The full title of the book is High Performance Trading: 35 Practical Strategies and Techniques to Enhance Your Trading Psychology and Performance by Steve Ward.
This is a pretty good book on trading psychology with lots of practical advice as well as quotes from various traders. Most trading psychology books are full of the ‘whys’, explaining why traders screw up because of their psychology, and why traders feel the different emotions that they feel, but they lack the practical steps that can be taken fix those issues. This book focuses more on the practical fixes, rather than the ‘whys’, which is the way I like it.
I think trading psychology is a necessary component for trading success. Without proper psychology, even when given the best trading methods and superb market conditions, a person will soon fail. I highly recommend this book, especially for beginning traders who are starting their journey.
There is another article written by Steve Ward on mental toughness here.
Trade When You Are At Your Best
- Don’t trade when you know that you are not at your best. Nothing is worse than when this happens and you lose money, confirming what you already thought — I shouldn’t have traded.
- When you trade in states that are not conducive to trading, it is not that you cannot make money or won’t make money, but that the chances of you trading well are reduced; and, importantly, your risk profile has increased — if you are not at your best, then you decision-making ability is reduced, and your risk of poor execution and error is increased.
Steps to Perform Well in Critical Moments
- Thorough preparation before the session, including having a trading plan that covers the actions to be taken for all possible ‘what if?’ scenarios.
- Mental rehearsal to see yourself carrying out your trading plan for all possible scenarios
- Do deep breathing and meditation exercises regularly.
Think Positively of Doing Well Rather Than Not Screwing Up
- A definite key to performing well under pressure is to expect that you will perform well, and not be focused on not screwing up.
- Studies show that the thought of not screwing up was enough to bring about a negative change in performance.
Focus on the Next Trade, Not Your Last Screw Up
- What made Tiger Woods so amazing was that he could play the next hole as if whatever came before had never happened. No matter how poorly he had played the previous hole, it didn’t seem to affect him.
- Paul Tudor Jones: “I think one of my strengths is that I view anything that has happened up to this point to be history. I really don’t care about the mistakes I made three seconds ago in the market. What I care about is what I am going to do from the next moment on.”
Technique to Regain Focus
- Stop and focus your attention on factors that are external to you. Look around at what you can see. Become aware of any external sounds. Notice the temperature in the room. Do this for 10 seconds.
- Breathe in and out slowly for 10 seconds (could be in for 5 and out for 5)
- Spend 10 seconds visualising yourself doing whatever you are going to be doing next well.
Technique to Handle Losses
- Acknowledge in a low-key way that the losing trade was not what you wanted / expected. Losses / errors need to be handled in an optimistic, positive manner, not in a negative manner by beating yourself up.
- Release; note the feedback and learning and ‘throw’ the trade away (almost physically)
- Imprint or mentally rehearse what you wish had happened (x2)
- Affirm that’s how I will do it next time.
Beware of Overconfidence and Increasing Your Bets Too Quickly
- Marty Schwartz: “Most people make the mistake of increasing their bets as soon as they start making money. That is a quick way to get wiped out.”
- Learn to recognize within yourself the thoughts, feelings and behaviors that occur as you move towards overconfidence. Note that you have entered into a high-risk situation. Break momentum by stopping trading until those feelings subside.
Competence Before Size
- Traders should focus on developing their competence, establishing high-performance trading behaviors — and then, once the gains from working on these begin to bed down, size at last becomes a safe and significant P&L enhancer. The reason to increase size should be developmental, and not financial.
- Once you increase size, you need to be able to sustain trading the larger size to get the positive returns alongside any losses, and not to get caught up in chopping and changing in a reactionary approach to your P&L swings.
- When increasing size, it is important to move from the comfort zone into a stretch zone, not a panic zone.
- Mentally rehearse taking losses at the larger size that you wish to move to. If you feel a bit uncomfortable that is normal, if you feel panic then the size is too much. Use this feedback to determine what size is best.
Exercise in Exercising Patience in Waiting for the Right Setup
- Matt Blom: “Once, I turned up pre-open, logged on, sat in front of my screen, watched every tick for the whole day, thought about what I would do, waited for the close — and went home. Without ever entering an order. Just to prove to myself I could. After that day, I rarely, if ever, over-traded, or traded when I shouldn’t have. I knew I needed to be able to not get involved and to be patient; doing this exercise worked for me.”
Stress Capacity Should Be Gradually Increased Through Stress Exposure and Recovery
- High pressure and stress is a part of the trading environment. Stress reduction is not a viable strategy. The approach instead is to build a person’s resilience and ability to cope more effectively with the pressure and stress that they are encountering.
- This is done by a process of exposure to the stressful events, and then recovery. The recovery process will prepare you to engage again but with a higher stress threshold.
- Build your stress exposure over time by gradually building the demands on your trading — slowly increasing your position sizing, complexity of trades, diversification, etc.
- Use relaxation techniques to enter a restorative state where your mind and body can recover.
- Look after your nutrition, exercise, sleep, get balance in your life with friends, family, other hobbies.
- Consistent performance is achieved when you have a healthy oscillation between positive peak performance states, and periods of recovery.
Have a Life Outside Trading
- Michael Marcus: If trading is your life, it is a torturous kind of excitement. But if you are keeping your life in balance, then it is fun. All successful traders that I have seen that lasted in the business sooner or later got to that point. They have a balanced life; they have fun outside of trading. You can’t sustain it if you don’t have some other focus. Eventually, you wind up overtrading or getting excessively disturbed about temporary failures.
Exercise to Ingrain Desired Behaviors
- Identify the desired behaviors. Think through the motivation for making the changes, and the consequences if you do not make the changes.
- Close your eyes, imagine yourself with your new desired behaviors. Imagine yourself performing well in the future with your new desired behaviors.
- Open your eyes and feel yourself imbued with your new desired behaviors.
- It takes ~90 days of focused conditioning to ingrain a new habit.
Trade to Your Strengths
- Identify your strengths, what time periods you traded well, what time periods you traded poorly, what type of trades do you do well with (e.g. news events, momentum trades, trend trades, etc.).
- Increase your size for the time/type of trades where you do well, and decrease the size (or just not trade) for the time periods / types of trades which you do poorly.
Beware of Negative Self-Talk
- Research suggests that the average person talks to themselves about 50,000 – 60,000 times per day, and most of that is about themselves; of which it is suggested by psychologists that approximately 80% of this may be negative.
- We need to transform our inner critic into our inner coach.
- Whenever you catch a negative thought, say “STOP!”, and reframe the thought with a positive one. Don’t blame yourself, instead, review factually what thoughts occurred, what actions were taken, extract the learning point, and give yourself positive affirmations to doing the right thing the next time.
- Focus on what you do want, not what you are trying to avoid.
Never Give Up
- Persistence is probably the single most common quality of high achievers.
- Markets will frustrate you, test you, try to beat you. Do not let them win.
- Resilience and emotional distance are the keys to being mentally tough. Resilient enough to get over all the downs you may encounter as a trader, combined with the ability to distance yourself emotionally from past trades.