Developing a Trader's Resilience Skill
Hello everyone! It would be hard to find an experienced Forex trader who has not gone through difficult periods in his trading career. And although these periods obviously were not exactly enjoyable, what is interesting is that, when viewed in retrospect, they often give traders abilities, knowledge, and psychological strength, and in some cases can also serve as an important turning point or starting point toward a major achievement. Today we will talk about a very interesting method called "looking far and wide", which will help you benefit from your own mistakes every time. And not only in trading, but in life as well.
Resilience in action: "The Looking Far and Wide Method"
• Think about a loss/drawdown/mistake that happened to you recently. Look at it as if through a telephoto lens: mentally look back at this event six months, 12 months, 2 years into the future and imagine. - "What did you notice? What perspective would you have if you looked back at this event from the future?"
Forex trading throws many challenges at you, puts pressure on you, and often presents periods of testing. Traders lose, they make mistakes and go through difficult periods in the market, they experience drawdowns and losing trades. What distinguishes those who "bounce back," keep going, and ultimately make it through, from those who become victims of the situation? Endurance - resilience - is the decisive factor.
"I cannot imagine a more important psychological characteristic for long-term success in trading than psychological resilience. Resilience is defined in several ways, in some cases as a process, in other cases as a character trait. In all cases, resilience implies exposure to stressful conditions and the ability to maintain a high level of social, emotional, and professional functioning under such exposure. My experience working with traders shows that even the most successful of them go through periods of drawdown. Sometimes a trader goes through drawdowns for quite a long time and loses a rather significant amount of money. Some traders recover from these losses, others do not." Brett Steenbarger
Think back over the last few months of your trading. When and in what way have you experienced something like this?
Exercise: Determine your resilience to losses through self-assessment
Answer each of the following statements with "yes" or "no".
1. I have goals in my upcoming trading that motivate and drive me toward achievement.
2. I easily trade again after a loss or mistake (while maintaining strict discipline).
3. I do not get discouraged when the market moves very slowly, or postpone reaching a goal if I find the current task boring or unpleasant.
4. I find creative ways to meet a challenge.
5. Under pressure, I rarely feel helpless or thrown off course.
6. I do not allow difficult periods in which I had only a few winning trades to affect my self-confidence.
7. When I am challenged, I can mobilize a wide range of positive emotions within myself, maintain fighting spirit, and keep my sense of humor.
8. I know how to motivate myself in unfavorable conditions.
9. If I start my trading badly, for example with a losing trade, I easily maintain a positive attitude, self-confidence, and discipline.
10. I perceive a drop in performance as a temporary phenomenon.
The more positive answers you have, the greater your resilience. If you multiply the total number of positive answers by 10, you will get a result expressed as a percentage. For example, 6 "yes" = 60%. This is your current resilience rating.
Write down your score, and also note those questions to which you answered negatively. These are the key areas in which you should improve. Which of them (if you could answer it with "yes") do you think would have the greatest positive impact on your trading results? Make it your main goal in your resilience development plan.
Thinking
Psychological resilience is a mindset, it is how you need to conduct yourself in psychologically difficult situations. At its core lies your choice of thoughts in these situations, the words you address to yourself, as well as your beliefs, attitude, and perception.
The diagram shown below demonstrates how your thinking works. A triggering event, for example a losing trade, is filtered through traders' thinking through the prism of their beliefs, views, and ideas, and this creates an impulse and a series of subsequent behaviors and actions that are then reflected in traders' performance. The triggering event may be the same for different traders, however the outcomes, that is, their reaction, may differ significantly depending on their thinking and perception of this event. Thus, our results are actually determined not by the events that happen to us, but by our thinking, which determines our reaction.
