Bulletproof Trader. Steve Ward
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is your mindset around losing, failure and mistakes?
In his book Black Box Thinking, which examines the role that failure plays in success, Matthew Syed contrasts the culture surrounding mistakes and failure in the medicine and aviation industries.10
In medicine he finds there has historically been a negative culture around mistakes, with low reporting levels, influenced perhaps by the motivation to avoid being sued for medical negligence. The outcome of this culture is that mistakes are made but people don’t learn from them. So the same mistakes are repeated and performance doesn’t improve.
By contrast, he finds a much more open culture around mistakes in aviation. Here mistakes are reported and shared, not just within airlines, but across different airlines around the world, allowing a pervasive learning from those mistakes. Everybody can benefit – and safety levels and performance are improved across the industry.
What is your own internal culture around mistakes? Around losses, setbacks and difficulty?
Ray Dalio of Bridgewater Capital strongly believes that learning from mistakes is essential to improvement and ultimate success.11 He suggests that each mistake, if recognised and acted on, provides an opportunity for improving your trading. Traders can benefit from writing down the mistake, the implied lesson and the intended change (if required) to their trading process. This log can then be reviewed for reinforcement. Trading mistakes cannot be completely avoided – but repeating the same mistake can be.
Developing a mindset that enables you to see mistakes, setbacks and losses as opportunities to develop as a trader can be very helpful in helping you to manage them more effectively.
The Stoics were strong believers that challenges and setbacks were a part of life and important opportunities for self-improvement. Their philosophy developed a mindset that saw adversity as an advantage, and obstacles as the way.
“Our actions may be impeded, but there can be no impeding our intentions or dispositions. Because we can accommodate and adapt. The mind adapts and converts to its own purpose the obstacle for our acting. The impediment to action advances action. What stands in the way becomes the way.”
— Marcus Aurelius
This same mindset can be very helpful for traders.
A three-step process for managing and learning from your trading losses, mistakes and setbacks could be:
1 See losses, mistakes and setbacks as opportunities to learn.
2 Write down how you are thinking and feeling about a given loss/mistake/setback.
3 Write down the lesson(s) from the loss/mistake/setback and any action you will take as a result in the future.
A worthy rival
When I worked as a sports psychology coach, I encountered some athletes who developed anxieties about facing a certain opponent; often one who was more highly ranked or regarded as a better performer, more likely to win.
Some of these athletes became truly fearful of facing these opponents. They tried to avoid it at all costs. In the short term this avoidance of the opponent reduced their anxieties. But in the long term they lost out on the opportunity to play better opponents, to develop and raise their own game, and become a better performer.
In order to help these athletes I encouraged a mindset shift from fearing playing tougher opponents to actively seeking them out. I would remind them of the meaning of the word competition. In its Latin root it comes from a combination of com meaning ‘together’, and petere meaning ‘to seek’ – giving an original meaning of ‘to seek together’.
There was no element of winning or losing.
I helped them build a mindset that appreciated that competitive encounters were opportunities for the players involved to ‘seek together’ – to find ways of developing and becoming better at their craft, at managing their minds and honing their bodies. The best opportunities to do so were when your competitor was a tough one, a better player, someone who would test you; someone you would train hard to prepare for, and who would create opportunities for you to develop your game.
These opponents were worthy rivals.
Having a worthy rival, someone who can help you to bring out the best in yourself, is a great advantage to anyone looking to maximise their performance potential.
Difficult moments in the market should be seen the same way as facing a difficult opponent in a sporting event. It could be something to fear and avoid – or it could be a worthy rival, an opportunity to test yourself, for development and for growth that will ultimately contribute towards becoming your best trading self.
“When a challenge confronts you, remember that God is matching you with a younger sparring partner, as would a physical trainer. Why? Becoming an Olympian takes sweat! I think no one has a better challenge than yours, if only you would use it like an athlete would that younger sparring partner.”
— Epictetus
Developing a bulletproof mindset
By shifting your mindset from seeing stress as harmful, to seeing stress as normal and helpful – by seeing losses, setbacks and challenges as opportunities to learn from, develop and refine your trading process – you can shift your experience of, and relationship with, challenge and difficulty in the markets.
Difficult experiences can be seen as worthy rivals, sent to help you improve and build towards mastery over the long term.
What beliefs about stress, difficulty and challenge – about risk, uncertainty, losing, mistakes, drawdowns – would be useful for you to hold as a trader?
9 The Upside of Stress: Why Stress is Good for You (And How to Get Good at it); Kelly McGonigal, Penguin/Random House, 2015.
10 Black Box Thinking: The Surprising Truth About Success; Matthew Syed, John Murray, 2015.
11 Principles: Life And Work; Ray Dalio, Simon & Schuster, 2017.
6. Take Committed Action
The motivation trap
Over the years I have been fortunate to work with thousands of new traders entering the markets for the first time, primarily as graduates at investment banks or on training programmes at proprietary trading groups. Almost every new trader I have worked with has told me that they are motivated, often highly motivated, to achieve success in trading. Most tell me that they are willing to do “whatever it takes”.
Motivation is wanting to be successful. Commitment, however, is actually doing what is required to become successful.
Motivation is a feeling. It certainly mobilises energy for taking action, but it is transient – it comes and goes.
So what happens when our motivation is low, perhaps during a period of drawdown, or in quieter or more challenging markets? How will this impact taking effective trading action?
Consider these two questions.
1 For the rest