I received this email from a new trader:

You are probably already aware of this correlation between testosterone and performance as it relates to trading.  It’s interesting to consider though as direct empirical evidence for the notion that Division I athletes have a proclivity to be good traders, E.g – Adam Guren.  It’s something I tried to keep in mind when I interviewed for interns at my last firm.

As trader’s I guess one should strive to increase our natural levels as odd as that sounds, if it truly is a one way streak. Sounds Like heavy lifting, lots of sleep, and nuts are the way to go then lol.

“Research shows that traders who are in daily possession of more testosterone attack the day with vim, vigor and risk on their minds while traders who have higher levels of Cortisol, a hormone most associated with stress, are more cautious and less likely to make aggressive trades, and often become less successful.”
“Coates took saliva samples from traders and found that those who had higher levels of testosterone in the morning performed better in the afternoon. ”

Read more: http://read.bi/isQadl

I asked Dr. Jonathan Katz, of High Performance Associates, to respond.

Just because there is a correlation between testosterone and performance does not mean you have answered the age old “causation vs association” question! Rather than striving to improve your trading by increasing your testosterone directly…..your time and energy may be better utilized by focusing on an overall healthy lifestyle filled with vigorous exercise, solid sleep patterns and a well balanced nutritious diet. This same lifestyle approach is likely to ward off and reduce stress levels, enhancing the opportunity for peak performance on a regular/daily basis. Live the “process” and trust that the desired “outcome” will be achieved over time.

A recent article from Trader Psyches discusses the challenges traders often face when confronted with the market’s constant uncertainty and ambiguity.

Dr. Jonathan F. Katz, performance coach at High Performance Associates, provides his response to the article:

“The ambiguity of uncertainty”…..one of the great challenges of life…especially for traders and individuals working in high performance outcome professions like sports and finance. I have always marveled at the amount of time and energy people put into avoiding the discomfort associated with uncertainty……as if it is the “enemy”. Anxiety, uncertainty, discomfort, they are NOT the problem….in fact they are the important warning signs for the challenges and obstacles that you are facing.

So….what do you do? How do you handle these uncomfortable and unsettling emotional reactions? The 2 keys to minimizing their potential adverse impact are: Preparation and Planning. With regard to preparation…. Have you gotten a good nights sleep? Eaten a reasonably healthy breakfast? Reviewed the markets? Read the economic news? These are just a few preparatory steps which will help give you a better sense of control and comfort going into the trading day.

As for planning…..Do you have a strategy for how you are going to handle your trades? Have you planned for both sides…whether your trade is going for or against you? Are your plans free of rigidity and nimble enough so that you are able to make the necessary adjustments on the fly? The more you are adequately prepared for the day and have a game plan to deal with the upside and adversity you might face, the more effective you will be in making good decisions and judgements.

Use the uncertainty, anxiety and discomfort as “normal” indicators of challenging circumstances. Do not view them as signs of weakness or feelings you should run away from. Speak to any high performer and they will tell you that the ability to effectively manage through difficult times (of uncertainty, ambiguity and anxiety) is probably the biggest confidence builder you can experience. This is a good thing to keep in mind…..especially when things are not going your way during the trading day.

Your thoughts?

Michael Martin from @martinkronicle contends in this interesting piece that Tiger Woods has not regained his golf dominance because he has lost his real reason to play golf.  I forwarded this article to an elite performance coach Dr. Jonathan F. Katz of High Performance Associates and asked for his feedback and how this relates to us as traders………

My reaction to this piece……..is triggered by the line in the last paragraph…..”…..a great learning opportunity of how one’s emotional system can be so integrated into one’s professional life…….”

People trade for all different reasons…..the goals are varied and may change and evolve over time. What might be sufficient motivation at point A in your life might be different at point B. The change is NOT the problem. Problems arise when the motivation or goals shift and people do not recognize, acknowledge or address the shifting internal landscape. Knowing why you are doing what you are doing sounds like a pretty basic level of self awareness, but you would be surprised how few people are “in touch” with this level of understanding.
Money, competition, achievement, material possessions, fame, status…..these are “goals” that drive many people….especially men. However they lack a core ingredient for long term success…..namely “engagement”….a personal connectedness to what one is doing that taps into something greater than the transient pleasures associated with the “hedonic treadmill” and pursuit of wealth. People need to continually find new challenges in what they do and pursue. It is the nature of the human condition. Ignoring the shifts in one’s emotional/psychological evolution often leads to a deterioration in well-being and an overall decline in personal happiness and satisfaction. In it’s more destructive forms it can lead to acting-out and self destructive behaviors. …..Don’t ignore the warning signs and don’t be guided by  fear…..embrace the challenge of re-establishing the goals and priorities in your life.

