Just as there are two types of trader, there are two basic ways in which psychology can assist traders. The first is by helping traders reduce or eliminate unwanted negative patterns of thought, feeling, or action. This is the trading psychologist’s historical stock in trade. Many traders seek to improve their performance by ridding themselves of bad habits.
There is, however, a second way in which psychology can assist traders that is less appreciated. Even when traders have found their edge and are making money, they may not take full advantage of the opportunities that they have. Instead of losing large sums, they are leaving significant money on the table. Such traders can benefit from psychology by learning how to do more of what works. Their goal is to build positive action patterns, not reduce undesirable ones.
The confusion of these two modes (and how they sometimes can work together) creates what I call the fundamental mistake of trading psychology. Traders assume that, in order to be successful, they need to dig into their problems and eliminate them. Research tells us, on the other hand, that most highly successful people across a variety of fields—from arts to athletics and science—succeed by maximizing their strengths, not by focusing efforts on their weaknesses.
This is such an important topic—and it is so important to avoid the fundamental mistake of trading psychology—that I will post an entire article on the theme to my personal website this weekend.
A recent book by management guru Marcus Buckingham makes this essential point: great businesses (and managers) play to their strengths. They don’t get bogged down in efforts to make themselves less weak in particular areas. Instead, they find ways to compensate for weaknesses and take full advantage of strengths.
Many traders are much more familiar with their weaknesses than their strengths, especially after they’ve gone through a slump. They haven’t truly analyzed their performance to see what they do well. As long as that is the case, they cannot focus on those strengths and learn to apply them to a greater range of situations. The fundamental mistake keeps them problem-focused, when instead they should be building solutions.
Who you ultimately are—and what you’re truly good at—may be different from the person you’re trying to be. Michael Jordan longed to be a baseball player and could have spent untold years working on becoming a decent player. Fortunately, he returned to the NBA and to his very special talents.
After an exhaustive review of my trading performance, I found that I was most successful trading short-term morning patterns in the ES. I would love to be a longer-term trader and (at times of volatility and opportunity) a full-time trader, but that is not where my talents lie. The fundamental mistake would have me work on becoming less bad at trading afternoons or longer-term. The right application of psychology has me learning to build my consistency and grow my size at what I do best.
Sometimes the greatest challenge is the simplest: to just be who we really are and do what we do best—and embrace that for all it’s worth.