For more than 10 years I have had thousands of ‘wannabe’ traders come along to listen to trading methodology demonstrations, with the great majority saying: “Just give me a trading system that is good enough for me to make money—I have no problem with the psychological side of things.”
Wrong, wrong, wrong! The psychology, that is, the approach I am outlining to you, is what it’s all about. With the right mindset you can make money with any system with an edge. However, the edge on it’s own will not guarantee success.
They are working on the incorrect premise that their current way of thinking is at the level required to make a “right” decision and that their mindset is okay for trading, when in fact, they don’t know what they don’t know and indeed don’t know enough to make that call. The degree to which people deny or belittle the importance of psychology in trading is the same degree to how much more effort they need to put into developing and improving their trading mindset to achieve trading success.
I have found amazingly that:
• the more successful a trader is, the more effort he/she continues to put into improving his/her trading mindset.
• the less successful a trader is, the more effort he/she puts into analysis or searching for tips, believing that the answer to success lies in cracking the right set of indicators and settings or right tipster.
In fact, the inner game of the trading process is
• making your focus that of acquiring the skills of consistency and objectivity.
• having an image in your mind of trading as an ongoing journey of acquiring these skills and improving these skills.
• accepting that your trading focus is not profits. Making profits is a by-product of this skills acquisition process. You may have heard other traders say, “detach yourself from the money”. Let’s put it another way. Detach yourself from the result or outcome of each trade. You achieve detachment by focusing on the process and how well you execute the process.
• enjoying the process of gaining and improving the skills of consistency and objectivity. Enjoy the challenge of this process and you will enjoy trading.
Don’t focus on the outcome, focus on and execute the process. The degree to which you focus on outcomes will be the degree to which you will be unsuccessful in the market. This is a trading paradox we’ll investigate further in next week’s blog.
Look at the Dennis and Eckhardt Turtle traders experiment. Richard Dennis trained a number of non-traders to follow his mechanical futures trading system and during the experiment the traders were successful, although some were more successful than others. The very successful ones focused on the rules and followed them strictly. The less successful ones focused on the outcome of each trade, lacked discipline and consequently didn’t strictly follow the rules.
The experiment showed two ‘truths’: anyone can be taught to trade by following a mechanical system, but not everyone will have the natural discipline to strictly follow the rules. Discipline in following the rules needs to be continually worked on, as this is the hardest part of the game.
Totally agree with you re “think of the process NOT the outcome”. That allows you to focus on doing what it is you do. eg. Stand over a 5 foot Putt and think of how much you will win off your playing partners or how windy it is today or any other mind clutter and YOU WILL MISS THE PUTT more often than not (You won’t know why went in even if you do get it). Think of how firmly you are going to stroke the ball and what line you want and you will make a much greater percentage of good putts. Applies to most pursuits and certainly to placing your money on the line on a trade. BUT, at the end of the day, you still need to know how you should Putt and how to read a green. ie. You need an EDGE and knowledge.
Thank you Gary for going into this most important part of trading – the mind of the trader!
Your insights and suggestions are fantastic! and a great reminder for me to ‘focus on the process’. It is just so easy for any and all of us to get caught up in market prices and the ‘whys’ of market movements which of course is created every day to grab attention!
I so enjoy reading your journals – looking forward to hearing more about the trading paradox.
Gary I totally agree that mindset is the key. I have read a few books on mindset including “Trading in the zone” & a few of Dr Tharps titles. Do you know off or recommened any purely self discovery courses, be they trading specific or focused on the life journey?
Hi BG more recently daryl Guppy was challenged that if you have a system and tell everyone the performance will degrade as more people use it.
To prove this is not the case he came up with a trading system and gave the system and the same group of stocks to people in differant states all around the country the result all groups made a profit but they picked diff stocks and the results varied,
why because the had differant tolerance for risk.
The book is trend trading
Well said. It’s pretty straight-forward to teach someone the strategies/techniques and/or system of wealth, yet take two ppl, teach them the same concepts, and you can get two vastly different results depending on each person’s mindset/emotional intelligence.