Mindset

Trading Should be a Game

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.

It is common to see people who are naturally gifted at something or perhaps a professional who has studied and subsequently practiced his skill for many years, assume that the attributes and skills that they have can be naturally transferred to the trading arena. You may have a successful person or athlete who has ample self-confidence and is a leader in their field. Unfortunately, their self-confidence may not be well founded. It is difficult to be confident without having competence. Being competent at trading is vital and this is no where more important that being mindset competent.

Many people who have traded have heard how important your psychology, or mindset is to your trading success. Books have been written, entire seminars presented and numerous tea breaks at traders club meetings across the world are devoted to the subject of the ‘psychology of trading’. Many traders would argue, I included, that your mind is the largest part of your overall trading success.

I always wonder however, how many people truly understand what it is they mean when they talk about it and its relationship with trading. In reality, your mindset controls anything you do and consequently, any endeavour you undertake. Trading is no different and it could be argued that it is even more applicable in trading as your money is involved, and that triggers many other emotions inside of us.

Numerous examples that confront the mind and our natural emotions include wanting to be right all the time and getting our own way, having our opinion matter and having some influence and control over what happens. In trading, these natural thoughts within many of us will place us in a position of disadvantage. These are just some examples of why our mindset and preparing our mind is so important to our overall success.

Furthermore, you would have thought previously about why some people are so successful in life and others are not. How many books have been written about having a positive attitude and taking action towards your goals? There is, and always has been, a single ingredient that separates people who are successful in life from people who are not. It is the mind and how we use it. Many people live their lives with an endless series of “what if” questions that they ask themselves.

An activity I will perform when I speak to a large group of traders about the mindset involves asking for a volunteer. I would have spent the last 10 minutes or so explaining how traders must often ‘think outside the box’. In other words, don’t think and act upon natural thoughts … think beyond normal thought. I say to the group, “OK, for my next session, I need the assistance of a volunteer from the audience just for a few minutes. Can someone come up here and join me please?” When I say this, I make sure that I look down at the floor and don’t make eye contact with anyone.

After asking, I continue to avoid eye contact with the audience as I pretend to fiddle with my notes or have a drink of water. About 15 seconds pass and no one has made a move. I then look up at the audience and again, I ask for a volunteer for my next session. The atmosphere begins to become slightly awkward as the people in the audience begin to wonder whether my next session will go ahead without a volunteer presenting themselves. I stand there and wait, not saying anything but still determined to wait long enough until someone volunteers. Almost out of pity, someone will inevitably stand up and declare themselves the volunteer and make their way to the front to join me.

As they join me and I introduce myself to them, I provide them a copy of my book with my compliments, thank them for volunteering and then ask them to return to their seat. Often the person will then receive a round of applause as he makes his way back to his seat. This simple activity illustrates how the vast majority of us are perfectly happy in our comfort zone.

When I ask for someone to come up in front of everybody else and therefore expose themselves to the possibility of embarrassing themselves, everyone feels uncomfortable and hopes that I don’t look directly at them. Therefore, nobody wants to take action. Yet, to trade successfully and master the trader’s mind, we need to be prepared to think beyond natural thoughts and subsequently take action based on those thoughts.

How do we do it then? How can we possibly prepare ourselves for long-term successful trading when it appears that the odds are against us right from the start?

Sport is a wonderful activity that many of us across the world of all physical types partake in, at some level. I believe sport and those who partake at the highest level and perform above all others at the highest level can teach us something about trading. I think many of us have traded under pressure before.

Perhaps it is the pressure of our own expectations or the pressure that we may have another losing trade and you may have to accept sooner or later, that trading is not for you. Many emotions can flare up inside of us when we trade including anxiety, worry, fear, and perhaps panic. How can we reduce these emotions and ensure they do not adversely influence our decisions?

I think we should also consider trading a sport and our own activities as a game. This will hopefully ease the pressure off us and make us more relaxed when trading. It is fair to say that when the stakes are high and the pressure is beyond explaining in words, most of us mere humans, would be affected adversely in some way whether it is mental or physical.

There are, and always will be the select few who have proven time and time again that they are almost immune to those influences and are able to continue to perform at an exceptionally high level regardless of the circumstances. How do they continue to perform when most around them appear to falter and wane despite their relative similarities in physical skill and attributes?

History has shown us numerous sportsman who have simply faltered, or choked, in pressure situations in games when the stakes have been high. The signs are obvious – they have not wanted the ball, they have made many simple skill errors, or they have shown poor judgement in crucial situations. Unfortunately for them, whatever brilliance they had shown up to that point and reputations they had built, one game can break it all by what is perceived to be a poor performance in a critical game.

In the 2005 American NBA Basketball Finals, two elite teams were competing for the one prize in a series that was decided by the first team to win 4 games from 7. After the first 4 games were split, leaving the teams tied at 2-2 and the series down to a best of 3 final series, game 5 became even more crucial. A close game all the way, the game continues on into an overtime session.

With 10 seconds left, and one team down by two points, one player stepped up to the 3 point line and made the field goal moving his team into the lead by 1 point. As time expired, his team won and then went on to win the overall series 2 games later. His 1 field goal at the end of game 5 was seen as pivotal in the whole series. The player was Robert Horry.

What is even more remarkable about this story is that this was not the first time that Horry had stepped up in a critical situation and calmly executed a pivotal play. Horry had forged a reputation over the last 10 years as a ‘clutch performer’, by making big plays on numerous occasions in critical games, when the stakes were high and when some players around him were found wanting.

Interestingly, straight after the game, Horry was interviewed and the interviewer made comment about his reputation being added to by yet another exemplary performance under immense pressure in a critical game. He was asked what it is that enables him to perform like that time and time again. As he was about to answer, I found myself glued to the telecast waiting for his answer to the question of what separates those who calmly execute under pressure to those who falter.

Horry answer’s was so simple. He said, “I just like to play basketball and have fun – a lot of guys take the game so seriously – as you know, in crunch time, I am out there still smiling and enjoying the game. You got to enjoy it”. It was clear from his response that when he treated it as a game that he enjoyed playing, he became immune to most of the pressure that was being felt by everyone around him.

We can use this lesson in our trading. Many traders feel the pressure and can easily be adversely affected by that causing them to consistently make unsound trading decisions. The lesson is that if we can convince ourselves that trading is just a game to be won or lost, then perhaps we can dismiss the external factors that often influence us and firmly focus on the task of trading well with minimal distractions. We will be able to relax, and think and act calmly as we execute our plan.

Perhaps we can continue the analogy one step further. If we compare our own trading with the performance of an elite sportsman performing at the highest level, then it is easy to consider the preparation that is required. Many of us will watch sportsmen and women perform but too often we lose sight of the effort and energy that has been expended to reach that level. We think players like Horry just appear one day and walk onto the court and perform.

What we easily overlook are the hours that he would have spent in a backyard somewhere, a playground when it was getting dark, or an empty gym where the only sound was his basketball bouncing, practicing and preparing for those moments. After all that effort, it has become effortless for him to prepare himself and then perform in the game.

I believe that winning traders consider trading a game. Trading should be a game and traders at all levels should prepare themselves accordingly. No one said that this process would be easy however I don’t remember anyone telling us that trading is easy. It will however, be worth the effort as trading well can be tremendously rewarding and satisfying.

It is a mindset issue and if preparing our mind for successful and disciplined trading is something we must do, then surely this could include preparing ourselves for the game.