Paying Attention to the “How” of Trading

Welcome to my first post on the SMB Blog. My first encounter with the team was reading Mike Bellafiore’s One Good Trade—and thinking that it was one of the best books ever written on trading. Most people who write about trading are trying to tell you what they do and how to become more like them. What makes SMB’s work different, and what I like about it, is that their focus is on how to train traders—how to find the principles that work for everyone, how to make good trading decisions that are tailored to the individual. What inspired me to write for them is that they are dedicated to trading as a profession, as a performance endeavor—and take improvement quite seriously.

In my own trading, I have encountered my own set of failures and difficulties. Despite starting my career in one of the most coveted spots in the world, I stumbled and lost money. It took me a long time and lots of self-education to dig myself out of the hole and to right the ship of my own trading. A lot of the struggle came from having to learn the same things that the SMB guys are teaching—namely, that trading is about making good decisions; that developing trading skill is similar to improving performance in other areas; that psychology can play a profound role. However, in the end, I felt like I got there and started to figure things out, drawing upon a lot of the greatest minds.

In my own struggles and in my own professional experience, I have run into one observation that astounds me to this day. Recalling the expression, “You can lead a horse to water but you can’t make it drink”, I have found that you can tell lots of people what works, but there’s no guarantee that they will stick to it. On the surface, this is pretty shocking. Many famous investors, such as George Soros, Bernard Baruch and Jesse Livermore, have written books describing exactly how they “did it”. For almost any market, trading style and personality type, you can get a book or a course that gives you a run through of a winning, profitable trading system. Moreover, these are readily accessible and low-cost; William J. O’Neill’s books are a detailed walkthrough of how he does things and they cost no more than $40.(Incidentally, the risk/reward on that is phenomenal). Usually, these same works cover the pitfalls associated with trading, such as how to manage P&L swings, how to control emotions and maintain discipline.

Thus, even with every kind of resource available to make you a great trader and avoid the pitfalls along the way, people still want to spurn or ignore or tamper with what works. The desire to tamper or avoid success speaks of the complicated nature of our personality—while we like to think that we can actively direct our thoughts and energies, scientific research suggests that 80% or more of our decision-making is subconscious. We are constantly acting on impulses, beliefs and mental patterns that we are not even aware of. We can all think of examples of this—our friend who just can’t seem to lose weight, our relative who can’t quit smoking no matter how hard they try, etc. Just like with other spheres of our lives, these subconscious decisions will show up in our trading. As the trading coach Van K Tharp likes to say, “We don’t trade the markets—we trade our beliefs about the market”.

Hence, I have become interested in the psychological side of trading and how it interacts with every aspect of trading performance. The key question is “how?”. While anyone can give you hollow advice like “Trade better” “Stay disciplined” and “Control your emotions”, what’s really helpful for you is learning exactly how to do it. If you already knew how to do it, you wouldn’t need to ask the question!

Thus, the kinds of questions I am seeking to answer are:

How do you identify the trading style that works best for you?

How do you make yourself stick to what works?

How do you avoid the siren’s call of bad trading concepts and ideas?

How do you refine your mental state for the best trading results?

How do you orient your life so that it makes you a better trader—and trading makes you a better person?

My interest in psychology and its relationship to performance has taken me down some very unorthodox paths which nevertheless have a lot to offer for traders who are trying to improve. These include Neuro-Linguistic Programming(NLP) , which is all about understanding mental patterns and strategies and then tuning them to change our results; hypnotherapy, which uses a variety of techniques to interact with the subconscious to resolve the inner blocks and conflicts that manifest in other problems, like phobias; and spiritual development, which offer the blueprint for a life well-lived and how to make good trading the foundation of a life well-lived.

While these are not definitive solutions, and you may not even find them helpful, I hope to join the rest of the SMB Training Blog team in continuing the dialogue about peak performance trading and helping people to improve as traders.

Follow me on Twitter @HowOfTrading or check out some of my previous posts at www.howoftrading.com

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5 Comments on “Paying Attention to the “How” of Trading”

  1. You just have to be able to understand the difference between trading and investing. Most of us are wired to invest. It is more socially acceptable. More respectable. To trade is just to use your account value as your indicator of immediate success. If trading well is what you want, then your account will tell you when you are right. But the foundation of trading is tape reading. If you let the market tell you what it is likely to do then all you have to do is do it! If you are feeling pain you are doing the wrong thing. Don’t be “Mr. Stupid”. Just do what places the odds in your favor.

    http://www.ghickeyblog.blogspot.com

  2. Well written and beautiful advice! I’m still in the beginning stages of my trading career but have been extremely focused on the psychology part of trading and living a successful life. Think about your thinking, which I’m obessessed with. Books like The Talent Code, Bounce, Mindset, Talent is Overrated, Flow, Outliers, Drive have helped me with self-control, self-discipline, and I believe have brought a little more order to my subconcious mind. (Fyi- I believe the Bible is the best guide book for character-building advice/strategies. My opinion though). As we all know reading alone won’t produce results. Thousands of hours of deliberate, purposeful, and deep practice will though.

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