Trading as a Performance Activity

When a person makes the choice to become a trader, few if any really understand the difficulty associated with becoming a profitable and successful trader over the long-run. Many enter the markets with visions of grandeur believing that all they need to do is find the "holy grail" of trading systems and they will be set for life. But in reality trading is an extremely difficult task, one in which most give up on either because they lose their trading capital or because they cannot cope with the frustration that all traders inevitably experience. However, a trader can better prepare them self for trading by viewing it as a performance activity, or in other words as an activity that requires the application of ones knowledge and skills to a real time, dynamic (always changing) environment. Traders face a similar task as professional athletes such as basketball or baseball players, who also must apply their skills in real time dynamic environments. For example in baseball a batter must react in a seconds to whether a pitcher has thrown a fastball or curve ball, similarly a trader may need to react in a matter of seconds when deciding whether to execute an order if the price of a financial instrument breaks to a new high or low for the day. Looking at trading as a performance activity helps reveal one of the main reasons why so many traders ultimately fail, and often in a dramatic fashion, and this is because like any performance activity not only is it essential for a trader to have immense knowledge and skills related to the market, but it is also equally important that the trader has the right mindset which allows them to utilize their knowledge and skills in what can be a very stressful environment.

One can get a better idea of just how essential a proper mindset is for a trader by again looking at sports. Often it is said that what distinguishes the average professional athlete from the truly great ones is not so much a huge differential in skills, but rather a difference in the athlete’s mindset and thus ability to perform consistently in very stressful circumstances. If you look at truly great athletes, Tiger Woods possibly being the best current example, it is obvious that they have an uncanny knack for performing and executing under great levels of pressure. For example, while most professional golfers have the skill to sink 10 foot puts with relative consistency, few have the ability to do it on the 18th hole of a tournament for the win as consistently as Tiger Woods does, and this ability as Tiger himself has often eluded to is not because of greater physical talents or skills, but instead due to his ability to put himself in the right mind frame to execute during these incredibly pressure filled moments. This ability to create the right mindset to perform under pressure is just as important for traders as it is for athletes. More often than not a new trader will obtain a significant amount of knowledge and skills relating to trading the markets, but when they actually begin trading they find that they are unable to adequately apply what they have learned and instead see themselves making repeated poor and irrational trading decisions which are not at all in line with the way they had hoped to trade based on their study of the markets. The reason that so many traders encounter this type of situation is because the pressure and stress associated with trading real money in most cases will create a mindset in an individual which does not allow them to access and utilize their knowledge and skills in the most optimal way, but rather leads them to crumble under the pressure. The ability to consistently trade with the correct mind set to allow for the proper utilization of ones skills is likely one of, if not the main factors that separates novice traders from experts, but unfortunately few traders even give this much consideration. However, when a trader does come to realize the importance that their mentality has on their trading results there are certainly ways in which one can work on improving the mindset with which they trade.

The proper mindset for trading, which for the remainder of this article will be referred to as the zone, is the mindset which allows an individual to best utilize and access the knowledge and skills they have obtained from their study of the markets, while executing trades in real time. While the mindset which constitutes a trader being in the zone will not be exactly the same for each trader, there are a number of general characteristics which are beneficial to all traders looking to reach the zone and they are; experiencing a high level of concentration when trading, enjoying the task at hand, experiencing minimal to no feeling of stress or pressure, having a clear and open mind, avoiding extreme emotions such as fear or greed, and feeling truly confident in ones decisions. Anyone who has ever written an important exam, competed in a sporting event, or participated in public speaking for example, will quickly realize the great benefits that these characteristics have for any performance activity, including trading. This type of mindset will allow a trader to perform at their peak given their skills and knowledge as by maintaining this mentality when trading ones brain is in the best condition to quickly and effectively access and apply the skills the trader has developed. That being said, even after the realization of the importance of trading in the zone many traders fail to consistently reach it, instead reverting back to destructive mindsets and wondering why after so much work they still fail to become profitable. Fortunately, if an individual is serious about becoming a successful trader then there are certainly ways in which one can work on consistently reaching the zone.

The first thing that one must realize is that in order to truly excel at any performance activity one must have a high level of passion for it and obtain a great deal of enjoyment from it. A trader who wakes up each morning dreading the coming trading day has likely already been defeated and should look at changing their profession. In relation to reaching the zone, one will find it immensely easier to create the positive mindset while at the same time immersing them self in the task at hand and reaching great levels of concentration without even realizing it when one has a true passion for the markets. Also a trader with a true enjoyment for trading will better handle a string of losses than one who does not really like what they are doing and instead just trades because of the desire for money. When confronted with a series of losing trades, a trader who does not enjoy trading will easily become frustrated and discouraged and this can lead to a damaging snowball effect as these emotions move a trader further away from the zone and as such can lead to more and more poor trading decisions. On the other hand a trader who really enjoys trading will be more likely to take a series of losses in stride, understanding that it is part of the profession and just means that they are going to have to continue to work to overcome the challenges they are faced with, and because they have a passion and derive enjoyment from it this will not cause them to stop but often motivate them even more. The need for one to enjoy trading to be successful cannot be overstated; traders who enter the markets only because of a desire for fast money will have an extremely difficult time reaching the performance level that is essential to be successful over the long-term.