So I ask: why do you trade?  Are you connected to something bigger than just the pleasure of money with your trading?

I sent this question from an SMB Reader to Dr. Jonathan F. Katz, performance coach, at High Performance Associates.

I am sending this message as I am in need of help in regards to a specific issue that I am currently experiencing.  I have studied the market vigorously every day for the past 2 years.  I have read and studied many books on topics such as distressed Graham-style investing, statistical/merger/futures/ and volatility arbitrage, level 2 data day trading, technical analysis, macro analysis futures investing, Algorithmic and HFT trading, and etc… (I have also read “One Good Trade”, which I was very impressed with)
I’ve read countless books, listened to audio books, watched seminars, read articles, and have been tracking the market every single day.  I have had great conviction about where a stock, future, or option would go next on countless occasions.  My problem is, for lack of a better phrase, I am scared of losing my money and thus I greatly struggle to trade at all.  I cannot “pull the trigger”.  I have been right far more times than I have been wrong and I am hoping that you may provide any useful insights that may help me develop the required mind-state to “pull the trigger”.  I do know how to utilize stop losses, set up hedged trades, and I am familiar with a few mathematical equations for optimal trading sizes including formulas such as the Kelly Criterion.  Trading and investing is my passion, since I spend every waking hour studying the market, but I simply cannot “pull the trigger”.  If you have any tips I am all ears.

Dr. Jonathan F. Katz of High Performance Associates Responds

There is good news and bad news in responding to this inquiry. The good news is that this is a common issue in the world of high performance athletics and trading…..namely an over emphasis on technique, knowledge and content/information at the expense of the emotional/psychological components necessary for successful performance. The bad news is that usually athletes/traders are much more comfortable studying the “X’s and O’s” of their performance (the technical/strategic part of the “game”) than they are addressing, analyzing and discussing their own psychological makeup, tendencies, personality styles etc.

In order to overcome your fears associated with “pulling the trigger”, you must spend as much, or more time reading about the psychology of trading and high performance, and perhaps consulting with a performance psychologist to more specifically address your individual issues and fears which are getting in the way of making this career transition.

Do we have hot streaks as a trader?  There is some research here from the must read @jonahlehrer that suggests that the belief there are shooting streaks in basketball is not supported by the data.  I asked Dr. Jonathan F. Katz of High Performance Associates and who works with traders for his thoughts (see below):

Ah….the age old question……perception or reality? It’s the old toll booth analogy I like to use…..When you whiz by in the ez pass lane with no problem you never take note of this event. However, when you get stuck behind a car whose ez pass doesn’t work….the comment usually runs something like this….”I can’t believe I got stuck in the slow lane again!”….Perception or reality??

What makes a hot (or cold) hand in basketball—-4-4, 6-8, 9-13??? All kinds of definitions…..How about 5-5 followed by 2-10—what kind of day would you describe you had on the court? Its more a matter of your OWN perception of your performance which guides you and impacts your mood and often your behavior.

Trading is even more complex. Unlike baseball where a hit is a hit (although a home run is valued more than a single, not in batting average, but in value to the team), and basketball, where a basket is worth either 2 or 3 points, your “success” rate in trading is measured differently. Do you feel you have a “hot hand” if you have 9 successful trades that make $1 each followed by a single loser of $20? Winning percentage of 90 but net negative $-wise! Or conversely, 9 losing trades of $1 each followed by a $100 winner……do you feel good or bad??? My point is, it is much more important to determine, understand and constructively cope with your perceptions of your own performance, than to determine whether a “hot” or “cold” streak really exists.

Traders should step away from their screens when the impact of losing trades takes them “out of their game”…..their ability to make good, clear decisions. On the flip side, traders also need to be aware of over confidence creeping in when they perceive themselves as being on a “winning streak”. This can lead to a loosening up of their process and decision making which can be very risky….

The ultimate goal is to be free of any distractions or beliefs which can get in the way of clearly assessing the value and risk-reward of each trading opportunity before you. Once you start to calculate your batting average, your field-goal percentage or your P+L, you are already distracted and have reduced your ability to perform at your highest level…..of course, all of this is easier said than done!