Featured Article

Improving Trading Follow-through Means Downloading New Habits

woodyjohnson
Dr. Woody Johnson
Instructor

His sleep-filled eyes could barely focus on the chart staring back at him from the computer screen.  He felt sluggish, foggy, and slow but what was quite clear is that he had violated his rules and had lost again.  Oscar’s anger began to rise through the fog as he asked the question, which fell like a dead weight on the silence around him: “…Why do I always lose in the morning?  It’s like the markets know that I’m coming and they just wait till I enter then go the other way.”  His day had begun like most of his trading days.  He would hit the snooze button a few times, then stumble out of bed and head for the coffeemaker.  Afterwards, he would stagger straight for his computer to turn on his trading platform.  He would take a quick look at the market news as well, after turning on his T.V.  Of course, he attempted to look over his watch list and bring up a few charts before deciding on what he would play.  But so often, his choice of set-up didn’t come from his homework, but from something he had heard in one of the chat-rooms or had seen from one of the news shows.  Oscar’s stomach knotted, his head was beginning to hurt and in addition to his anger, he felt impotent, incompetent and stupid.  He thought, “How do I turn this craziness around?”

Oscar was doing the same things over and over; he had habits, but they were not habits that served him.  He needed to bring his “A” Game to the platform in order to access and activate his internal resources; for instance a hydrated body so that his internal physiological system communicated cellular information efficiently, a clear mind supported by an appropriate blood sugar level, a focused intention that came from being centered and grounded, an emotionally stable demeanor that was connected to confidence, and being aligned in body, mind, and emotions, all going in the same direction and pointed toward the same goal.  He needed to form a routine or checklist designed to support his “internal data” meaning his thinking, emotions and behavior; and a routine that was also designed to support his “mechanical data,” that is, the market information, news, charts, and indicators.  Yes, Oscar was out-of-control, but he would go a long way to getting back in control if he created a routine that he could follow, which would after a short while habituate and set the stage for building his good habits and therefore his skill levels.

One of the most important intentions of serious trading is to be focused on consistent skill building.  The equation for skill building can be described as P+R+F+H=SB (protocols + routines + feedback + habituation = skill building).   Protocols can be defined as a sequentially ordered series of steps toward an aim or a goal.  Protocols dot the cultural, economic, political, legal, medical, athletic and diplomatic landscape.  They involve strategies for research, treatments, due process, sports training, business planning, investing and of course trading.  Successful traders identify strategies, procedures, set-ups and rules or (protocols) that they explicitly use to systematize the process of trading.  They do this because the markets are inherently erratic and cannot be totally predicted to move in any particular direction at any particular time.  If you are not basing your process on established strategies for entering and exiting in order to identify a high probability setup, then entering and exiting become arbitrary and result in losses.  Routines are an important component to skill building because routines have the potential of “neutralizing” erratic behavior.  Effective trading requires that you are consistent in “how” you execute your strategies.  Doing the same “effective” behavior over and over in order to have a “how”(perhaps a checklist) that is matched to high probability strategies will create a positive pattern.   If you are inconsistent it will be very difficult if not impossible for you to track your progress, which brings us to the importance of feedback.  Feedback allows you to verify, measure and document whether or not the protocols are providing the expected hit rates.  If not, protocol modification is in order as you uncover any negative/limiting patterns of thinking, feeling and doing that would compromise your analysis and/or your follow-through.  Feedback, documenting or journaling is a very robust way of identifying faulty limiting beliefs that promote the fitful emotions that drive destructive behavior. If you failed to document and therefore don’t know what you did in a specific trade to gain that profit, you can’t duplicate the behavior.  Remember, you can’t change those limiting beliefs and negative thoughts that you are not aware of.  Lastly, you’ll want to “habituate” this entire process.  In other words, you must incorporate a repetition response and create a “habit.”

Another word for habit is “program.”  As it happens we are pre-wired to be habit formers from our earliest moments of infancy by downloading the programs of our parents and later all authority figures in our sphere.  We also develop a “pattern” of responses based upon those downloaded programs and these patterns are habits. So, as you look at your trading patterns and habits it is important to embrace the critical importance of them and why you’ll want to become aware and be deliberate about coming up with patterns/habits that will serve you.  You got it, those “effective routines” mentioned in the above are new habits-in-the-making which you’ll want to install and it is also important to uncover the patterns/habits that are creating the results that you don’t want.  One of the ways to initiate a new routine is to hold yourself accountable and take responsibility for how you are thinking and what you are doing; that is, you simply execute or follow-through with the new behavior for at least 30 to 60 days and it will download into your unconscious.

Routines are powerful habit formers and if you identify a routine for the beginning of your trading session, you will create a support mechanism for optimal ability to perceive the reality of the market order flow.  It is important to have an attitude that holds trading enjoyment as a reflection of trading mastery – skill building – and going as far as you can with all the tools and expertise that you’ve got.  Here are some ideas that will support you in identifying and incorporating new habits.  Habits are lodged in the subconscious mind.  In other words, when you have repeated a behavior for 30 to 60 days it drops into unconscious control and becomes “automatic.”  In this way a “good” habit becomes a “stored solution” which is why it’s so important to store the right information.  Rewards increase habit strength, and stress drives behavior to default to old habits…whether favorable or unfavorable.  This is why you must celebrate when you have followed through with that new routine.  Do this:  List one routine that is part of your day and identify one bad habit that, if altered and replaced by a more supportive habit will positively impact upon your results.  Review your morning, noon and night rituals and select some supportive habits around each of them.  List one reward you might use to motivate yourself if you could establish a new habit.

The following is a regimen that will benefit your entire system (mind, body and spirit) greatly.  Anything that supports your entire system will support your capacity and ability to accurately read what the markets are saying.

  • At the beginning of your day, drink a large glass (8 – 16 ounces) of water in order to hydrate your system.
  • Start your day with exercise. Energize your system, oxygenate your bloodstream and get the cobwebs out of your brain and body
  • Try a meditative session to ground you in a relaxed and aligned state in order to be available, patient and focused with intention.
  • Eat a light nutritious breakfast, and drink juices and/or herbal tea to maintain focus and mental strength.
  • Review your Plan and Trading Rules to keep them fresh in your mind.
  • Do your homework, whatever supports your style and trading strategy.  The point is to “do it.”
  • Go through your daily trading strategy “out loud.”  This has a way of flushing out distortions.  Look at the charts you are planning to use.
  • Then take a deep breath and enjoy becoming one with the price action and order flow.

As you install new programming or habits, it is critically important to address both your “mechanical data” and your “internal data”; if you want to have any chance of bringing your “A” Game to your platform.  Make sure that when you turn on your computer and pull up your trading screen, you are ready and prepared to access and activate all of your resources.  So, trade by design not by default by establishing effective routines and habits that will support you in getting the results that you want.

Happy Trading!

Disclaimer
This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.