Articles on Trader Psychology by Rande Howell, Trader Psychologist
Looking Like a Professional Trader
When not actually trading, many a trader looks like a trading whiz. Then, as they are in the act of trading, self-doubt rises up in their minds and talks them out of acting on what they know. If self-doubt does not rob them of their potential, self-sabotage does. In the excitement of finally getting their winning ways in gear, traders notoriously blow themselves up and give back all they have made during a good period – and quite a bit more. Either way, what results are poor trading performances and mediocrity in equity growth (or capital loss).
The Inconvenient Truth that No One Wants to Hear
Despite their dreams of financial success, being stuck in mediocrity is the norm for the vast majority of traders (95% lose money by most estimates). No one in their right mind would want to be stuck in such a situation – much less stay in this conundrum. But they do. This gap between knowledge and performance is the bane of the knowledgeable trader who cannot apply his considerable knowledge effectively when the money counts.
On the surface, it looks like the person knows how to trade. It looks like they have come to the arena to play ball – they certainly talk the part. But in terms of being able to consistently pull money out of the markets profitably, most traders do not know how to trade. They can talk the talk, but they cannot walk the walk while in the pressure of live trading. Instead, they fall apart by either being hijacked by fear or by acting from irrational exuberance.
Equity growth is a requirement for a professional trader. And anything (and I mean anything) that gets in the way of consistent equity growth has to be rooted out and changed if the trader plans to continue to play at the professional level. Based on this definition, there are plenty of people with considerable knowledge of trading who do not know how to trade. They can talk trading like a fan can talk about a sport played by professional athletes. They may be fans or good amateurs – but they are not playing the game the way a serious professional would.
When charting and divining where the market will probably go, they can nail market moves with uncanny accuracy. People around them listen. They are respected for their knowledge. And they can time their trades with amazing accuracy when in simulation. Other traders get worked up just listening to them. This feels good and strokes their ego. Unfortunately, talk is cheap. If they only could do that when they were trading live, they would be in the money. But they cannot.
Are You Acting Like a Fan, an Amateur, or a Professional Trader?
The causes that create this gap between knowledge and performance are not initially an area of inquiry for most students of trading. If fact, most traders rarely acknowledge, even to themselves, the dark side of their trading. Looking inside themselves for the origins of their lack of performance is the last thing they would want to do. So they put it off or push it out of working awareness because it brings discomfort to their carefully crafted comfort zone and fragile ego.
Instead, they try to look good outwardly to themselves and others. Their talk switches from acknowledging their internal shortcomings (yucky feelings of self-responsibility) to the fluff of “If I had only ______________” (you fill in the blank with your favorite “if only”). This is how fans and amateurs talk and act. After the fact, amateur traders (having gotten stuck in the various fears of trading or the over-confidence of an amateur's mindset) will see lots of things that they did not see during the clutch of trading. But it is too late. The knowledge needed in the moment of performance was not present when it was needed. Consequently, the trader does not really know how to trade. He or she only knows how to talk about trading. To know how to trade, the knowledge has to be present when capital is at risk and the outcome is uncertain – and the trader is comfortable with managing probability rather than appearing to control outcome. This is where fans of trading and amateurs fail in their desire to become successful professional traders.
Their minds seem to go someplace else, and they do not do what they know to do. Instead, they do exactly what they have promised that they would not do. Somewhere in the chaos of the moment, their better mind disappeared. The amateur does not turn toward their breakdown in performance psychology – they hold outside forces responsible for their lack of results. They miss the opportunity of improved performance by not being open to seeing the psychological underpinning of botched performance.
Instead of seizing the opportunity for personal growth, traders stay stuck in “if only” rather than taking a hard look at what is really going on in their trading. Excuses, rationalizations, and intra-personal inaction are substituted for personal responsibility for flaws in performance psychology. It’s like they are fans of trading, talking the talk, but refusing to become professional players, who examine their performances dispassionately WITH A COACH looking for any glitch or tendency in their performances that can be improved.
The Making of an Elite Professional Trader
To the professional athlete and professional trader, ego takes a backseat to performance enhancement. In the Olympics, where hundredths of a second separate medaling in a sport and mediocrity, the difference maker comes down to the mind that the athlete brings to his or her performance. In golf, it is the same thing. On the professional circuit, everybody is good. Everybody can drive the ball a mile. Everybody can put. That is just the price of admission to get to the game.
The difference between the sprinter who wins gold and the rest of the pack; the difference between the elite golfer and the rest of the pack - is the head game. With the help of a sports psychologist the elite athlete has explored every inch of his or her inner space so that a peak performance mind can be developed. They know they cannot control the outcome of the event. And on any given day, anything can happen, bad or good. It can break either way.
And what they have courageously rooted out are the self-limiting beliefs that hold them back from performing at their personal best in the clutch. A person may have gotten along on talent for a long time, but at the level of championship performance, talent alone will not produce the possibility of the winner’s circle. The head game has to be in synch with the talent and knowledge of the game for peak performance. They know they are dealing with probability and they know that they cannot control outcome any more than they can control the mind of other elite performers who are equally as prepared as they are. No, they cannot control what will happen. But what they can control is the mind they bring to the performance. This is the difference maker at this level of competition. Ego simply has no business getting in the way of the possibility of a peak performance. There are simply way too many other variables that cannot be controlled – so why give up control of the one thing they (and you) can control?
Hiding from self-limiting beliefs that are holding you back from peak performance simply is not an option for the professional. If something stands in the way of consistently performing in the zone of peak performance, then it has to be discovered and transformed into higher performing beliefs. And in trading, it is those beliefs you hold about your capacity to manage uncertainty (whatever comes your way, good or bad) that is revealed in your self-talk as you anticipate performance, as you manage performance, and in how you treat winning or losing.
Listen to yourself after a loss or a blunder in your trading. Do you beat yourself up? Most likely you do – it is normal to do so. But normal is not going to get you into the winner’s circle consistently. Most of you reading this article have knowledge of trading. The problem is that very few know how to use that knowledge from a peak performance state of mind. That mind is built by looking inside and finding what you have been avoiding acknowledging. That is what amateurs do not do because of a fragile ego. And it keeps them stuck in “normal” performance – remember, “normal” means being a marginal trader or a trader who consistently loses money.
The professional is not invested in protecting a fragile ego. He/she is invested in developing his or her talents to perform at elite levels. No stone is left unturned in this quest. And the mind that engages the uncertainty of trading has to be developed to achieve superior performance. That’s because the brain/mind you brought to trading simply was not built by evolution to manage probabilities. In committing to self-development, you discover much deeper strengths than the weaknesses you were trying to protect.
This is what it takes to move from an amateur's mindset to a professional’s mindset. The question is: Knowing that it is not going to happen by wishful thinking and is going to require hard inter-personal self-development on your part, do you want it enough to change the psychology you bring into the moment of performance? Your trading account will tell you if you are trying to fool yourself or whether you are serious enough about the necessary change to become an elite professional trader.
The markets don’t care what you decide or what you do. You are the only one who cares. And motivation and courage to step out of your comfort zone to re-develop the performance mind is the price the professional trader is willing to pay to get to the next level.