Everyone in life wants success. It’s a strange person who wants to fail and feel miserable. Ambitious people strive to do their best. Indeed, they focus most of their energy on achieving their goals. But in their book, Just Enough, Drs. Laura Nash and Howard Stevenson of Harvard Business School argue that a single-minded pursuit to excel can lead to burn out (See an excerpt from their book on the HBS website: http://hbswk.hbs.edu/item/3966.html). A pursuit of a single goal cannot satisfy all of a person's complex needs and desires. After studying hundreds of high achievers who maintain lasting success, Drs. Nash and Stevenson discovered that they share a set of common characteristics. They make a positive difference and enjoy the process of their endeavors. They also have a complex, in-depth understanding of success, and what success really means.
What is success? Enduring success has four components. First, successful people feel their work is pleasurable; they feel content. Second, they believe that their efforts accomplish something; they feel as if they are mastering a set of challenging skills. Third, they feel they have made a positive impact on people they care about, and fourth, they believe they are creating a legacy; their efforts will somehow help others also find success. Nash and Stevenson argue that unless all four components are addressed, one doesn't feel that their success is real. People who don’t address all four dimensions of success will experience what Drs. Nash and Stevenson call the "wince factor." That is, they may feel they are going in the right direction, but they won't truly feel successful. They will be preoccupied with trying to satisfy components of success they have ignored.
Are you on the road to lasting success. First, you must find the pursuit for your goals as pleasurable; you must be motivated by the inherent satisfaction you receive from working toward your goals instead of external rewards. You can't be overly consumed with what you will get out of it, whether it is money, fame, or prestige. You must find the process of achieving your goals enjoyable in its own right. Second, you must focus on skill building. Success isn't easy and it shouldn't be. If anyone could do it, in what way is the task successful? You must gain mastery of a challenging skill to feel successful. Success is about constantly pushing the envelope until you reach higher and higher levels of skill. Third, you must feel that your success will provide significance and legacy. What is significant to you? Do you want to make a contribution to society and feel that you are an integral part of society? You may want to ask yourself, how has the world changed as a result of my presence? It doesn't matter if you receive glory and praise for your accomplishments. If you truly believe you made a significant difference, you will know in your heart that you are successful. And when you know you've made a difference, no one can take that feeling away. Once you have reached a level of mastery, legacy becomes an issue. Creating a legacy can be difficult. Teachers, mentors, and coaches often have a legacy that influences society long after they are gone. If you teach a student what you know in your profession, he or she will carry on what you started. Knowing that you helped teach a new generation of professionals is satisfying.
Drs. Nash and Stevenson present an interesting framework for understanding the factors that contribute to maintaining long-term success. It's in your best interest to make sure you feel your professional activities are pleasurable, challenging, significant, and help you create a legacy. If you address each of these issues, you'll be able to maintain the enduring success you deserve.
Saturday, October 4, 2008
Sunday, September 28, 2008
Persistence In the Face of Setbacks
You know you’re in a rut when you think Murphy’s Law is true. It’s never the case that everything is going wrong, but it sure can feel that way at times. (I mean, sayings like “the worst financial crisis since the Great Depression” cannot feel reassuring.) Some things may go wrong at times, but many other things are going right. It’s just a matter of remembering this fact and realizing that things could always be worse. That said, there are times when your mind is focused solely on the negative. Rather than look at both the good and the bad, you may feel badly and dream of how things could have gone better. But again, you can’t let a pessimistic mood get you down.
If you are in a challenging profession, setbacks can be expected, and you cannot let setbacks get the better of you. Trading is surely competitive. It is not the case that people are personally out to get you, but other people are involved and they are certainly trying to take care of their own agenda rather than help you, but you can’t take it personally. It’s just business. There are three key strategies that you can use to persist in the face of adversity: (1) Cultivate a fighting spirit, (2) set up an alternative reward system, and (3) focus on the process not the prize.
It is vital to remain realistic, and ready to face setbacks head on. Youthful exuberance is useful. Young people are often naïve and optimistic, but this state of mind can do wonders to pick up your spirits. Believing that you are omnipotent and can do anything is naïve, but believing this fallacy for just a minute picks up your spirits. Sure, you can’t do anything you want, but you can probably do a lot more than you think when you are feeling beaten down. The key is to have a fighting spirit. Rather than focus on how life has beaten you down, it is useful to look on the bright side and appreciate what you have. You might as well think, “I don’t care what happens. I’m not going to give up. I’m going to keep fighting for what I want. I would rather try hard and fail than sit on sidelines and wonder what might have happened if I had just tried harder.” By cultivating a fighting spirit, one can look at setbacks as minor, commonplace events and take them in stride.
Setting up an alternative reward schedule will provide more consistent rewards and allow you to persist even when faced with a series of setbacks. Reward yourself after putting in a fixed amount of time (the end of each day, for example). Buy yourself a nice dinner or do something you find enjoyable. By patting yourself on the back for your efforts, you'll consistently feel satisfied with your profession, and stick with it. Many times we put in time and effort to achieve our goals, but the world does not reward us. Indeed, we may try hard and put in a heroic effort and actually receive punishment for our efforts. People may criticize us unfairly or someone may beat us out just because they had connections that we didn’t have. Life can be unfair at times, so it is vital to reward yourself for your efforts rather than wait for others to reward you. If you did a good job, you should feel good about it. Who cares what other people think.
Finally, it is essential to focus on the process, not the prize. Many people are driven by money, power, or prestige and when they don’t get any of these things, they feel like a failure. But rewards are never guaranteed, so it is much better to do what you like and feel the intrinsic gratification of having fun doing what you like. By focusing on intrinsic, rather than extrinsic, rewards, you'll feel more comfortable and creative, and do better in the long run.
If you are in a challenging profession, setbacks can be expected, and you cannot let setbacks get the better of you. Trading is surely competitive. It is not the case that people are personally out to get you, but other people are involved and they are certainly trying to take care of their own agenda rather than help you, but you can’t take it personally. It’s just business. There are three key strategies that you can use to persist in the face of adversity: (1) Cultivate a fighting spirit, (2) set up an alternative reward system, and (3) focus on the process not the prize.
It is vital to remain realistic, and ready to face setbacks head on. Youthful exuberance is useful. Young people are often naïve and optimistic, but this state of mind can do wonders to pick up your spirits. Believing that you are omnipotent and can do anything is naïve, but believing this fallacy for just a minute picks up your spirits. Sure, you can’t do anything you want, but you can probably do a lot more than you think when you are feeling beaten down. The key is to have a fighting spirit. Rather than focus on how life has beaten you down, it is useful to look on the bright side and appreciate what you have. You might as well think, “I don’t care what happens. I’m not going to give up. I’m going to keep fighting for what I want. I would rather try hard and fail than sit on sidelines and wonder what might have happened if I had just tried harder.” By cultivating a fighting spirit, one can look at setbacks as minor, commonplace events and take them in stride.
Setting up an alternative reward schedule will provide more consistent rewards and allow you to persist even when faced with a series of setbacks. Reward yourself after putting in a fixed amount of time (the end of each day, for example). Buy yourself a nice dinner or do something you find enjoyable. By patting yourself on the back for your efforts, you'll consistently feel satisfied with your profession, and stick with it. Many times we put in time and effort to achieve our goals, but the world does not reward us. Indeed, we may try hard and put in a heroic effort and actually receive punishment for our efforts. People may criticize us unfairly or someone may beat us out just because they had connections that we didn’t have. Life can be unfair at times, so it is vital to reward yourself for your efforts rather than wait for others to reward you. If you did a good job, you should feel good about it. Who cares what other people think.
Finally, it is essential to focus on the process, not the prize. Many people are driven by money, power, or prestige and when they don’t get any of these things, they feel like a failure. But rewards are never guaranteed, so it is much better to do what you like and feel the intrinsic gratification of having fun doing what you like. By focusing on intrinsic, rather than extrinsic, rewards, you'll feel more comfortable and creative, and do better in the long run.
Tuesday, September 23, 2008
Run Your Own Race
As social beings, humans naturally compare themselves to others. It can often be useful for survival to know whether you can beat an opponent or should run to safer ground. But comparisons are more trouble than they are worth. Why compare yourself to others and feel bad if you aren’t up to snuff?
