When you experience a large loss or other adverse trading event, how do you respond?  Do you become upset or angry?  Do you feel down and withdraw?  Do you feel like the world is against you?  Or, do you “pick yourself up, dust yourself off, and start all over again,” as the Jerome Kern – Dorothy Fields song recommends?  Believe it or not, how you respond to adverse events is important and will affect your ultimate success in trading.

Trader Resilience

What we are talking about here is resilience.  Resilience is the ability to spring back from adversity and recover quickly from difficulties. Some might think of it as mental toughness or grit, but it’s much more than just grinning and bearing it.

Resilience is the ability to read a challenging situation, assess and adapt to what is or what isn’t working, and then make tactical adjustments in your approach to get closer to your objective.  Instead of disengaging, resilience helps you move into and through the hardship and come out the other side better. 

There is a large amount of adversity in trading.  Every trade opportunity carries the potential for disappointment, headache, and distress.  When we can be resilient, we can gain strength by successfully negotiating the hard experiences. 

There’s no Resilience Gene

Research shows that resilient people aren’t especially gifted or talented.  What sets them apart isn’t that they are somehow immune to the negative emotions challenging events can bring.  They experience fear, pain, sadness and suffering just like anyone else.  What sets them apart is that they use their fundamental abilities to cope with stressful events better than others.

This is good news for traders.  The ability to bounce back after detrimental—even damaging—experiences isn’t due to an extra dose of resilience aptitude.  We all have about the same innate ability to respond to life’s difficult challenges.  Resilient people have just learned to use their abilities more skillfully.  They’ve learned to adapt and be flexible. 

Having the Right Attitude

The best athletes on a sport team, for example, will go to the coach and ask how can they do better when confronted by a limitation in their game.  That’s the attitude of resilience.  When stuck, they don’t shy away.  Instead, they want to work harder and overcome the impediment.  Traders can adopt this same resilient attitude and improve their game.

Developing Your Resilience

Here are four ways to develop resilience:

  1. It’s how we perceive and think.  The situation may be bad, but if you can see it as valuable and meaningful, the experience suddenly changes.  It’s no longer crippling, you now have possibilities.  Adversity need not be experienced as awful; it can just as easily be uplifting.
  2. Our explanation of adverse events is critical.  A bad event isn’t necessarily your fault.  Even if you did make a mistake, refrain from turning problems into personal flaws.  Adverse events are limited to the situation.  They do not mean something is wrong with you.  You are bigger than any challenging situation.
  3. Something constructive can always be done.  Be an active agent, not a passive recipient.  Resolve to act differently next time.  You can make changes that will improve your situation and your trading.  This is taking a step in the right direction.
  4. Adopt what psychologists call an internal locus of control.  This means that you believe you have a strong influence over the events of your life.  Those who have an external locus of control see events as happening to them and blame uncontrollable external factors such as the market or other traders for their difficulties.  Shift your focus from outside causes to what you can control and the actions you can take.  Don’t underestimate your abilities.

We can become more resilient by viewing adversity as a challenge, seeing it as an opportunity to learn and grow, acting with flexibility, and finding ways to bring or develop our personal strengths and abilities to meet our trading challenges.  For more on trading psychology, you are invited to the author’s website to access free resources on trading and trading psychology.