trading psychology can be most effective by having a transparent metric that helps both the client and the psychologist focus in on the issues that matter and expanding a mindset that allows for successful trading.
As mentioned earlier, the only metric that matters for trading psychology is the profit and loss of the client. Let’s concentrate on that metric together so we can fix the problems and celebrate the victories.
Footnote* It turns out for many of my clients that make changes in their trading behaviors, it also makes improvements in all areas of their lives.
Richard can be contacted at firstname.lastname@example.org
Photo Credits: ANDRZEJ WOJCICKI/ Science Photo Library/Getty Images