Comparing ourselves to others can do more harm than good. If we are doing more poorly, we'll feel inadequate. And it isn't always the case that we are performing below par. Each person has his or her own personal history or circumstances that shaped his or her life. People differ in terms of personality, intellectual skills, and life experiences. Any or all of these factors can influence one's performance. It makes little sense to beat yourself up because you haven't achieved a level of performance equal to someone else who had advantages that you didn't have. In the end, the only person you can compare yourself to is you. If you make any comparisons at all, it should be against your own past performance, not someone else's. If life is a race, you should run your own race. Competing with others makes us feel good when we win, but most of the time, comparisons make us feel bad. Making comparisons can stifle creativity. It’s better to avoid such comparisons and appreciate your own talents and skills. If you do the best with what you have, you will feel better and be more productive.
Successful people in all fields avoid making comparisons to others. In the end, the only person's opinion that matters is your own. If you believe you are doing well, then that is all that matters. So when you find yourself comparing yourself to others, stop. The more you can focus on your own standards, the more successful you will be.
Comparing ourselves to others can do more harm than good. If we are doing more poorly, we'll feel inadequate. And it isn't always the case that we are performing below par. Each person has his or her own personal history or circumstances that shaped his or her life. People differ in terms of personality, intellectual skills, and life experiences. Any or all of these factors can influence one's performance. It makes little sense to beat yourself up because you haven't achieved a level of performance equal to someone else who had advantages that you didn't have. In the end, the only person you can compare yourself to is you. If you make any comparisons at all, it should be against your own past performance, not someone else's. If life is a race, you should run your own race. Competing with others makes us feel good when we win, but most of the time, comparisons make us feel bad. Making comparisons can stifle creativity. It’s better to avoid such comparisons and appreciate your own talents and skills. If you do the best with what you have, you will feel better and be more productive.
Successful people in all fields avoid making comparisons to others. In the end, the only person's opinion that matters is your own. If you believe you are doing well, then that is all that matters. So when you find yourself comparing yourself to others, stop. The more you can focus on your own standards, the more successful you will be.
Take Control
Do you ever feel as if you have no control of your future? These days, it’s hard not to feel as if things are a little chaotic. Whether you invest in the financial markets or not, the economy is on everyone’s mind, and it has created an aura of fear and uneasiness. You may wonder if your personal goals are possible with such an uncertain economic future. If you are in business, for example, you may wonder whether clients will buy your goods or services. If you work for a non-profit company or charity, you may similarly worry about how the long term economic picture will impact the organization where you work. It’s natural to panic during uncertain times. But rather than feel a sense of panic, it’s vital to take an active, problem solving approach to your life. The more you feel in control, the more likely you will be able to make progress toward your goals.
A study by Dr. Timothy Steenbergh and colleagues at the University of Memphis (Steenbergh, May, Meyers, & Whelan, 2005) suggests that you are better off believing you are in control even when you may not fully be in control. They studied a group of university students who played a computer game of roulette. All participants reported they had gambled recreationally in the past year. Researchers asked participants to describe the strategies they used while playing computerized roulette. About 25% of the participants reported they had no strategy or plan for winning; they just saw outcomes as random and passively accepted outcomes. The remaining participants reported that they had developed a strategy or game plan.
Results of the study suggest that it is better to make plans and take an active, rather than a passive approach. Participants who came up with some sort of strategy, sound or not, believed that their actions had an impact on roulette outcomes. They made more bets than those who didn't have any strategy, and made more money in the end. These findings illustrate how it’s vital to engage in active planning strategies rather than passively thinking, "Why bother, it doesn't matter." By taking an active, problem solving approach, you will feel in control and achieve success.
A study by Dr. Timothy Steenbergh and colleagues at the University of Memphis (Steenbergh, May, Meyers, & Whelan, 2005) suggests that you are better off believing you are in control even when you may not fully be in control. They studied a group of university students who played a computer game of roulette. All participants reported they had gambled recreationally in the past year. Researchers asked participants to describe the strategies they used while playing computerized roulette. About 25% of the participants reported they had no strategy or plan for winning; they just saw outcomes as random and passively accepted outcomes. The remaining participants reported that they had developed a strategy or game plan.
Results of the study suggest that it is better to make plans and take an active, rather than a passive approach. Participants who came up with some sort of strategy, sound or not, believed that their actions had an impact on roulette outcomes. They made more bets than those who didn't have any strategy, and made more money in the end. These findings illustrate how it’s vital to engage in active planning strategies rather than passively thinking, "Why bother, it doesn't matter." By taking an active, problem solving approach, you will feel in control and achieve success.
Wednesday, September 17, 2008
Looking for the Bright Side
Cultivating a winning mental edge requires you to take setbacks in stride. Every cloud has a silver lining, and it's useful to continually look for the bright side. When you look for the bright side, you feel better after encountering a setback. But it's harder than it looks for some people. Some people don't take setbacks in stride. Instead, they mull over them.
According to psychotherapist Albert Ellis, many people hold the belief, "It is awful and terrible when things are not the way one would very much like them to be." As children, parents may have allowed us to have things our way, but eventually we learned that we could not have everything that we wanted. Unfortunately, many people continue to hold the belief that it is awful, terrible, and even unbearable when things do not go as planned. It may be unpleasant, but it is not awful or terrible. Indeed, when things don't go our way, there may even be a bright side.
Suppose you did not get the promotion at work that you wanted, you could look at it as awful, but there is probably a silver lining if you look hard enough. Promotions usually mean more work and responsibility, which can be psychologically stressful. In addition, a new job may mean there is less leisure time. When one does not receive a promotion, it is useful to think, "at least I will have more time to spend with my family and friends."
That said, there are some events where it is difficult to see the bright side. It’s difficult to find the bright side when a loved one is hurt, for example. But even a setback like a theft can be seen as positive in some respect. It may be useful to remember to focus on spiritual issues rather than material possessions.
Not everything will go your way and it’s vital to expect setbacks. A setback may be disappointing, but it is not awful or terrible. Most setbacks have a bright side and if you can learn to identify that bright side, then you will take setbacks in stride and focus on what you need to do to succeed.
According to psychotherapist Albert Ellis, many people hold the belief, "It is awful and terrible when things are not the way one would very much like them to be." As children, parents may have allowed us to have things our way, but eventually we learned that we could not have everything that we wanted. Unfortunately, many people continue to hold the belief that it is awful, terrible, and even unbearable when things do not go as planned. It may be unpleasant, but it is not awful or terrible. Indeed, when things don't go our way, there may even be a bright side.
Suppose you did not get the promotion at work that you wanted, you could look at it as awful, but there is probably a silver lining if you look hard enough. Promotions usually mean more work and responsibility, which can be psychologically stressful. In addition, a new job may mean there is less leisure time. When one does not receive a promotion, it is useful to think, "at least I will have more time to spend with my family and friends."
That said, there are some events where it is difficult to see the bright side. It’s difficult to find the bright side when a loved one is hurt, for example. But even a setback like a theft can be seen as positive in some respect. It may be useful to remember to focus on spiritual issues rather than material possessions.
Not everything will go your way and it’s vital to expect setbacks. A setback may be disappointing, but it is not awful or terrible. Most setbacks have a bright side and if you can learn to identify that bright side, then you will take setbacks in stride and focus on what you need to do to succeed.
Take It Easy
If you are ambitious, you are probably a perfectionist. Does it drive you crazy when things don’t go your way? There are times when Murphy’s Law says it all: “Whatever can go wrong, will go wrong.” Does this sound a little too cynical? Perhaps, but only if you submit to pessimism. If you have a winning attitude, however, you’re ready to tackle anything. You’ll think, “Things go wrong all the time. I’ll take it in stride and move on.” If you cultivate a winning attitude, you can fight Murphy’s Law with ease.
Stuff happens. So what? In our status-oriented society, we often work under the assumption that we must be thoroughly competent, adequate, and achieving. We tend to believe that if we make a mistake that we will be punished. The development of this belief is understandable. As we grow up, whether it is at home, school or work, we often face adverse consequences for not being scrupulously proficient in everything that we do. But holding such a belief produces fear and anxiety. If we believe that we must always be competent, we will expend all our precious psychological energy mulling over the negative consequences of failing, rather than focusing on what we are doing in the here-and-now to achieve our goals. This style of thinking is distracting and obscures the flow of immediate experience, which interferes with cultivating the proper mental edge.
