The past six weeks of the market requires one with strong nerves, patience and confidence. What looks ugly and frustrating in one week, can be looking good the following week. Making mistakes in the market is an inevitable part of being human. But the most important thing; mistake must be cheap because good risk management coupled with psychological edge can withstand any bad market period.
In trading, mindset plays a critical role, and if you work on your mental edge, this component of trading that everyone else is ignoring, you will be miles ahead.
Today, I am truly honored to share this guest post by Mr. Jared Tendler. a leading expert in how your mental game impacts performance. The author of two highly acclaimed books, The Mental Game of Poker, and The Mental Game of Poker 2, and also recently released his latest book, ‘The Mental Game of Trading’ that is available on Amazon , His roster of clients spans 45 countries and includes esports athletes, financial traders, some of the top poker players in the world, a top ranked pool player, and several PGA Tour players.
Working Through Performance Flaws: Three Steps Towards Resolution
At some point in your trading career, you’ve noticed emotions getting in the way of your performance. For example, you may experienced one of the following situations:
- You became angry when you got stopped out by two ticks because it felt unjust
- You moved your profit target, out of an excessive drive to reach your goals immediately
- You second-guessed a textbook trade out of fear of making a mistake
- You became overconfident after your best month ever and stopped working as hard
- You lost confidence in the midst of a drawdown because you were convinced you would keep losing more
These are merely a handful of many performance flaws that lie at the heart of the problems that come up in trading. These flaws — based on wishes, biases and illusions — force errors in execution and ultimately cost you money. That is why one of the first hurdles in resolving performance flaws is to change your perspective on emotion.
While it may appear that emotions such as anger, greed, fear, overconfidence, and a lack of confidence are the cause of your trading errors, these emotions are actually signals. This is a critical change in perspective.
Emotions provide data on a host of things, including our underlying belief systems, goals, perspectives, and ingrained habits. And they’re a signal of flaws in any one of these areas. As a trader, you use signals all the time and, based on your level of expertise, you are more or less skilled in leveraging those signals to deploy your edge. Think of your emotions like the indicators you follow in the market.
From this perspective, the role of emotion completely changes. Rather than seeing emotion as the problem, instead see it as a messenger telling you exactly what to work on in your mental game. It’s your job to interpret what the emotion is trying to say.
TWO COMMON PERFORMANCE ISSUES: EXPECTATIONS AND CONFIRMATION BIAS
Many successful people have incredibly high expectations of themselves and the people around them, and these expectations often serve as an important driver of their success. And yet. . . high expectations can also be like a double-edged sword, causing self-inflicted damage to performance, often in subtle ways.
For instance, you may get intensely angry when you fail to meet your own expectations, most often after you make a mistake, close out a big losing trade, or fall farther into drawdown or from your equity highs. Or you may get incredibly nervous, and resort to comfortable trades with very little risk. You may even find yourself getting pulled into a nasty cycle where anger turns into fear, which damages confidence, which further weakens the ability to perform, which makes it even harder to achieve your expectations, which leaves you angrier, more anxious, and more down about your prospects.
Amazingly, traders often tolerate that kind of emotional volatility while still performing at a comparatively high level. Nevertheless, the internal chaos and damage that high expectations can inflict make it impossible to realize their top potential.
Another common performance flaw is confirmation bias, which basically means you seek out information that confirms your pre-existing belief, while ignoring or rejecting information that opposes that belief. As an example, you might find yourself married to a particular position, setup, or sector, but when it falls out of favor, you’re slow to respond because of how much money you made previously. A position immediately validates your entry as it races toward your target, but when it retraces and stops you out, you’re quick to reenter, trying to prove you were right. Or you see another trader making money. Your bias is that you’ll definitely make money by following them, but, instead, you end up behind the curve.
As a trader you can believe anything you want, but the market dishes out cold truth. Yet, traders with confirmation bias will often, unknowingly, ignore reality, trying to prove what they believe to be true vs. trying to figure out what is actually true, in order to protect their confidence.
There are people who believe biases like these can’t be changed — that the best we can do is to be aware of them and try to limit their damage. While that may be true in some cases, I have personally seen many traders make significant improvements by identifying the performance flaws driving their confirmation biases.
Before you can prioritize fixing those flaws, however, we’ve got to bust one more myth: The idea that controlling your emotions is a solution to the problems in your mental game.
THREE STEPS TOWARD RESOLUTION
In any game, we develop a strategy to help us accomplish the goals we set. When it comes to the mental game, many traders set their sights way too low, believing their best strategy is to control their emotions. But this common aspiration is not an end game; it’s a permanent job.
If controlling your emotions is your only tactic, you’re going to be constantly fighting a barrage of emotional reactions.Trading is hard enough without devoting mental energy to fight to control your emotions.It’s draining, and in the long term, makes it impossible to reach your potential as a trader.
When it comes to emotions, control is not the answer. The end goal to strive for is actually resolution. Resolution means you have corrected the performance flaws causing your trading errors, permanently. Automatically, the things that would have triggered anger, greed, fear, etc., simply don’t anymore. You no longer need to manage, control, or work around your emotional reactions, because they are gone.
My mental game system is the product of 15 years of work, and has been proven to be successful with institutional and individual traders from around the world. As well as golfers on the PGA Tour, world champion poker players, and championship winning esports teams, among other elite professionals. What makes it so effective is that it targets the root of your emotional problems—the performance flaws, like the ones I just mentioned. To kill a weed you need to get the roots out, otherwise it just keeps coming back again and again. My system gets the roots out. Here are three steps, each of which has different tools and strategies embedded within it:
- Map Your Pattern: You need to identify an overall macro view of your emotional volatility in order to have a clear idea of what you will face on any given day. You also need a detailed map of what those emotional reactions look like at a micro level, so that in real time you can quickly spot them and minimize the damage.
- Identify the Roots of Your Problem: To get to the real reason behind your problems, you need to uncover the hidden flaws, biases, and illusions, including errors in learning that can either prevent you from progressing or create significant ups and downs in your progress.
- Correct Your Problem: This is where you tackle the problem head-on, by consistently applying the correction in real time.
The outcome of this system is resolution of the performance flaws causing your problems. The importance of resolution can’t be overstated. Imagine not having greed, fear, tilt, confidence, or discipline problems. At all. That’s an outcome worth the hard work required to get there. And if you work the system, you can get there.
And what will your trading look like once your emotions have been resolved? You won’t be void of emotions, like a robot. In fact, quite the opposite — you’ll be:
- Full of emotion, but the good kind — energized, confident, focused, and motivated
- More patient and able to let the market come to you, rather than chasing it
- Focused more on execution than P&L
- Able to handle losses
- Decisive and rapid in your execution
Not only will your emotions be stable and positive, but the common trading mistakes you make when you’re blinded by greed, tilt, or fear will be gone as well. Why? Those emotions were the primary cause of your mistakes. This doesn’t mean you won’t make mistakes—no trader is perfect—but now your mistakes will be smaller comparatively.
To learn more, check out my newest book, The Mental Game of Trading: A system for solving problems with greed, fear, anger, confidence and discipline.
