By Terry Macartney
In the first part of this series I talked about the often counter-intuitive nature of trading. Because of this characteristic, we often need to do the opposite to our natural inclinations. For example, we normally and naturally want to move from stressful situations to less stressful conditions. But in trading, that may not be the best action to take! We may get out of winning trades too early, more to reduce the risk/anxiety of having a winning trade go bad, than for any legitimate trading reason, and yet we all acknowledge the trading wisdom of “let your profits run”.
It is important to become aware of these tendencies and “natural” responses, and then look at establishing new patterns or habits that are more useful in our trading, to change how we respond to certain situations. This is where tools and strategies from the field of Change Psychology are useful.
James O. Prochaska, PH.D., in his book “Changing for Good” defines 6 stages of change, all distinct, and all requiring different techniques and strategies to effectively move through. How can these be applied to the way we are trading?
This is the “there is no problem” stage. Denial. Pre-contemplaters don’t want to change, they tend not to see a problem. Ignorance is bliss.
In trading, it is often characterised by a tendency to blame anything other than yourself; the market, the market makers, your broker, the internet service……… Defences and excuses that allow you, the trader, to not take responsibility.
The strategy that is most effective in this stage is awareness and consciousness raising. This could be reading, discussion, social feedback, meditation, self enquiry or coaching, but an awareness and acknowledgement of the problem must be created.
Social feedback is often needed from friends and family to bring awareness to possible problem behaviour. Treating trading as gambling rather than a disciplined business would be one area where friends and family could well see the consequences of your actions more clearly than you do. They could bring awareness of this to you via their concerns.
Contemplaters acknowledge there is a problem. Generally now a great deal of time will be spent in the why’s and wherefores of the problem. It is, at this stage, easier to think about the difficulty rather than take action to correct it. After all, actually taking action would introduce the risk of failure as well. Procrastination is a common response in this stage.
An example of this from my own trading journey was that in my early days I was very reluctant to place pending orders. I felt I needed to be there, at the screens when a trade set up and triggered, just to be certain it was valid. I could see this was a problem, it was seriously limiting the number of trades I got into, and so I started a “contemplation cycle”, looking for solutions, looking at why I did not trust my systems fully, what were better strategies for pending orders. And still I procrastinated and rarely used them. If I had known about techniques to help deal with procrastination such as written about in my article I may well have moved through this phase more easily and quickly.
What did start the move towards the next 2 stages (Preparation and Action) was emotional arousal and imagination. I started looking at straddle entries and saw huge potential in them in the right conditions. But they have to be set up as pending orders. However , I was excited enough (emotional arousal) with the potential I could see (imagination) with these trades, that it opened the door to the next change stages, preparation and action.
In this stage the focus shifts from the problem to the solution, but you are not quite ready to commit. It is actually an important foundation for the Action stage, as it allows a full appraisal of suitable actions needed. This gives a growing sense of commitment to action in the direction you want to go. It’s getting everything lined up and ready. It is also making the new actions you have decided on a priority, not just something else to be done.
In a trading context, this phase is similar to taking a pause in your trading because there has been a problem. You re-assess and review exactly what you have been doing (contemplation) and are now nearly ready to get back to trading with a leaner, meaner, better strategy set. You may have opened with a new broker who provides better service, refined your trade management rules, decided to keep better records, whatever, but in this phase you are making the preparations necessary to move into a new stage, that of Action.
Processes that assist here are again emotional arousal and imagination, as well as self evaluation, planning and good social feedback in the form of coaching or perhaps even a MasterMind group.
This particular stage is the pivot point between self-evaluation and meaningful change. Insight by itself does not bring about change, nor does action without insight lead to permanent change.
The very visible bit! Commitment of time and action. The tricky part is it is very easy to confuse or substitute action for meaningful change. However the up side is there are a great number of strategies that can be applied in this particular stage of change. Some of these are psychological, some are simple mechanical actions.
ACTIVE DIVERSION AND EXERCISE
One trading example might be if you are prone to over trading or micro managing your trades employ “walk away from screen” technology, i.e. get up and walk away. Simple and effective.
Substituting healthy responses for un-useful ones. Particularly useful when trading is to counter a fear thought with a deliberate enquiry as to whether that thought is really true.
As simple as making sure you have no interruptions when trading, or as complex as having multi computer back-up systems. Taking yourself out of a trading environment (deciding not to trade) if you are angry, upset, bored, is another example.
Important to acknowledge and reinforce what has gone well with your trading or new action plan.
It is at this stage that coaching, particularly for realistic goal setting and accountability, can be a great strategy to consider. Also MasterMind groups can offer much in terms of collegial support, brainstorming and resource networking.
The consolidation and embedding of new behaviours, beliefs and actions. The “Action” stage may take many months of diligent effort to create new habits allowing better trading practices to become the norm. Unfortunately, particularly in times of stress, it is very easy to slip back into old patterns and ways of doing things. Over confidence too, can be a condition where we get a bit lazy about maintaining the commitment we have made to changing our habits to more effective ones.
In our trading context an effective strategy can be to keep a journal specifically focussed on situations that tempt you to fall back into old patterns. By doing this you may be able to identify consistently challenging conditions and develop a strategy to deal with these.
Another very powerful aid at this time is again, working with a coach or being part of a collegial accountability group.
Ideally, new constructive behaviours are now the default way of dealing with previous trading difficulties. However, it is wise to remember that, “The price of freedom is eternal vigilance”.
Many more strategies and techniques are available for each change stage, this is a long blog but a very short resume of the dynamics of change and some of the techniques available.
About the Author
Terry Macartney is an FX and indices trader based in northern NSW, Australia. He is an Accountability Coach for traders and has established FXCellence as a coaching platform for working with traders and small businesses. Contact can be made here: FXCellence
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