Lecture 1: The Makings of a Trading Wizard
As Martin Pring mentions in “Investment Psychology Explained”,
The problem is that many of us use money as a vehicle to work out our basic internal needs, but in fact money cannot offer us such solace. It can offer a short-term antidote, but it can never alleviate insecurity, loneliness, or other forms of mental dependency. If you are unsure what stops you from becoming wealthy, you will remain a victim of money. If you do not know what you want from money, it is unlikely that you will be able to achieve your financial goals.
You will have to change your habits and attitudes to follow in the footsteps of the truly great traders and investors. Otherwise, you will remain at the starting gate. Successful traders and investors possess confidence and a strong sense of self-esteem. They have feelings of personal worth. A truly successful trader or investor does not crave recognition in a wide sense; many, in fact, shun publicity.”
Peak Performers
Working hard and working smart are different things. In his book, “Peak Performers – The New Heroes of American Business”, Dr. Charles Garfield bases his inferences on interviews with more than 300 successful individuals in business, sports, arts, and education. He noticed many differences between a workaholic, who is addicted to activity, and a peak performer, who is committed to results. In the book, he lists six basic attributes common to individuals who achieve peak performance. Since these traits are common to all forms of successful professions, including trading, they are worth repeating here:
1. “A Commitment to a Mission”. This ultimate source of success was common to all respondents. In deciding their missions, peak performers have first to decide what they really care about and what they want to accomplish. The motivation for their mission is not expertise but a personal choice based on preference.
2. Results in Real Time. Peak performers establish realistic, measurable goals and act in a deliberate manner in order to achieve them.
3. Self-Management through Self-Mastery. Each peak performer was able to demonstrate an ability for self-observation. This involved both the ability to grasp the big picture and small details. Survey participants were also able to utilize the technique of mental rehearsal in which the most desired outcome of an event and the most effective way of achieving it are first orchestrated mentally.
4. Team Building and Team Playing. This characteristic is but prevalent in traders and investors who often act alone. But it is an important trait as well in larger organizations where it is necessary to delegate investment functions. Team builders are able to delegate to empower, stretching the abilities of others and encouraging educated risk taking.
5. Course Correction. This refers to the ability to initiate change and to learn from past mistakes.
6. Change Management. Peak performers have the ability to anticipate and deal with rapid, external changes caused by new technology or other factors and to construct alternative outcomes.”
Summarizing his conclusions, Garfield states that what motivates an individual to fulfill his talents is a strong commitment to values."These values—the old fashioned and very real qualities that make up a person's and organization's character—are the leverage point for the whole internal impulse to excel, to put a mission on its course."
Consensus Opinion of the Characteristics of Winning Traders
Some common ground is easily visible from all the research mentioned in this lecture. Martin Pring beautifully summarized the work done by Tharp, Gurney, Train, and Garfield by mentioning “Generally speaking, Tharp's work confirms many of the ideas put forth by the other experts described in this lecture. Like Tharp, they conclude that successful traders and investors hold most if not all the following beliefs:
o Money itself is not important.
o Trading or investing is a game, hobby, or "love" above all else.
o Profits are a fringe benefit.
o Losing money is an accepted aspect of playing the market.
o Mental rehearsal helps in anticipating all possible outcomes.
o A high level of self-confidence enables them to convince themselves that they have "won" the game before it has begun. There is, of course, a big difference between justifiable and unjustifiable confidence. Justifiable confidence comes from a coherent set of beliefs, usually encapsulated in a methodology or trading approach that has been soundly tested. Well-founded confidence springs