For your long term enduring success, it is vital that you learn to ease up. You don't have to be perfect. You are bound to make mistakes occasionally, and if you are consumed with avoiding them, you'll be so anxious and fearful that you will choke under the pressure, and be upset when things go wrong. Murphy’s Law is true at times, but why feel bothered by setbacks? Why not expect them? It’s hard to accept, but you can’t control everything. Stuff happens and you need to deal with it objectively, rather than feel disappointed and stunned.
Striving for perfectionism is an important ideal to hold, but don't forget that it is just an ideal. You might try to reach for it, but don't beat yourself up when you don't get there. All you can do in the end is do your best.
Stuff happens. So what? In our status-oriented society, we often work under the assumption that we must be thoroughly competent, adequate, and achieving. We tend to believe that if we make a mistake that we will be punished. The development of this belief is understandable. As we grow up, whether it is at home, school or work, we often face adverse consequences for not being scrupulously proficient in everything that we do. But holding such a belief produces fear and anxiety. If we believe that we must always be competent, we will expend all our precious psychological energy mulling over the negative consequences of failing, rather than focusing on what we are doing in the here-and-now to achieve our goals. This style of thinking is distracting and obscures the flow of immediate experience, which interferes with cultivating the proper mental edge.
For your long term enduring success, it is vital that you learn to ease up. You don't have to be perfect. You are bound to make mistakes occasionally, and if you are consumed with avoiding them, you'll be so anxious and fearful that you will choke under the pressure, and be upset when things go wrong. Murphy’s Law is true at times, but why feel bothered by setbacks? Why not expect them? It’s hard to accept, but you can’t control everything. Stuff happens and you need to deal with it objectively, rather than feel disappointed and stunned.
Striving for perfectionism is an important ideal to hold, but don't forget that it is just an ideal. You might try to reach for it, but don't beat yourself up when you don't get there. All you can do in the end is do your best.
Monday, September 15, 2008
Striving For Superiority
I had dinner with an old friend from college last week in Dupont Circle. I look forward to our dinners whenever I go to Washington, D.C. for my job as a clinical researcher. In many ways, Dupont Circle and the surrounding neighborhood remind me of parts of San Francisco (where I work), but there is something different about the people there. They are more intense, driven, and ambitious. I enjoy overhearing their conversations in coffee shops and restaurants as they talk about the policies they want to change or how they hope to find a new job that will give them greater power to make a difference. They are attractive, young, and ready to take on the world. It makes me yearn for the days when I was younger. It’s exciting to be around such youthful exuberance. In some ways, Washington, D.C. is the center of the world. And the people who live there seem to treat it that way, at least the people I’ve seen hanging out in Dupont Circle.
What makes people so driven? When I was younger I couldn’t wait to become a researcher and do the kind of research that changes public policy. But as I have grown older, cynicism has set in. Making the world a better place is not as easy as I had thought when I was in my early twenties. There are many worthwhile causes competing for limited funds, and the world is full of ambitious people who also want to make a difference. It’s easy to throw up your arms and say, why bother? Friends who knew me in my early twenties described me as driven. I guess I was driven. Part of my drive was an honest attempt to make a contribution to society, but in the back of my mind, I always wondered about the psychological dynamics that drove me to succeed.
According to psychoanalyst Alfred Adler, ambitious people may be striving for superiority as a way to compensate for a feeling of inferiority. During childhood, one is bound to feel a sense of inferiority. Children are smaller than adults and have difficulty mastering their domain. Eventually, however, children learn to control their environment and feel powerful rather than helpless and inferior. But other people feel extremely inferior and spend their lives striving to become superior to others, striving for self-esteem, power, and self-aggrandizement. It’s like the popular notion that Napoleon conquered Europe because he was short.
There are times when a feeling of inferiority and the need to compensate for it can be productive. Theodore Roosevelt, for example, was frail as a child and exercised until he was physically fit. The need to do reach higher levels of performance may have initially been motivated by a need to compensate for inferiority, but in the end, striving for superiority compels people to develop skills that make a social contribution. As long as one does not merely strive for superiority as a way to compensate for low self esteem or a need to have power over others, the need to strive for superiority can be a positive motivating force.
Are you aware of what motivates you? It’s vital to gain awareness and ensure that you are not trying to merely cover up your deficits, but are truly striving to make a social contribution. When you strive to make social contributions, you are more likely to sharpen your mental edge and achieve success and mastery.
What makes people so driven? When I was younger I couldn’t wait to become a researcher and do the kind of research that changes public policy. But as I have grown older, cynicism has set in. Making the world a better place is not as easy as I had thought when I was in my early twenties. There are many worthwhile causes competing for limited funds, and the world is full of ambitious people who also want to make a difference. It’s easy to throw up your arms and say, why bother? Friends who knew me in my early twenties described me as driven. I guess I was driven. Part of my drive was an honest attempt to make a contribution to society, but in the back of my mind, I always wondered about the psychological dynamics that drove me to succeed.
According to psychoanalyst Alfred Adler, ambitious people may be striving for superiority as a way to compensate for a feeling of inferiority. During childhood, one is bound to feel a sense of inferiority. Children are smaller than adults and have difficulty mastering their domain. Eventually, however, children learn to control their environment and feel powerful rather than helpless and inferior. But other people feel extremely inferior and spend their lives striving to become superior to others, striving for self-esteem, power, and self-aggrandizement. It’s like the popular notion that Napoleon conquered Europe because he was short.
There are times when a feeling of inferiority and the need to compensate for it can be productive. Theodore Roosevelt, for example, was frail as a child and exercised until he was physically fit. The need to do reach higher levels of performance may have initially been motivated by a need to compensate for inferiority, but in the end, striving for superiority compels people to develop skills that make a social contribution. As long as one does not merely strive for superiority as a way to compensate for low self esteem or a need to have power over others, the need to strive for superiority can be a positive motivating force.
Are you aware of what motivates you? It’s vital to gain awareness and ensure that you are not trying to merely cover up your deficits, but are truly striving to make a social contribution. When you strive to make social contributions, you are more likely to sharpen your mental edge and achieve success and mastery.
Imposter Syndrome Reconsidered
I've been thinking more about the imposter syndrome. I hope you didn't take the idea too seriously, since I'm not sure it is a very serious topic. I never like pop psychology topics that were based on cute titles but tend to have no research to back them up. Very little research has been conducted on the imposter syndrome, especially in the last 20 years, and the research that has been done is published in obscure scientific journals. In 2003, I spoke to Professor of Julie Norem of Wellesley College at a psychology conference who has been studying the imposter syndrome, and probably will end up having done the best work so far on this topic. But I wonder if most people find it useful. I merely wrote about it because I think it is relevant to traders, and I focus on it at times in my trading psychology columns for Marketwise. com. Here's a column I wrote for traders that you may find interesting.
Winning Takes Skill and Chance
Edward Lewis in Pretty Woman seemed to have it all: Looks, money, and status. And he loved what he did for a living. A corporate raider, he loved the kill. But when he let Vivian into his life, his perspective radically changed. He started to questions his contribution to society. How many companies can one buy? How much money can one make? He pondered the meaning of his life, and realized, “I don’t build anything.” In the end, he decided to rescue the current target of his unrelenting greed, and fund the company to continue building ships rather than selling off the pieces like a stripped, stolen car. Many of the traders I have interviewed over the years struggle with a similar dilemma. They don’t “build” anything, and question their place in the world
Some traders question their legitimacy in the world, and may even feel like imposters as I said in my column last week. I’ve been trying in my columns to focus on evidence-based concepts based on legitimate science and I’ve tried to avoid catchy topics from pop psychology of the 1960s like the imposter phenomenon. But there are times when a flimsy, “pop” psychology concept like the imposter phenomenon has a provocative appeal.
One trader who influenced my thinking said he felt like a rock star or a professional athlete who suddenly rose from obscurity to international acclaim. While most people struggle to just make ends meet, many supertraders make the median yearly household income in the United States in less than a week. One can’t help but feel lucky and question his or her legitimacy when suddenly skyrocketing to success. Indeed, some traders may feel even phonier than a rock star or top notch athlete. A rock star who sells megahits, like Phil Collins, has quantifiable talent. Whatever it is about them, they have a style of singing that appeals to consumers, an image that inspires adoration, or they write great tunes. Regardless of the je ne sais quoi of their success, there is a quality that consumers buy. Similarly, professional athletes who are superstars have clearly defined athletic skills on which their salaries and stardom are based. With rock musicians and professional athletes, there is a time for prosperity, and inevitably, a time for obscurity. Fads change and skills wane with age. At some point, the mighty fall.
