As both a trader and  performance coach who is fortunate enough to work with some of the very best traders in the world, I want to share something with you that successful traders understand at a deep enough level that it becomes part of their strategy:

“Knowing what to do is not enough, one must do it!”

Although I like to inspire people with lines like that, where I find greater satisfaction is in explaining and guiding on how to actually do it! 

Effective trading psychology is more than inspirational quotes and re-hashed aphorisms. And it’s more than understanding the mental biases outlined in behavioral economics.

Perhaps it’s my background as a clinician – years of high level training and experience actually working with people as opposed to a career focused mostly on research and writing. Although I enjoy and derive much from academics, and also lobbing the occasional inspirational quote out there, and I do keep up with the latest research and writing in neuroscience, behavioral economics, psychology, and others, I much prefer the real world of application.

For example, there is no shortage of excellent research and intellectually stimulating writing in the world of behavioral finance (BF), and the related efforts at attempting to place traders into personality types. But there’s a problem. Although the mental traps described by BF may be ubiquitous and well researched, the actual internal emotional experience of each trader is unique.

Although logic may drive our thinking, emotion provides the fuel for action. And let’s remember, trading is most certainly dependent on actions. All the analysis in the world, the best trading plan, the best charts, and a statistical edge will not guarantee profits.  Actual behavior change takes more than knowledge of generic behavior finance concepts, it also requires work on an emotional level. 

A related issue is what I refer to as the artificial taxonomy of personality types. The best clinicians, be it in medicine or psychology or other fields will privately tell you (off the record of course – no one wants to be left out of the next research grant or be spurned among their peers) that no one fits nice and clean into a single diagnostic category, the reality is always a bit messy.

I know this from talking with my physician friends, off the record, of course. You also see this in sports, where a coach may categorize a player to some degree, but ultimately, the best coach will understand their athlete as a unique individual and knows how to play to and develop their unique strengths. 

Traders and investors justify decisions with data and logic, but in the heat of the moment, there will always be emotion (both conscious and subconscious) present that accompanies the decision to buy or sell. 

Everyone faces the same potential mental traps and biases. The reality is that its how we deal with them that makes the difference. Our beliefs, expectations, and emotions about ourselves, our P&L, how others see us, etc., contributes to our personal  filter on our perception of the market, and our personal filter projects a structure onto the market that forms the basis for our entry and exit decisions.

Knowing how your personal filter operates is part of the foundation for improved performance. If you’re interested in doing something about it, not just reading about it, sign up for my free newsletter that has tips and consider my self-paced Advanced Course or 1:1 coaching.