In
my work as a Trader Performance Coach I draw a lot of inspiration from other
fields which offer valuable insights in to the mindset and mental aspects of
trading. Sport offers many such examples, though few offer more than boxing.
Cus D'Amato had a near 50 year career developing great boxing talent. His
résumé included many greats of boxing, Rocky Graziano, Floyd Patterson, Jose
Torres, and the fearsome Mike Tyson. D'Amato as a coach knew that boxing
was not just physical, it was also mental. He knew the difference between good
and great was as much down to mastering ‘the inner game’, (how you are), as it
was to mastering the outer game (what you do). In this sense trading is no
different.
One
aspect of 'the inner game' which all traders can relate to is ‘Fear’. I've been
a trader, and I know how fear can take hold of you, paralysing you, making you
doubt yourself, making you do the most stupid of things. Fear manifests itself
in many forms: Fear of losing, fear of missing out (FOMO), fear of regret, fear
of failure, fear of looking stupid; the list could go on. It is with this in
mind that I turn to the following quote from Cus D'Amato. As you read through
it, try substituting the word ‘boxing’ for ‘trading’
“Boxing is a sport of self-control. You
must understand Fear so you can manipulate it. Fear is like
|
Cus D'Amato |
fire. You can make
it work for you: it can warm you in the winter, cook your food when you’re
hungry, give you light when you are in the dark, and produce energy. Let it go
out of control and it can hurt you, even kill you….Fear is a friend of
exceptional people.”
As a coach working with traders, I am often told by traders that they ‘just
need to eliminate or conquer fear and then they'll be a great trader'. There is
a misconception that fear can easily be overcome: Do a Google search on ‘Fear
in Trading’ and you will notice how nearly all the responses are about ‘overcoming
fear’ or learning ‘to conquer fear’. But fear is an inherent part of you, the
best you can do is understand that it will always be there, always be with you,
and that you need to work with it, not against it. Fear is a neuro-chemical
response intended to keep you alive, you do not control fear; if anything, it
controls you. One of my most successful clients, was a trader who asked me to help
him 'cure his loss aversion.' Today this trader makes far more money than he
ever made, and has done so for a few years now. At the root of loss aversion is
the fact that we fear negative outcomes far more than we enjoy equivalent
positive outcomes. In trading, and investment, loss aversion biases and distorts
our judgments and affects our behaviours. Is this trader any less 'loss
averse' these days? Not a jot. But he does now appreciates that fear and loss
aversion are part of his make-up, he understand how it distorts his judgments
and has adopted new strategies and practices which mean that he can work with
his fear: He has learned to 'roll with the punches'. And thus I seamlessly
segue into the next two D'Amato quotes. Again try replacing the words ‘boxing’
and ‘fighter’ for ‘trading’ and ‘trader’.
“Fear is the greatest obstacle to
learning in any area, but particularly in boxing…Boxing is something you learn
through repetition. You do it over and over and suddenly you’ve got it.
…However, in the course of trying to learn, if you get hit and get hurt, this makes
you cautious, and when you’re cautious you can’t repeat it, and when you can’t
repeat it, it’s going to delay the learning process…When they…come up to the
gym and say I want to be a fighter, the first thing I’d do was talk to them
about fear…I would always use…the same example of the deer crossing an open
field and upon approaching the clearing suddenly instinct tells him danger is
there, and nature begins the survival process, which involves the body
releasing adrenalin into the bloodstream, causing the heart to beat faster and
enabling the deer to perform extraordinarily feats of agility and strength…It
enables the deer to get out of range of the danger, helps him escape to the
safety of the forest across the clearing…an example in which fear is your
friend.”
“The thing a kid in the street fears the most is to be called yellow or
chicken, and sometimes a kid will do the most stupid, wild, crazy things just
to hide how scared he is. I often tell them that while fear is such an
obnoxious thing, an embarrassing thing…nevertheless it is your friend, because
anytime anyone saves your life perhaps a dozen times a day, no matter what (or)
how obnoxious he is, you’ve got to look upon him as a friend, and this is what
fear is…Since nature gave us fear in order to help us survive, we cannot look
upon it as an enemy. Just think how many times a day a person would die if he
had no fear. He’d walk in front of cars, he’d die a dozen times a day. Fear is
a protective mechanism….By talking to the fighters about fear I cut the
learning time maybe as much as half, sometimes more, depending on the
individual.”
This last passage is profound for me, and brings up a matter rarely raised in the
trading psychology
literature; how people feel others see them. I know lots of
traders whose careers are haunted by what they think others are thinking of
them. Yet so often it turns out in actual fact, the only person thinking about
them is themselves. As if to emphasise this point further; in my coaching I
use some powerful assessment and analysis tools, one of which measures a person’s
degree of ‘Risk Tolerance’. Often people seem disappointed when they are not as
high on the Risk Tolerance Index as they thought they might be. The irony is
that in our work (I talk collectively here in terms of myself and my colleagues
at
Alpha R Cubed) we have not yet found Risk Tolerance to be a reliable
indicator of trading success. There has been some interesting correlations
between success in types and styles of trading, but not overall. (I will be
talking about this particular tool at an event in December being held at KPMG
in London: Details can be seen
here).
One of the aspects I enjoy most about coaching traders, is the joy people they
feel when they reach levels of potential they didn't realise they even
had. Fear is not always the primary inhibitor holding them back, but
it is amazing how often it rears its head in some form. I've seen some
extraordinary improvements through participation in our coaching, previous articles
highlight these here and here. Naturally the traders are hugely grateful, however
I like to remind them, that if they are now more successful, it is because they
always had the potential. My job as a coach was to act a catalyst to help them
achieve that potential. One thing I do not do is help them do is remove their
fear, but I do help them understand and contextualise it. This is enormously
powerful.
I
will leave the final word on the subject of fear to the late great Cus D'Amato:
'Now, when they go in and face the opponent and the
bell rings, for the first time…they’re facing reality, and suddenly a relative
calmness comes over them. Relative. They’re still scared but it isn’t that
terrible intimidating unknown thing….However, I should add that at no time does
fear disappear. It’s just as bad in the hundredth fight as it was in the first,
except by the time he reaches a hundred fights or long before that he’s
developed enough discipline where he can learn to live with it, which is the
object, to learn to live with it…”
Steven
Goldstein is a Performance Coach working with Traders, Banks and Hedge funds at AlphaRCubed Ltd: To know more about Alpha R
Cubed, visit their website www.alpharcubed.com or email Steven at steven.goldstein@alpharcubed.com.
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