Trading is a little different, however. Sure, some traders have the skill to trade in the short term from market to market, but in reality, for some unexplained reason, most traders eventually end up losing their ability to trade. (That said, if a trader has made incredible wealth, then if he or she manages risk, numerous small trades can be made without ever blowing out, but profitability is greatly diminished from their heyday.) Whether it is merely lore or fact, the trading world is replete with Market Wizards who eventually go bust. And that’s why many feel deep down that their success will be short lived, or their past success may have been a fluke.
Is there a solution to feeling like an imposter? First, it’s important to put one’s ego aside. There is a strong tendency to want to pat oneself on the back for every accomplishment and believe that talent alone explains success. But there is an element of luck with every achievement, and if one merely acknowledges this fact, he or she will not feel like an imposter. One only feels like an imposter when one believes that luck does not play a role and that success was due only to luck. Second, it’s vital to truly have skills that are responsible for success. Trading can often be due to making a good guess. But merely guessing is not a skill. Traders who profit consistently have more solid methods, such as those based on studying charts and reports, rather than just using transitory methods. Transitory methods work for a while, but eventually fail, and that’s when feelings of phoniness come into play.
Trading is unique in that even the most profitable traders end up blowing out. We’ve all heard the stories, and so when you are in a winning streak, you know that it may merely be a fluke, and that’s why feelings of imposter syndrome come in. But you don’t need to feel like an imposter. Recognize that elements of chance may play a role in success but at the same time acknowledge that there are particular skills needed to trade, such as an intuitive understanding of the markets based on years of observation and experience. At a minimum, a seasoned trader with a track record can point to the span of time where he or she forecasted the markets accurately and profited. Market conditions may change, and one may lose his or her ability to profit, but the specific skill manifested in a particular context was real, and if you achieved profitability at some point in your career, you have done better than many, and there’s no need to feel like an imposter.
Winning Takes Skill and Chance
Edward Lewis in Pretty Woman seemed to have it all: Looks, money, and status. And he loved what he did for a living. A corporate raider, he loved the kill. But when he let Vivian into his life, his perspective radically changed. He started to questions his contribution to society. How many companies can one buy? How much money can one make? He pondered the meaning of his life, and realized, “I don’t build anything.” In the end, he decided to rescue the current target of his unrelenting greed, and fund the company to continue building ships rather than selling off the pieces like a stripped, stolen car. Many of the traders I have interviewed over the years struggle with a similar dilemma. They don’t “build” anything, and question their place in the world
Some traders question their legitimacy in the world, and may even feel like imposters as I said in my column last week. I’ve been trying in my columns to focus on evidence-based concepts based on legitimate science and I’ve tried to avoid catchy topics from pop psychology of the 1960s like the imposter phenomenon. But there are times when a flimsy, “pop” psychology concept like the imposter phenomenon has a provocative appeal.
One trader who influenced my thinking said he felt like a rock star or a professional athlete who suddenly rose from obscurity to international acclaim. While most people struggle to just make ends meet, many supertraders make the median yearly household income in the United States in less than a week. One can’t help but feel lucky and question his or her legitimacy when suddenly skyrocketing to success. Indeed, some traders may feel even phonier than a rock star or top notch athlete. A rock star who sells megahits, like Phil Collins, has quantifiable talent. Whatever it is about them, they have a style of singing that appeals to consumers, an image that inspires adoration, or they write great tunes. Regardless of the je ne sais quoi of their success, there is a quality that consumers buy. Similarly, professional athletes who are superstars have clearly defined athletic skills on which their salaries and stardom are based. With rock musicians and professional athletes, there is a time for prosperity, and inevitably, a time for obscurity. Fads change and skills wane with age. At some point, the mighty fall.
Trading is a little different, however. Sure, some traders have the skill to trade in the short term from market to market, but in reality, for some unexplained reason, most traders eventually end up losing their ability to trade. (That said, if a trader has made incredible wealth, then if he or she manages risk, numerous small trades can be made without ever blowing out, but profitability is greatly diminished from their heyday.) Whether it is merely lore or fact, the trading world is replete with Market Wizards who eventually go bust. And that’s why many feel deep down that their success will be short lived, or their past success may have been a fluke.
Is there a solution to feeling like an imposter? First, it’s important to put one’s ego aside. There is a strong tendency to want to pat oneself on the back for every accomplishment and believe that talent alone explains success. But there is an element of luck with every achievement, and if one merely acknowledges this fact, he or she will not feel like an imposter. One only feels like an imposter when one believes that luck does not play a role and that success was due only to luck. Second, it’s vital to truly have skills that are responsible for success. Trading can often be due to making a good guess. But merely guessing is not a skill. Traders who profit consistently have more solid methods, such as those based on studying charts and reports, rather than just using transitory methods. Transitory methods work for a while, but eventually fail, and that’s when feelings of phoniness come into play.
Trading is unique in that even the most profitable traders end up blowing out. We’ve all heard the stories, and so when you are in a winning streak, you know that it may merely be a fluke, and that’s why feelings of imposter syndrome come in. But you don’t need to feel like an imposter. Recognize that elements of chance may play a role in success but at the same time acknowledge that there are particular skills needed to trade, such as an intuitive understanding of the markets based on years of observation and experience. At a minimum, a seasoned trader with a track record can point to the span of time where he or she forecasted the markets accurately and profited. Market conditions may change, and one may lose his or her ability to profit, but the specific skill manifested in a particular context was real, and if you achieved profitability at some point in your career, you have done better than many, and there’s no need to feel like an imposter.
Tuesday, September 9, 2008
The Imposter Syndrome
Success in life can often be a matter of being at the right place at the right time. In the United States, we prefer to hear stories (which are often myths) of people who live the American dream, but that does not mean that chance plays some role in one’s success. Sure, successful people had to work hard and have unique talent and skills, but there are many people who have the characteristics to become a superstar, yet live in obscurity because they were at the wrong place at the wrong time. Anyone who takes an honest, hard look at success knows that luck plays some role, and thus, when one beats the odds and obtains success, it’s easy to feel like an impostor, as if he or she was merely at the right place at the right time.
I’ve been enjoying Mad Men every Sunday night. The main character is Don Draper, a successful creative director at a Madison Avenue advertizing firm. He is attractive, hard working and successful, but in some ways he is an imposter. During the war, Dick (his real name) traded places with his commanding officer (the real Don Draper) who was killed and disfigured after an explosion. Dick isn’t really Don Draper but pretends he is. But who is he? Dick may not be the real man named Don Draper but he is responsible for his own success. He has an astute intuition of how consumers’ minds work, and he uses these insights to creatively develop the campaigns that sell products. He is indeed the attractive man who married a beautiful woman, had two children, and provides a nice home in the suburbs. Yet he lives the life of an impostor, hiding his past from his wife, children and friends.
Even people who do not assume another person’s identify feels like an imposter at times. When one is riding high, it’s easy to convince yourself that you are invincible, but at times of stress and disappointment, it’s easy to believe one is an imposter and that one’s past success was merely a matter of chance.
It may be fun to think one’s success is all about you. But again, no matter who you are, there was an element of chance in one’s success. No matter how hard you worked and want to pat yourself on the back for achieving success, there was some luck involved. A teacher may have taken an interest in you and encouraged you in school, for example, or little did you know, you may have won an award or promotion occasionally out of sheer luck.
But success is not all luck, and it is vital to remember this fact. No matter how much luck was involved in your success, part of it was due to some characteristic that you possess.
If there are times you feel like an imposter, it may have to do with your past life experiences and the messages you received while growing up. Society, close friends, or parents often give people the message that they are not worthy of success. For example, members of ethnic minority groups may have been given a societal message that they are not allowed to seek high status jobs. Women may have heard a similar message in which they are told to seek out only traditional female occupations, or people from blue-collar neighborhoods may have been told they cannot move into white-collar jobs. Although these barriers exist, they can be overcome through dedication and hard work. People who often feel like an imposter overcome these and other barriers, but they underestimate their contributions and believe that success was a matter of pure chance. Despite their success, they still believe that societal messages they heard in their childhood are true and that they have gone to a place where they should not have gone. These prior beliefs haunt them. They tend to secretly wait for their success to come to an end.
