Friday, January 02, 2009

Psychological Trade Setups: Managing Your Energy as a Trader

An astute portfolio manager emailed me this classic Harvard Business Review (HBR) article on "corporate athletes". The idea behind the article is that one's energy level is an important determinant of one's productivity. Energy is a function of physical fitness and proper sleep, but also one's mindset and one's ability to tap into deep values.

A particularly relevant portion of the article talks about rituals: behaviors that athletes engage in--often unconsciously--to renew their concentration and refocus their mindset. From this perspective, what a trader does *between* trades is as important as what happens during trading. Successful traders will spend time away from the screen when their attention lags, pacing themselves during the day. That helps them stay market-focused when they are in front of the screen, rather than distracted by performance concerns.

I recently stressed implicit learning as a key to trading performance and biofeedback as useful in the regulation of mind and body. This regulation enables traders to sustain access to what they tacitly know. Intuition does not just come to traders; it has to be actively received. A large part of that reception is maintaining a clear mind with focused concentration. To the degree that traders are immersed in self-talk about markets--how much they've made, lost, should have made, shouldn't have lost--they are no longer immersed in the patterns that underlie trading decisions.

The HBR article is useful in pointing out that performers can train, not only for their competitive events, but for the space that occurs between competitions. We commonly focus on market setups; the key to success, however, might be setting ourselves up for the next trade.