Mindset Matters

  By the time traders realise they do need to work on their mindset, they are almost always at the stage where they no longer need anyone teaching them the basic skills anymore. To use an everyday example, when my 5 year old son goes off to play football, a coaching lesson from me on mindset is unlikely to wield any great improvements. He needs to learn the basic skills. However, an adult playing professional football for a living is likely to give mindset a huge amount of attention.

As I type we are just days away from the 2014 Football World Cup and as many Football fans will know, the English football team have a somewhat miserable track record in penalty shoot-outs. England captain, Steven Gerrard, has been quoted on the topic of penalty taking in the build-up "There is a lot of pressure. You have an awful lot more time to think about your penalty and what is at stake is a lot bigger and it is a pressure situation. A penalty shoot-out is a more pressurised situation than any one penalty in a league game."

So yes, these guys can take penalties with great results in the league games, say for example when Gerrard plays for Liverpool. But when it comes to World Cups or knock-out games, something changes.  

The mindset doubters seem to believe that the penalty taker has lost their underlying skill, what else could they think if it is not a change in focus or thinking, aka mindset?  This to me shows that it is a very weak argument since skills don’t get lost that quickly. It is the distraction away from what matters resulting in “pressure” on the player’s mind and that “time to think” about the “stakes” that changes in the moment. This shift in mindset, from the execution of the basic skill set at hand to focusing on the pressure of the situation is what causes many high profile sportspeople and teams, not just English football players, to perform below expectations when under extreme pressure.

I could give as many sporting examples as anyone cares to listen to but let’s get back to trading. Traders experience pressure often and in a huge variety of situations.  When it comes to money, we are very emotional beings. When it comes to making mistakes, getting things right or wrong, we experience strong emotions at each end of the positive and negative spectrum.  Traders get instant results. They make or lose money on trades instantly and before they even stop to think, learn and reflect, they can easily go ahead and place the next trade.  The pressure of losing increases emotions and leads to many common trading mistakes, almost like a loss of the basic skill set, very much like missing a penalty kick. The excitement of winning also increases emotions and this also leads to many common trading mistakes. My biggest periods of loss have come immediately following the moments where I slipped from ‘confident’ into ‘overconfident’. Overconfidence is an emotion and it has no place in the mindset of a consistent trader.

Cool, calm, collected, balanced, disciplined… these are the traits good traders need. The basic skill set of finding and placing good trades is secondary once it has been learnt.

Jack Schwager, famous for authoring Market Wizards, has had the privilege of meeting and interviewing many of the greatest traders of our time. What does he say they have in common? “The Market Wizards never talked about indicators or techniques, but rather about such things as discipline, emotional control, patience, and mental attitude. The message is clear: the key to winning in the markets is internal, not external.”

There are just two types of trader. Which type are you?

 

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