Maintaining success is difficult if you do not believe you deserve it. Do you feel like an imposter? Do you feel that you do not belong in the occupation you have chosen? If the answer is yes, make sure you gain awareness of your feelings and find a resolution. On the one hand, it’s useful to admit that to some extent luck plays a role in success. But on the other hand, it’s useful to remember that hard work and talent plays a role as well. The more you take a balanced approach by accounting for luck and external circumstances but also knowing exactly how you personally contribute, the easier it will be to achieve a winning mental edge.
I’ve been enjoying Mad Men every Sunday night. The main character is Don Draper, a successful creative director at a Madison Avenue advertizing firm. He is attractive, hard working and successful, but in some ways he is an imposter. During the war, Dick (his real name) traded places with his commanding officer (the real Don Draper) who was killed and disfigured after an explosion. Dick isn’t really Don Draper but pretends he is. But who is he? Dick may not be the real man named Don Draper but he is responsible for his own success. He has an astute intuition of how consumers’ minds work, and he uses these insights to creatively develop the campaigns that sell products. He is indeed the attractive man who married a beautiful woman, had two children, and provides a nice home in the suburbs. Yet he lives the life of an impostor, hiding his past from his wife, children and friends.
Even people who do not assume another person’s identify feels like an imposter at times. When one is riding high, it’s easy to convince yourself that you are invincible, but at times of stress and disappointment, it’s easy to believe one is an imposter and that one’s past success was merely a matter of chance.
It may be fun to think one’s success is all about you. But again, no matter who you are, there was an element of chance in one’s success. No matter how hard you worked and want to pat yourself on the back for achieving success, there was some luck involved. A teacher may have taken an interest in you and encouraged you in school, for example, or little did you know, you may have won an award or promotion occasionally out of sheer luck.
But success is not all luck, and it is vital to remember this fact. No matter how much luck was involved in your success, part of it was due to some characteristic that you possess.
If there are times you feel like an imposter, it may have to do with your past life experiences and the messages you received while growing up. Society, close friends, or parents often give people the message that they are not worthy of success. For example, members of ethnic minority groups may have been given a societal message that they are not allowed to seek high status jobs. Women may have heard a similar message in which they are told to seek out only traditional female occupations, or people from blue-collar neighborhoods may have been told they cannot move into white-collar jobs. Although these barriers exist, they can be overcome through dedication and hard work. People who often feel like an imposter overcome these and other barriers, but they underestimate their contributions and believe that success was a matter of pure chance. Despite their success, they still believe that societal messages they heard in their childhood are true and that they have gone to a place where they should not have gone. These prior beliefs haunt them. They tend to secretly wait for their success to come to an end.
Maintaining success is difficult if you do not believe you deserve it. Do you feel like an imposter? Do you feel that you do not belong in the occupation you have chosen? If the answer is yes, make sure you gain awareness of your feelings and find a resolution. On the one hand, it’s useful to admit that to some extent luck plays a role in success. But on the other hand, it’s useful to remember that hard work and talent plays a role as well. The more you take a balanced approach by accounting for luck and external circumstances but also knowing exactly how you personally contribute, the easier it will be to achieve a winning mental edge.
Sunday, September 7, 2008
The Well Balanced Life
Do you remember the Saturday Night Live skit where William Shatner told Star Trek fans to get a life? We value productivity in society, and as much as Star Trek has inspired great thoughts, sitting around in your parents' basement watching Star Trek episodes is not the most productive way to spend one's time. But we shouldn't just pick on, and completely devalue, the stereotype of the nerdy Star Trek fan who takes the series a little too seriously. Nerds make a big difference in the world. My new favorite television show is The Big Bang Theory. It's a funny sitcom where a bunch of nerds at Caltech dream about having a more well rounded life. In their defense, they may not get to date cheerleaders, but they are making a contribution to society, or to science at least. As much as it is ideal that people have a well-rounded life, there is honor in making sacrifices for the greater good. But a well-rounded life is valued in society and for good reason: A well-rounded life is psychologically healthy.
There are times when it is necessary to make sacrifices and focus all your energy on a single goal. An Olympic athlete trains for years. Professionals, such as lawyers and physicians, spend many years studying hard to meet high standards required to gain licensure. Without a single-minded focus, they would never achieve their goals. According to Bill Lipschutz, this kind of "insane focus" characterizes phenomenal traders as well. In his interview with Alpesh Patel in The Mind of a Trader, Mr. Lipschutz observes, "Brilliance, intelligence and education and the desire to make money will lead to success. But to be a phenomenon, talent and industry are key." According to Mr. Lipschutz, "the very best traders don't take a lot of time off. They don't want to." But at the same time, he wonders, "Do they need to recharge? Well, you know what, when I was younger I thought 'no.' A lot of things happen when you're younger and newer to the game that you don't really realize because you have this kind of energy and your experience bank is less full. You don't understand that to recharge may help you do it even better."
Olympic athletes are not superstars forever. Similarly, professional athletes have their prime and then they retire. So spending one's youth building up skills makes sense since there is a "critical period" in life to make one's mark. That said, as much as ambitious over-achievers like to define themselves by their work, it may not be wise. Don't put all your eggs in one basket when it comes to how you define yourself. It's psychologically important to define ourselves in many different ways, for example, as a friend, spouse, parent, or community leader. The number of roles you may hold in your life is endless. Each role should be part of your self-concept. Different aspects of your self-concept can protect your self-esteem when faced with stressful events. In one research study, for example, participants with multi-faceted self-concepts were better able to cope with stress, depression, and illness. In addition, they were better able to control their emotions. When people have multi-faceted self-concepts, they are less prone to extreme variations in emotions. Their emotions remain relatively stable, rather than rapidly rising and falling. Why? People with a multi-faceted self-concept have alternative views of themselves, so when failure is encountered in one aspect of their lives, they can find consolation in the fact that another aspect of their life is still going well. For example, when faced with a major professional setback, you may find solace in knowing that you are still a loving parent or a caring friend.
You will never be able to maintain a winning mental edge if you put pressure on yourself, but that's what you are doing when you define yourself completely by your professional aspirations. It may wise to put in the necessary hard work to achieve your goals, but your career identity should be just one part of a multi-faceted life.
There are times when it is necessary to make sacrifices and focus all your energy on a single goal. An Olympic athlete trains for years. Professionals, such as lawyers and physicians, spend many years studying hard to meet high standards required to gain licensure. Without a single-minded focus, they would never achieve their goals. According to Bill Lipschutz, this kind of "insane focus" characterizes phenomenal traders as well. In his interview with Alpesh Patel in The Mind of a Trader, Mr. Lipschutz observes, "Brilliance, intelligence and education and the desire to make money will lead to success. But to be a phenomenon, talent and industry are key." According to Mr. Lipschutz, "the very best traders don't take a lot of time off. They don't want to." But at the same time, he wonders, "Do they need to recharge? Well, you know what, when I was younger I thought 'no.' A lot of things happen when you're younger and newer to the game that you don't really realize because you have this kind of energy and your experience bank is less full. You don't understand that to recharge may help you do it even better."
Olympic athletes are not superstars forever. Similarly, professional athletes have their prime and then they retire. So spending one's youth building up skills makes sense since there is a "critical period" in life to make one's mark. That said, as much as ambitious over-achievers like to define themselves by their work, it may not be wise. Don't put all your eggs in one basket when it comes to how you define yourself. It's psychologically important to define ourselves in many different ways, for example, as a friend, spouse, parent, or community leader. The number of roles you may hold in your life is endless. Each role should be part of your self-concept. Different aspects of your self-concept can protect your self-esteem when faced with stressful events. In one research study, for example, participants with multi-faceted self-concepts were better able to cope with stress, depression, and illness. In addition, they were better able to control their emotions. When people have multi-faceted self-concepts, they are less prone to extreme variations in emotions. Their emotions remain relatively stable, rather than rapidly rising and falling. Why? People with a multi-faceted self-concept have alternative views of themselves, so when failure is encountered in one aspect of their lives, they can find consolation in the fact that another aspect of their life is still going well. For example, when faced with a major professional setback, you may find solace in knowing that you are still a loving parent or a caring friend.
