Trading Psychology vs. Sports Psychology

Sometimes taking a week off can sap you of the much-needed impetus to open trades and follow a detailed plan,

Trading is a long-term process and a cyclical pattern of both ups and downs. Invariably, nobody is immune to having a bad day, making a bad decision, or experience a negative result – however, when these happen our true character comes out.

The first question to ask yourself is what do we do when the going gets tough? Do we stop and wait for ‘better market conditions’, or do we identify our mistakes, sort through them, find solutions, and ultimately move on?

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In my trading practice, sometimes taking a week off can sap you of a much-needed impetus to open trades and follow a detailed plan, disrupting a seemingly fragile routine. This same phenomenon exists in sports, and whoever goes to the gym, rides a bike, or follows a similar routine knows that when you skip your training, even for a week, it is hard to get back into a routine again. Humans are creatures of habit.

Moreover, mental toughness and mental cues in our mind are instrumentally important in trading, much like as they are in life or in sports.

For example, a few weeks ago I attentively followed the cycling race Giro Di Italia, which featured a paradigm of outstanding mental fortitude, exhibited by Alberto Contador. Not only did he win the Giro, but a slight differentiating factor over his competitors gave him a palpable edge, via his experience and attitude in dealing with adversity.

Just a few days prior, Mr. Contador suffered a misplaced shoulder, which ultimately even prevented him from wearing his winning pink shirt that day to celebrate his first place – the man simply did not quit. When he could not receive the help he needed, he simply spearheaded the problem alone and fought to make a great result on his own.

In terms of trading, in most of the cases when people face hard situations they are prone to succumb, panic or demoralization and can be easily baited into making bad decision after bad decision. When we are in an emotionally bad state, we all tend to forgo our usually sound decision-making process, which is why any elite sportsman or trader must constantly train in this regard, following his or her plan and upgrading their respective skill set.

Will you start to panic when you have a bad day, perhaps opening a larger order size, or abandoning your plan altogether, simply because you want to recover and you want it now?

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Scientists have proven that the magic rule of 10,000 hours of work in any field is needed to achieve mastery, whereby you truly become an expert. Many people would like to trade and reap all the benefits of that work, however, if you ask them if they are willing to put in the lengthy amount of hours day after day until success is reached, then the answer is most commonly no.

While this sobering answer is the most logical, it also can help explain the acutely high rates of failure in FX trading, because like everything else in life, you cannot be professional simply by investing a few hours in your craft, every few days. You would not set up your own dental practice after reading a few books, would you?

Rather, tracking the market behavior, following your strategy day by day, upgrading it, and being flexible to change requires a lot of focus and patience. Fortunately, modern technology presents us with a vast suite of tools that can tell us all we need to know and what is necessary to upgrade in a rapid fashion.

Furthermore, like in sports your trading team can also have a substantial impact. It is common to see many great athletes heap a lot of praise on their respective teammates, because they know when they have a bad day or a problem, as they were there for them, they will be helped to get back on track.

This also means being able to listen to others and evaluate advice, a feat easier said than done in times of stress. I confess that many times my teammates gave me advice that I didn’t want to listen to because I was too confident to listen to anybody, later realizing that it was obvious that what they told me was true. If you have, for example, two people who can give you advice and upgrade your strategy or outcome by 15% each, you will achieve a 30% better performance.

Ultimately, we need to question ourselves, and surround ourselves with people who can really facilitate sound decision-making or advice. What your team inspires you to think about, do, or read can bring about a tangible impact on your life. It would be ideal to find friends who are more successful than you are, or at least on the same path in life, as success breeds success.

From my experience, most of the errors and lessons have cost me a lot, but what is very interesting is that from every mistake I reached the point where I was able to change my strategy for the better.

  1. You decide even before you start your trading if you are a success or failure by your attitude – this is critical because you will have difficulties and how you react to them is what is important.
  1. You must have discipline to follow your plan and stick to it day by day, with flexibility to change something and to constantly upgrade things so you can change your weakness into strengths.
  1. Be honest about all of this before you start trading yourself. If you don’t have all skills look up a professional who can advise you. You don’t have to reinvent the wheel, find someone who is successful and let him run your investment or give you advice.

ABOUT THE AUTHOR: Ismar Zembo is a trader – strategy developer.

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