Since my last post about differences of perspective on developing trader mindset, I’ve spent quite a bit of time this week trying to understand those differences of perspective – the Dr Brett Steenbarger, “enhancing trader performance” school, and the Mark Douglas, “core beliefs for trading success ” school.
While I don’t see any conflict between the two approaches, I guess I do still have a bit of an issue with Dr Steenbarger’s assertions about trader development. A new trader could easily understand from reading Dr S’s work that trading psychology and the development of trading mindset is a performance add-on, and this couldn’t be further from the truth
Dr Steenbarger’s books are both fascinating and very insightful about trader development. He’s absolutely right that an effective trading methodology, clear expectancy, and money management strategy is an absolute prerequisite for success. Nevertheless, what’s missing for me is mention of the importance of fundamental thinking skills in trader 101 training. It would be helpful for all new and struggling traders (which lets face it is the largest readership for any of these books) to hear it stated loud and clear that they are unlikely to reach the point of performance, let alone beginning to enhance it, until they’ve studied and implemented the beliefs and mental strategies that are the bedrock of consistent trading success.
What do I mean when I say beliefs? Consider these two newly developing traders – Dan & Luke. They have both spent considerable time researching and practicing an identical trading methodology and money management system that has the potential, if they execute it effectively, to be consistently profitable over time. They are both at the same skill level in terms of this method.
The difference between the two is that Dan has received no training in how to think, in what to believe about the markets. Mark on the other hand has studied the mental strategies that compliment his technical skills.
Dan sees a set-up based on the method, and he believes he’s right about how the trade is going to play out, so he enters the market. The trade doesn’t comply with his expectations and he loses money. He enters a second and third trade and the same thing happens. Its just a natural, temporary drawdown in the trading method, but Dan takes it personally. Fear creeps in, he starts to worry about his method, he experiences a minor emotional trauma from his attachment to his losses that lodges itself in his awareness and subconsciously taints the way he looks at the market going forward.
Luke on the other hand has thoroughly studied and imbibed ‘Trading in the Zone’ by Mark Douglas. As a result, he’s acquired a number of important beliefs that will make all the difference in trading his method.
Luke takes exactly the same trades as Dan, except he believes 3 things which Dan doesn’t.
Firstly he believes that his trading method gives him an edge over a series of trades but that he doesn’t need to be right about any single one. He knows its not about being right, its about executing well and allowing the method’s edge to do its thing.
Secondly, he believes that even though his method has given him a set up that looks promising, the market can and will do whatever it wants, quite possibly different from what he expects.
Thirdly he has learned how to think about risk, so that a loss on any given trade doesn’t disturb him.
Same three trades – now Luke is ready to enter the forth and execute with a clear mind, he’s still in the flow. This trade offers a 10 point profit and Luke nails it. Dan on the other hand is anxious, his perspective is off, he hesitates, his execution is affected, he bodges it.
What we believe as human beings and as traders makes all the difference in the quality of our life, and our trading.
Luckily both Dan and Luke have read Dr Steenbarger’s books.
Dan is going to get some brief therapy for his trauma, and he’s inspired to continue to assess his trading and improve his skills. Lets hope he reads “Trading in the Zone” soon so that he also develops some mental skills! Luke is going to make sure that his untraumatized optimism doesn’t make him soft and get in the way of his development – continuing to learn, to practice, and to refine his ability to implement his method effectively.
Having been in Dan’s shoes, and given the choice I know that I would always choose to learn mental strategy as a preventative measure, and as an essential part of my earliest development as a trader.