You will never be able to maintain a winning mental edge if you put pressure on yourself, but that's what you are doing when you define yourself completely by your professional aspirations. It may wise to put in the necessary hard work to achieve your goals, but your career identity should be just one part of a multi-faceted life.
Wednesday, August 27, 2008
Persistence: Is It Always Good?
Dreams don’t always come true. It’s hard to accept, but no matter how much we want something, and no matter how hard we try, it’s quite possible to fail to achieve our goals. Some psychologists argue that people can learn almost anything. If one believes that a skill can be learned through hard work and practice, he or she will persist until the skill is learned. To some extent, many skills can be learned, but if you have pushed yourself to the limit and tried a variety of things, you have probably found that some skills are just not possible to learn. For example, I was the first chair clarinetist in high school band, but I could not compete with future professional musicians I met in college. I won first place in physics at the county science fair in high school, but barely passed physics in college. And although some people like my writing, the highest I placed in high school essay contests was third place, and my writing doesn’t even come close to my college friends who became screenwriters and reporters. There is nothing wrong with admitting one’s limitations, and I have many of them. I know that no matter how hard I try, I can never achieve all my dreams.
But despite my natural limitations, if I truly believed it was possible to achieve my goals and that anything could be learned, I would make many attempts and surely live by old adages like, “at first if you don’t succeed, try, try again,” or “practice makes perfect.” Unfortunately, some skills just cannot be learned. Honing the proper mental edge requires that you admit your limitations and set realistic goals, rather than fool yourself into thinking you can achieve the impossible. In Wednesday’s Marketwise column, a trader named Tom asked me if it were possible that dreams don’t always come true. The fundamental issues addressed in this column go beyond trading and extend to anyone with high aspirations trying to achieve one’s goals.
I received an email from Tom who has been trading for many years yet feeling he is making little progress. He feels like giving up. In his own words, he says, “I have given everything I could to this dream…and it is just not working anymore…Do you think…[it is] possible to believe in something that long and in the end not have it work out?”
I like to be optimistic, but realistically, we know that the odds of a trader making it are slim. Hard work and persistence are not always the only prerequisites to success. Do you think everyone who tries to become a surgeon makes it? Do you think everyone who went to law school passes the bar? The sad fact is that many people pursue seemingly realistic dreams that don’t come true. An unfortunate fact of life is that one can pursue a dream for many years and never achieve success. That said, I have seen many people beat the odds. Perhaps it is merely American mythology, but there are countless stories about people who beat the odds and achieved success (In their own way, for example, I think both presidential candidates illustrate how one can beat the odds). The bottom line is that you will never know what you can do unless you try, so you might as well try and see what happens. Maybe you will be one of the rare few that beat the odds and become successful.
On the other hand, it’s vital to avoid getting hurt. Trading is potentially dangerous. It can not only ding your ego, but also hurt you financially. All traders must ask themselves if they would be better off spending their time pursuing other activities. If you think trading is doing more harm than good, you should stop.
Here’s an exercise that may help you decide if trading is right for you. Ask yourself, would you trade for no money. Suppose that you did not have a dime to bet. Would you enjoy following stock prices anyway? Would you enjoy reading about stocks, making forecasts, and seeing if you were right just for the fun of it? If the answer is yes, trading may be right for you. But if you think, why bother following the markets just for fun, then you may want to consider whether trading is right for you. In other words, if you are in it only for the money, it may not be right for you. But if you are not losing any money, why not pursue trading? As long as it does not hurt you psychologically (or financially) or consume your time when you should be doing other things, what is the harm?
Unfortunately, many people do not approach trading wisely. They set unrealistic goals and waste their time trying to achieve the impossible dream. Setting well-defined, realistic goals is essential for achieving high levels of performance. Specific goals are the best, and allow for direct feedback. You know exactly where you stand. It may not always be a good idea to set goals too high, however. If you have the requisite skills, setting high performance goals and trying to reach them can be a powerful motivator. But if you don't have the requisite skills, and fail to achieve your goals, you may tend to feel disappointed and just want to give up. It may be useful to set a learning goal during initial stages of learning, and then move up to setting high performance goals after you have achieved an adequate level of mastery.
Psychologists have discovered that performance goals, such as trying to achieve a 20% profit for month, are not always the best goals. Here's why. One may not have the experience or skills to reach a goal that exceeds one's abilities. For example, would you try to run a 20-mile marathon if you can't even run a mile? Of course not. So why make such high and lofty trading goals until you have the requisite knowledge and skills? Many novices make the mistake of setting their goals too high. It's understandable in a way. Ambitious people are taught to set high performance goals. If one doesn't even consider achieving an ambitious goal, then one may not even try to achieve it. It is vital to set high standards and do whatever it takes to reach them. But goals should be set realistically.
When novices set high goals that exceed their skills, they usually fail, feel discouraged, and give up. So if you are a novice trader or a trader struggling to regain profitability, it may not be a good idea to strive for a specific performance goal, such as a 20% profit per month, at least not until one develops the skills to meet this expectation consistently. It's useful to distinguish performance goals from learning goals. When we set goals, we usually think of setting performance goals; that is, we think about a specific percentage a month we should achieve. But for novice traders, it is more useful to consider setting learning goals rather than performance goals. A learning goal is more modest and can be achieved more easily. It involves breaking down the larger goal into specific steps that are doable, and rewarding oneself after each step is accomplished. For example, a learning goal may be stating, "I'm going to study for 30 hours a week to learn a new trading technique." The specific goal will not immediately lead to the larger goal of making a 20% profit per month, but it is easy to achieve, will lead to personal satisfaction upon completion, and in the long run, will contribute to the long term goal of becoming a seasoned trader.
So if you're a novice or a struggling trader, set yourself up to win. Don't set overly high performance goals. Set realistic learning goals instead. Break the larger goal down into specific steps, and reward yourself after you complete each one. Focus on skill building rather than performance.
Although research has shown that setting learning goals, rather than performance goals, enhance persistence, some researchers warn than encouraging people to set learning goals may be misleading. For example, if a young musician does not have the talent to join the symphony, setting learning goals may encourage him or her to persist, but the final goal of becoming a concert musician may never be achieved. It is the same with trading. If you just don’t have the talent and capital, you will never make it, no matter how much effort you put in. So it is not realistic to expect the impossible. But again, you will never know what will happen until you try. And just like amateur musicians who play only for their enjoyment and occasionally for family and friends, there is nothing wrong with pursuing an activity if you find it fun and inherently rewarding. Trading can be the same way. If you enjoy making investments, then do it. As long as you don’t lose money that you cannot afford to lose, then what is the harm? As long as trading does not interfere with other aspects of your life, why not enjoy studying the markets? Trading is like many aspects of life. Some people have expensive hobbies that they cannot afford, and pursuing a hobby that becomes like an “addiction” that consumes your life may be harmful. But if you consciously decide to pursue studying the markets because it is fun and inherently rewarding, there is no reason not to continue. As long as you don’t get hurt or hurt anyone else, why not do what you want?
But despite my natural limitations, if I truly believed it was possible to achieve my goals and that anything could be learned, I would make many attempts and surely live by old adages like, “at first if you don’t succeed, try, try again,” or “practice makes perfect.” Unfortunately, some skills just cannot be learned. Honing the proper mental edge requires that you admit your limitations and set realistic goals, rather than fool yourself into thinking you can achieve the impossible. In Wednesday’s Marketwise column, a trader named Tom asked me if it were possible that dreams don’t always come true. The fundamental issues addressed in this column go beyond trading and extend to anyone with high aspirations trying to achieve one’s goals.
I received an email from Tom who has been trading for many years yet feeling he is making little progress. He feels like giving up. In his own words, he says, “I have given everything I could to this dream…and it is just not working anymore…Do you think…[it is] possible to believe in something that long and in the end not have it work out?”