Psychological resilience is the pattern of our thinking
(A) Triggering event (trigger)
- Internal/external
- Loss
- Drawdown
- Mistake
↓
(B) Belief (mindset)
- Perception
- Attitude
- Belief
- Thoughts
- Bias
- Meaning
(what thought arose in your head at the moment the triggering event occurred (or after it))
↓
(C) Consequences
- Emotions (what did you feel)
- Behavior/actions (how did you react?)
↓
Effective trading
Training a trader's resilience: Lessons from cognitive psychology
Resilience can be learned.
Research by scientists in the field of psychology has shown that in order to cope with drawdowns (and any other negative situations in life) and maintain resilience, three factors are necessary:
1. Perceive this event as temporary;
2. Perceive this event as local;
3. Perceive this event as changeable.
(This is a situation that passes quickly; this is only one single situation; and I can change it).
How you interpret the events that happen to you is the decisive factor in what experience you draw from them, how you react to them, and what your performance will be after them. You yourself give meaning to one event or another.
Research conducted by Martin Seligman (president of the Association of American Psychologists, author of the books "Learned Optimism," "Authentic Happiness," and others) proves that people who use an optimistic style of looking at events in their lives not only consistently outperform people with pessimistic views, but they are also happier and live longer. An optimistic explanatory style, in particular regarding bad events, contributes to the development of endurance: pessimistically minded people are more likely to lose confidence and motivation after a series of losing trades than optimistically minded ones. Also, the development of optimism in traders may further develop endurance in them, which, naturally, is one of the key components of resilience. Pessimistically minded traders, at the moment when some negative event occurs, for example, large losses, a long drawdown period, making a mistake, and so on, due to their views will be less resilient, as a result of which such Forex traders may never fully realize their potential.
- How do you currently cope with drawdowns?
- What meaning do you attach to the concepts of mistake, loss, drawdown?
- In what way, by changing your approach to such events, could you increase your performance?
Two other factors for measuring resilience to drawdowns
Psychological resilience is crucial for success in trading in the long term. However, I feel that there are two more dimensions of traders' resilience level that are important and influence traders' psychological functioning.
Trading capital
The size of your trading capital matters, because it is not only the determining factor of the amount of capital you can trade with, and the positions you can open, but, most importantly, it contributes greatly to how you feel. This is your level of confidence and calmness, the consistency of the dozens of decisions you make and the risks you do or do not take, as well as your ability to cope with upcoming losses.
Physical energy
Your physical energy influences your ability to mobilize and sustain high-intensity emotional states such as motivation, confidence, enthusiasm, and concentration, as well as remaining composed at the moment when you are under pressure. In difficult times you often use a significant amount of intellectual and emotional energy to cope with the situation, and therefore your physical energy reserves are depleted much more easily, and your resilience level decreases.
Focusing on keeping your energy at a high level is beneficial for all traders, which is especially important during stressful periods, during which you are most likely to sacrifice your good habits and devote all your energy to paying more attention to the markets.
There are four key factors for building and maintaining physical resilience:
• Sleep (6-8 hours a day)
• Food and drink (avoid excessive sugar and caffeine consumption, drink more water)
• Physical exercise (5 times a week devote 30 minutes to moderate physical activity, preferably in the morning)
• Rest and relaxation (restoring working capacity and free leisure time)
Become resilient to drawdowns!
Ups and downs in trading are the norm, not the exception. Being resilient, being able to cope with setbacks, and being able to maintain confidence, calmness, self-control, and discipline is essential to achieving success in trading in the long term. Resilience is sometimes viewed as a character trait, however the works of Seligman and other scholars demonstrate that endurance and resilience can be learned.
Take stock of your resilience assessment, strengthen your strong points, and try to improve your weak sides based on the statements to which you answered "no" (see above). Perhaps for this you will need to use the concept of "looking far and wide," which will allow you to make changes in your perspectives, or you will have to reconsider the meaning you give to certain events and your thoughts about them.
Respectfully, Pavel TradeLikeaPro.ru
Hello everyone! It would be hard to find an experienced Forex trader who has not gone through difficult periods in his trading career.