Unfortunately, many people who start trading find success difficult to achieve, certainly in the period of time immediately after starting. Trading is a challenging endeavour that has torn people from all across the world across generations, from every extreme of their emotions. It is our money that is directly involved in trading and therefore at risk, and the potential of making more money is our primary motivation for beginning this undertaking.
Therefore any emotions that we may associate with other endeavours are heightened because money is something that seems to accentuate any natural human emotions that we have. Ironically, it is the money that encourages the vast majority to attempt to trade yet it is the money that causes most people to fail.
In his book, ‘Trade Your Way to Financial Freedom’, the renowned American psychologist Dr. Van Tharp discusses in several parts how important your psychology or mindset is to your trading success. He graphically depicts the significance of your psychology using a pie chart and explaining that there are three ‘Ingredients to Trading’. They are System, Money Management and Psychology. In the pie chart, the System is 10%, Money Management is 30% and the remaining 60% is psychology.
Why does a psychologist who has spent his entire professional life counselling traders of all experience levels say that so much of your trading hinges on your psychology?
The key is that your mind drives everything you do in your life and trading is no exception. Your emotions are a part of who you are and your decision making process. Decision making is a large part of trading, as you need to make decisions often and many of them are difficult decisions. Furthermore, people like to break rules, even ones they set themselves.
There are some simple trading rules that have stood the test of time, and will always work yet most people cannot follow them. It is essential that you realise how important it is that you demand of yourself the highest level of discipline to ensure you implement the requirements of your trading plan ruthlessly and follow some of the time tested trading rules.
At a presentation I gave a few months ago to a group of about 50 fellow traders, I was asked several questions, as per usual. After discussing the items above about emotions, sticking to a plan and the stresses associated with trading, I was asked about how you overcome the stresses and emotion of trading that seem to jeopardise so many traders around the world. I answered, “Exercise”. I immediately received many puzzled looks and someone said, “you mean practicing trading?”
It appeared to me that many had never considered a regimen of physical exercise in order to prepare well for trading. You don’t have to run in order to trade – you just have to sit at a desk.
However when you consider the demons that haunt many traders and the obstacles we face, then think about the benefits of physical exercise, shouldn’t we mention the two together more often. More and more today, people not only mention the physical benefits of physical exercise, they also include now the mental benefits of physical exercise. These are numerous.
Physical exercise can greatly improve both your mental and physical health. The physical benefits of aerobic exercise are well known and include improved muscle strength, flexibility, and cardiovascular endurance. Exercise also helps lower your blood pressure.
My belief in the benefits of physical exercise with regards to trading is based on the ability of exercise to help combat stress, and help you think more clearly when you are facing adversity.
Generally speaking, the lives of many have never been busier and more stressful. It has become a driving force behind most visits to doctors for people of all ages. Medically, when a person is experiencing stress, adrenaline pours into the blood stream as part of a person’s ‘fight or flight’ response and muscles throughout the body tense in anticipation of a challenge. Immediate effects can range from a short temper and heightened emotions to difficulty sleeping.
Many traders would agree that you can experience certain levels of stress when trading and it is often at these times that we do not employ the best judgement in our decision making.
John McCarthy, executive director of the International Health Racquet & Sportsclub Association (IHRSA), says, “Regular physical activity can help counter the potentially damaging effects of stress on the body and may help prevent stress-related illnesses. These activities provide a natural way to release tension in the body and will often lead to an automatic state of relaxation that naturally follows a good workout.”
Medically, during exercise the body starts to produce endorphins. Endorphins are chemicals that lead a person to feel peaceful and happy; they promote a sense of well being. This is a perfectly natural and effective tool in helping to manage stress. Exercise can also help some people sleep better and raises their self-esteem.
By increasing your self-esteem, your self confidence grows and this can directly assist you with trading, as confidence is one of the more understated character attributes required by successful traders.
Of perhaps less importance, exercising can help you physically look better, as those who exercise regularly, look more toned than those who don’t. Exercise is one of the most important parts of keeping your body at a healthy weight, and people generally feel much better and confident when they see themselves in a positive light.
Again, those who feel more confident in themselves are likely to have more confidence in a trading plan they develop. The flow on effect can be very positive for their trading.
Trading is generally decision making where we need to employ sound judgement on a regular basis. Along these lines, exercising can also help your brain to work better. There have been numerous academic papers and research done to support the notion that exercise can improve a person’s ability to think more clearly.
Exercise has been found to increase a person’s mood state and an overall improved sense of well-being, which in turn helps to keep stress, anxiety and depression to a minimum.
Military forces all around the world engage in regular and demanding physical exercise in preparing for the demands of military operations. Officer training institutions generally enforce greater standards as officers are often required to make decisions and often do so under pressure and hardship. The physical exercise they endure enables them to think more clearly than the average person and remain level headed when the pressure is on and all seems lost.
Could we as traders not benefit from a similar mindset where we are able to think clearly at all times and make sound decisions based on solid judgement? Wouldn’t this help us take a step towards overcoming the adversities we can face with our emotions and stresses?
Focussing on the type of exercise, it is important that people don’t exert themselves too much. It has been found that a steady aerobic workout will produce far greater results than those that exhaust the body and leave a person folded over in pain and out of breath.
A steady aerobic workout will greatly assist the brain’s ability to solve problems and make decisions fast and effectively. Generally after exercise, people are able to concentrate and focus much better than before. They are better able to block information that is irrelevant to the task at hand, and respond much faster to information relevant to the task.
From a motivation perspective, it is important for those who have never really exercised before or where there has been a lengthy layoff, that they start off easy. Many unfit people set out to begin an exercise routine with great ambition and enthusiasm and then find that they cannot stick to the routine and their motivation quickly disappears.
These people end up on a never-ending cycle of great ambition, loss of motivation, and a steady slump back to where they started. This is often because they are not enjoying the exercising they are doing. This is a problem.
Exercise is supposed to be a fun activity, even for the whole family and when you arrive back home feeling terrible, the motivation to go back out and do it again takes a big hit. This is when you will begin to think of all the reasons not to go again and then, you have taken a turn down the wrong road. Naturally, the fitter a person is, the more they will reap the rewards from aerobic exercise.
Physical fitness does not come easy. The best strategy is to gradually increase the duration of your exercise sessions and, along with enhancing your physical fitness, your mental muscle will also begin to take shape.
There is no doubt that regular and moderate aerobic exercise will help your brain to function more efficiently, and therefore reduce stress, think more clearly and remain level headed in times of emotion and adversity. In an endeavour where very few people succeed, it is in our very best interests to do everything we can to increase our chances.
I strongly believe that physical exercise can greatly assist traders to think more clearly, reduce the effects of stress, and ultimately make better and timelier trading decisions.