I like to be optimistic, but realistically, we know that the odds of a trader making it are slim. Hard work and persistence are not always the only prerequisites to success. Do you think everyone who tries to become a surgeon makes it? Do you think everyone who went to law school passes the bar? The sad fact is that many people pursue seemingly realistic dreams that don’t come true. An unfortunate fact of life is that one can pursue a dream for many years and never achieve success. That said, I have seen many people beat the odds. Perhaps it is merely American mythology, but there are countless stories about people who beat the odds and achieved success (In their own way, for example, I think both presidential candidates illustrate how one can beat the odds). The bottom line is that you will never know what you can do unless you try, so you might as well try and see what happens. Maybe you will be one of the rare few that beat the odds and become successful.
On the other hand, it’s vital to avoid getting hurt. Trading is potentially dangerous. It can not only ding your ego, but also hurt you financially. All traders must ask themselves if they would be better off spending their time pursuing other activities. If you think trading is doing more harm than good, you should stop.
Here’s an exercise that may help you decide if trading is right for you. Ask yourself, would you trade for no money. Suppose that you did not have a dime to bet. Would you enjoy following stock prices anyway? Would you enjoy reading about stocks, making forecasts, and seeing if you were right just for the fun of it? If the answer is yes, trading may be right for you. But if you think, why bother following the markets just for fun, then you may want to consider whether trading is right for you. In other words, if you are in it only for the money, it may not be right for you. But if you are not losing any money, why not pursue trading? As long as it does not hurt you psychologically (or financially) or consume your time when you should be doing other things, what is the harm?
Unfortunately, many people do not approach trading wisely. They set unrealistic goals and waste their time trying to achieve the impossible dream. Setting well-defined, realistic goals is essential for achieving high levels of performance. Specific goals are the best, and allow for direct feedback. You know exactly where you stand. It may not always be a good idea to set goals too high, however. If you have the requisite skills, setting high performance goals and trying to reach them can be a powerful motivator. But if you don't have the requisite skills, and fail to achieve your goals, you may tend to feel disappointed and just want to give up. It may be useful to set a learning goal during initial stages of learning, and then move up to setting high performance goals after you have achieved an adequate level of mastery.
Psychologists have discovered that performance goals, such as trying to achieve a 20% profit for month, are not always the best goals. Here's why. One may not have the experience or skills to reach a goal that exceeds one's abilities. For example, would you try to run a 20-mile marathon if you can't even run a mile? Of course not. So why make such high and lofty trading goals until you have the requisite knowledge and skills? Many novices make the mistake of setting their goals too high. It's understandable in a way. Ambitious people are taught to set high performance goals. If one doesn't even consider achieving an ambitious goal, then one may not even try to achieve it. It is vital to set high standards and do whatever it takes to reach them. But goals should be set realistically.
When novices set high goals that exceed their skills, they usually fail, feel discouraged, and give up. So if you are a novice trader or a trader struggling to regain profitability, it may not be a good idea to strive for a specific performance goal, such as a 20% profit per month, at least not until one develops the skills to meet this expectation consistently. It's useful to distinguish performance goals from learning goals. When we set goals, we usually think of setting performance goals; that is, we think about a specific percentage a month we should achieve. But for novice traders, it is more useful to consider setting learning goals rather than performance goals. A learning goal is more modest and can be achieved more easily. It involves breaking down the larger goal into specific steps that are doable, and rewarding oneself after each step is accomplished. For example, a learning goal may be stating, "I'm going to study for 30 hours a week to learn a new trading technique." The specific goal will not immediately lead to the larger goal of making a 20% profit per month, but it is easy to achieve, will lead to personal satisfaction upon completion, and in the long run, will contribute to the long term goal of becoming a seasoned trader.
So if you're a novice or a struggling trader, set yourself up to win. Don't set overly high performance goals. Set realistic learning goals instead. Break the larger goal down into specific steps, and reward yourself after you complete each one. Focus on skill building rather than performance.
Although research has shown that setting learning goals, rather than performance goals, enhance persistence, some researchers warn than encouraging people to set learning goals may be misleading. For example, if a young musician does not have the talent to join the symphony, setting learning goals may encourage him or her to persist, but the final goal of becoming a concert musician may never be achieved. It is the same with trading. If you just don’t have the talent and capital, you will never make it, no matter how much effort you put in. So it is not realistic to expect the impossible. But again, you will never know what will happen until you try. And just like amateur musicians who play only for their enjoyment and occasionally for family and friends, there is nothing wrong with pursuing an activity if you find it fun and inherently rewarding. Trading can be the same way. If you enjoy making investments, then do it. As long as you don’t lose money that you cannot afford to lose, then what is the harm? As long as trading does not interfere with other aspects of your life, why not enjoy studying the markets? Trading is like many aspects of life. Some people have expensive hobbies that they cannot afford, and pursuing a hobby that becomes like an “addiction” that consumes your life may be harmful. But if you consciously decide to pursue studying the markets because it is fun and inherently rewarding, there is no reason not to continue. As long as you don’t get hurt or hurt anyone else, why not do what you want?
Sunday, August 17, 2008
Self-Focused and Sad
You can’t enter a peak performance mental edge when you are in a bad mood. You may not necessarily need to feel happy, but you certainly can’t feel overly sad, frustrated, angry or depressed and expect to cultivate a winning, mental edge. A recent study in Psychological Science shows how feeling sad while focusing on your inner experience can hinder you ability to find your mental edge.
Professor Jennifer Lerner at Harvard University’s Kennedy School of Government studies how emotions impact judgments. She and her colleagues (Cryder, Lerner, Gross, & Dahl, 2008) showed how a combination of focusing on oneself and feeling sad can produce biased perceptions of the value of a commodity. In their experiment, university students viewed either a relatively drab documentary or the emotionally charged scene from The Champ where a young boy pleads with his father not to die after sustaining injuries from a boxing match. Several studies have shown that not only do people feel sad when watching this scene, they actually start crying. A separate aspect of the study was a manipulation of self-focus. Participants’ focus was shifted inward so that they were overly absorbed with their personal experience. At the start of the experiment, all participants were given $10 for showing up. At the end of the experiment, participants were offered an insulated sports water bottle to purchase. Participants were asked to make a bid on the water bottle. Participants who were not focused on themselves and not sad said they would pay about 50 cents for the water bottle, but the participants who were sad and overly focused on their emotions and personal experience valued the water bottle at $2.50, which is about five times more than what people who were not sad and self-focused bid. These results highlight the impact of focusing on the experience of feeling sad rather than maintaining an objective state of mind. When one is sad and self-focused, one’s judgment is distorted.
When you feel sad, you are likely to remember past setbacks, and you are also likely to have a negative view of yourself and a pessimistic outlook. It’s much more useful to take any setback in stride. When life goes against you, don’t mull over it too much. Life is naturally going to beat you down, and you should expect it. Rather than wallow in self-pity, immediately search for a quick, effective solution. Setbacks are inevitable. Rather than stew, take decisive action and move forward. Don’t blame yourself. Accept responsibility and consider the message of the serenity prayer: Accept what you can change and change it, and don’t get bogged down by things you can’t change.
Professor Jennifer Lerner at Harvard University’s Kennedy School of Government studies how emotions impact judgments. She and her colleagues (Cryder, Lerner, Gross, & Dahl, 2008) showed how a combination of focusing on oneself and feeling sad can produce biased perceptions of the value of a commodity. In their experiment, university students viewed either a relatively drab documentary or the emotionally charged scene from The Champ where a young boy pleads with his father not to die after sustaining injuries from a boxing match. Several studies have shown that not only do people feel sad when watching this scene, they actually start crying. A separate aspect of the study was a manipulation of self-focus. Participants’ focus was shifted inward so that they were overly absorbed with their personal experience. At the start of the experiment, all participants were given $10 for showing up. At the end of the experiment, participants were offered an insulated sports water bottle to purchase. Participants were asked to make a bid on the water bottle. Participants who were not focused on themselves and not sad said they would pay about 50 cents for the water bottle, but the participants who were sad and overly focused on their emotions and personal experience valued the water bottle at $2.50, which is about five times more than what people who were not sad and self-focused bid. These results highlight the impact of focusing on the experience of feeling sad rather than maintaining an objective state of mind. When one is sad and self-focused, one’s judgment is distorted.
When you feel sad, you are likely to remember past setbacks, and you are also likely to have a negative view of yourself and a pessimistic outlook. It’s much more useful to take any setback in stride. When life goes against you, don’t mull over it too much. Life is naturally going to beat you down, and you should expect it. Rather than wallow in self-pity, immediately search for a quick, effective solution. Setbacks are inevitable. Rather than stew, take decisive action and move forward. Don’t blame yourself. Accept responsibility and consider the message of the serenity prayer: Accept what you can change and change it, and don’t get bogged down by things you can’t change.
