Five Psychological Steps to Better Trading


1. Education and practice improve performance

Trading is often compared with sports and games, and as with these activities successful trading requires applying skills and knowhow in a real time scenario.
As with performing well in sports, games or even a talent like music, a successful trader needs time to develop through organized and rigorous repetition and practice, to gain experience over time. Through such a process, the individual becomes more competent and potentially expert at the task.
Many issues for traders trading stem from trying to succeed before attempting to learn over any significant time frame. The global financial markets are made up of professional traders and to attempt to compete against these professionals is akin to challenging an Olympic athlete or professional sportsman, without learning and practice. Improvement in trading comes from education and development.

2. Trading success requires skill targeting

Trading success is a combination of natural talents and skills that have been developed. Success requires fitting the individual’s talents and skills with the opportunities available

In the trading world, this requires finding the fit for your personal abilities, with maybe a certain asset class, or maybe for a time frame of trading.

3. Information filtering and pattern recognition are key trading skills

Technical analysis requires either the study of charts visually, or statistically through trading signals. Fundamental and macro analysis also requires the study of data and reaction to data releases. So traders should look to match the analysis skills that fit with their individual strengths. A trader strong at visual processing would maybe use charts, whereas a trader who is more methodical, might use statistical analysis and signals.

4. Implicit learning

Implicit learning is how children develop language and social interactions. It arises when individuals are repeatedly exposed to complex activities and internalize these (without necessarily being able to fully understand the rules to these activities). This allows for a speed of pattern recognition that would be impossible under normal conditions. However, implicit learning requires a large number of learning trials over time, hence necessitates significant practice in real-time environments.

5. External factors unsettle implicit knowledge

Although these skills can be learned through practice, sustaining any consistency in trading requires avoiding psychological disruptions. Changes in emotional, cognitive or physical states can disrupt the skills that have been gained through implicit learning.

For a trader (and equally sportsmen, musicians, actors), this often manifest as performance anxiety. Fear of outcome can interrupt the access to the implicit knowhow and skills required to succeed. For traders, this can be triggered by over trading, trading too large positions, or by defective risk management.

To avoid or circumvent negative external influences and disruptions, we would suggest learning and applying psychological calming and control methods.

Key takeaways

• Training is more than just education.
• Training requires practice in real-time environments, to improve skill sets.
• Skills become almost automatic, via implicit learning.
• Constant feedback and self-analysis is required to hone skills.
• Learn and use calming and control methods (to be looked at in a later post).


More reading:

Top ten tips for trading success

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