In addition to only trading if one enjoys it, one can further increase their chances of reaching the zone by not concentrating on profits too much while trading. This is not to say one should not be aware of the amount of profit or loss they have for each position they are in, but in terms of the ups and downs of ones overall equity line one should not obsess over it too much. This is important because one who solely concentrates on profits as a gauge of their success will easily become discouraged and frustrated after running into string of losing trades which is inevitable for a new trader. Instead of concentrating on profits one should concentrate on whether they are making the correct decisions and utilizing their knowledge and skills to the best of their ability. If one gauges their success on consistently improving their trading decisions rather than the absolute dollar amount they make on each trade one will find it much easier to maintain a positive, stress free mindset while at the same time avoiding as much as possible feelings of frustration and regret. For example, when a trader is experiencing a prolonged period of drawdown, or sideways movement in their profit level, one who is gauging their success purely on the amount of money they have earned will find it very difficult not to get frustrated, upset, and annoyed at the lack of any perceived progression. On the other hand a trader who is measuring their success by continually making better trading decision based on the market environment they are faced with, even when enduring periods of drawdown are able to find reasons to be satisfied with their performance as they will often realize that even times like these provide them with invaluable lessons which will only help them in the long run. Furthermore, often these lessons are missed by the traders who concentrate on their profits too much as their frustration causes them to not pay close attention to what the market is revealing to them about their methods. As such one will greatly increase their ability to reach the zone by not obsessing over the amount of money they make each day, week, or month, but instead concentrating on the improvements they are making.

If an individual is to consistently reach the zone it is essential that they exhibit confidence in what they are doing. This is critical for trading in the zone as when one is confident in their method of trading they will not allow scenarios which may just be fluke (such as getting swung out of four consecutive trades for example) to plant doubt in their mind. Often traders will develop a trading strategy and be extremely excited about its potential only to start trading and encounter a prolonged series of losses which leads to doubt and frustration in their ability to be successful. A mindset full of these emotions will in many cases result in a trader making rash and poor changes to their trading strategy which only leads to worse results and a deteriorating mindset. In order for a trader to gain the confidence which allows them to consistently trade in the zone it is essential for a trader to continually work at improving their trading and overall knowledge of the markets. Hard work and practice creates the confidence needed as the more one is familiar with something be it playing an instrument, a sport, public speaking, or trading the better they will perform when the pressure increases. This is crucial for success but something that is usually overlooked by beginner traders. Often a trader will begin trading after just a few months or less of study and then be surprised when they quickly lose money. However, looking at it in a logical manner would a beginner tennis player be surprised if they started playing and only practiced for a few months before playing a professional only to be beaten in an embarrassing fashion, likely not, and the need for a lot of hard work and practice is no different than if one wants to succeed against professional traders.

Another thing that can greatly help traders stay in the zone during the trading day is to concentrate on staying calm and mentally rehearsing possible scenarios that may unfold in the markets. In terms of concentrating on staying calm, when ones finds that they are getting stressed during the trading day, if they are not already in a trade it is often beneficial for the trader to step away from the computer and allow themselves to return to a stable mindset before trading again (this can be done by things such as deep breathing, meditation etc...). On the other hand if one finds them self getting stressed out while in a trade this is where mentally rehearsing possible trading scenarios can help. What this means is that after one enters they should visualize the possible scenarios that may unfold and what the proper reaction to these scenarios would be were they to actually occur. Doing this can allow a trader to feel more confident and in control as the trader is accessing their skills and rehearsing proper reactions before for example, price reaches a certain level or forms a specific pattern. The visualization should be a continuous process because as the market moves throughout the day the trader should adapt to the possible scenarios which may occur. Mentally rehearsing or visualizing possible trading scenarios goes hand in hand with hard work and studying the markets, as the more one studies the markets the more effective they become at being able to narrow down the likely scenarios which may unfold and as such these traders will find themselves less and less in situations which greatly surprise them and lead them out of the trading zone.

While long term trading success is very difficult one will certainly increase their chance of obtaining it if they view trading as a performance activity and thus understand the importance of trading with a clear, confident, highly concentrated, and positive mindset, or in other words trading in the zone. The ultimate goal for a trader is to reach the stage where they do not need to concentrate on putting themselves in this mindset each day, but instead are able to naturally reach the zone each day as if it is second nature. Consistently reaching the zone is often the last hurdle that a trader must overcome to reach the level of success they often so desire, however, it also without a doubt one of the most difficult aspects of trading to master. Applying the methods mentioned above will certainly help a trader create the optimal mindset for accessing and applying their skills, but it cannot be stressed enough the importance of one having a passion and being able to derive enjoyment from trading if they are to truly reach the pinnacle of success.