Saturday, August 16, 2008
Your Way is the Only Way
“Man looks into the abyss. There’s nothing staring back at him. At that moment man finds his character, and that’s what keeps him out of the abyss.” What a great line from “Wall Street.” It’s worth repeating and elaborating, since it reflects a key idea in the struggle to achieve a peak performance mindset.
The literature on reaching peak performance has been influenced by Abraham Maslow’s studies of self-actualization. Originally studied by Carl Jung, self-actualization is a tendency for self-fulfillment and a desire to reach one’s potential. But people tend to get stuck psychologically. Rather than look inward, they look outward for definition. They care what others think. They try to please their parents, spouses, bosses, and friends. This often leads to a state of denial and stagnation. People try to seek out glory, money, status or fame. Self-actualizing people, in contrast, accept themselves, and go their own way. That’s why the quotation from “Wall Street” is so powerful. It reflects a basic human motive to look inward and find oneself.
Going your own way is difficult. Most people are not used to going their own way. Indeed, many institutions encourage people to conform and label people who go their own way as “rebels,” “selfish,” and even as “sinners.” From an existential point of view, however, there’s nothing wrong with going your own way or living your life according to your own values as long as you don’t hurt anyone else, so don't be afraid to go your own way. In the end, it's the only way you will find your winning mental edge.
The literature on reaching peak performance has been influenced by Abraham Maslow’s studies of self-actualization. Originally studied by Carl Jung, self-actualization is a tendency for self-fulfillment and a desire to reach one’s potential. But people tend to get stuck psychologically. Rather than look inward, they look outward for definition. They care what others think. They try to please their parents, spouses, bosses, and friends. This often leads to a state of denial and stagnation. People try to seek out glory, money, status or fame. Self-actualizing people, in contrast, accept themselves, and go their own way. That’s why the quotation from “Wall Street” is so powerful. It reflects a basic human motive to look inward and find oneself.
Going your own way is difficult. Most people are not used to going their own way. Indeed, many institutions encourage people to conform and label people who go their own way as “rebels,” “selfish,” and even as “sinners.” From an existential point of view, however, there’s nothing wrong with going your own way or living your life according to your own values as long as you don’t hurt anyone else, so don't be afraid to go your own way. In the end, it's the only way you will find your winning mental edge.
Thursday, August 14, 2008
When You Are Stuck, Start Small, and Build Momentum
If you are ambitious, you have a strong desire to succeed. But this usually means you put too much pressure on yourself, and one can often break under the strain. When the pressure is on, we can feel stuck. We may procrastinate or even feel a little depressed. Working with the proper mental edge demands that one set realistic goals and take specific action to achieve them
When we set goals that exceed our skills, we know deep down that we can't reach them. We believe we will fail even before we try, and so we just give up. When we are obsessed with reaching a high performance standard, we feel uneasy. When this happens, it's necessary to relax, and set more modest goals. Rather than stress yourself out, you can think of goals that you can easily reach and try to build momentum after some initial success. For example, you may set a small goal and see if you can achieve it. Dr. David Burns suggests trying to act mediocre. When we set a modest goal and work hard to achieve it, we experience initial success, which elevates our mood and allows us to get out of a rut. A modest goal is easy to achieve, and will lead to personal satisfaction upon completion. It will get your mind going and you will start to feel motivated.
Once you achieve a little success, you will start the ball rolling and start to act more freely and creatively. You'll find that you can transform a slump into a productive work session. So don't get discouraged. Set modest goals, and get to work. Getting out of a mental slump and into a peak performance mental state can sometimes be a matter of starting small and building momentum.
When we set goals that exceed our skills, we know deep down that we can't reach them. We believe we will fail even before we try, and so we just give up. When we are obsessed with reaching a high performance standard, we feel uneasy. When this happens, it's necessary to relax, and set more modest goals. Rather than stress yourself out, you can think of goals that you can easily reach and try to build momentum after some initial success. For example, you may set a small goal and see if you can achieve it. Dr. David Burns suggests trying to act mediocre. When we set a modest goal and work hard to achieve it, we experience initial success, which elevates our mood and allows us to get out of a rut. A modest goal is easy to achieve, and will lead to personal satisfaction upon completion. It will get your mind going and you will start to feel motivated.
Once you achieve a little success, you will start the ball rolling and start to act more freely and creatively. You'll find that you can transform a slump into a productive work session. So don't get discouraged. Set modest goals, and get to work. Getting out of a mental slump and into a peak performance mental state can sometimes be a matter of starting small and building momentum.
Wednesday, August 13, 2008
Free Anger Management Workbook
Some of my readers have discovered that in my professional life as a research psychologist I developed an anger management treatment at the University of California, San Francisco. My friend and colleague Dr. Patrick Reilly and I wrote a manual for clinicians and a workbook for clients. So far, over 1 million hard copies have been distributed by the United States Department of Health and Human Services. Even more electronic PDF copies have been downloaded. Some readers have asked for a copy of the workbook. You can have a free copy of the workbook by downloading it at the link http://www.kap.samhsa.gov/products/manuals/pdfs/anger2.pdf
I hope you find the workbook useful, but please keep in mind that it was meant to be used by clients receiving cognitive-behavioral anger management treatment, so if parts of it seem a little difficult to use, you may want to consider finding a cognitive-behavioral mental health professional in your area to help you out.
I hope you find the workbook useful, but please keep in mind that it was meant to be used by clients receiving cognitive-behavioral anger management treatment, so if parts of it seem a little difficult to use, you may want to consider finding a cognitive-behavioral mental health professional in your area to help you out.
Concentration
Focused concentration is a fundamental element of a proper mental edge. Dr. Ari Kiev (2002) observes, "concentration links discipline, desire, motivation, and satisfaction to achievement." In today’s busy world, however, concentration is often a lost art. Multi-tasking is the norm. We hold meetings over cell phones as we drive to work. We search the Internet while we watch the evening news. It’s hard not to believe that we must absorb as much data as possible until we are on the verge of information overload. But the human mind has limits. Although it is possible to engage in multiple well learned tasks simultaneously, when it comes to important tasks, it is better to devote your full attention to your immediate experience.
Do you find it difficult to concentrate? Perhaps it’s a reflection of your personality. While in school did you have trouble studying in a crowded library or on noisy bus? Are you easily frustrated? Are you constantly on edge and fighting to keep your mind on the task at hand? It's easy to concentrate when we are in a quiet room and when we are calm and at ease. But how well do you concentrate under stress? What if you are trying to meet deadlines? How well do you do then? It's easy to become shaken and lose your ability to concentrate. When you aren't fully focused on your ongoing experience, however, it's easy for self-doubts to creep into your consciousness. You may start having second thoughts and may want to sabotage your trading efforts.
Rather than allow yourself to get distracted, it's vital to focus on the moment. Focus on the process of trading in the here-and-now. Don’t mull over past mistakes or worry about what may go wrong in the future.
The more you can stay focused on your ongoing experience, the greater your mental edge. But how can you concentrate more easily? First, it's useful to remember that concentration takes psychological energy, and your supply of psychological energy has limits. If you want to maintain concentration, you must be rested and relaxed. Get proper sleep and nutrition. If you're tired or hungry, you won't be able to keep your mind focused on trading.
Second, it's important to control your stress levels. Stress depletes psychological energy. Even when you are excited rather than agitated by stress, your psychological energy is depleted a little bit each time you encounter an event that gets your adrenalin pumping. It’s vital to deal with the usual background stressors that deplete psychological energy. Family hassles, chores you have to complete, and similar stresses and strains that take up space in the back of your mind may deplete psychological resources without you knowing it. Get rid of as much stress as possible.
Concentration is critical to achieving the proper mental edge. But it’s difficult to concentrate when under stress. By taking precautions, however, you can stay calm and focused and sharpen your mental edge.
Do you find it difficult to concentrate? Perhaps it’s a reflection of your personality. While in school did you have trouble studying in a crowded library or on noisy bus? Are you easily frustrated? Are you constantly on edge and fighting to keep your mind on the task at hand? It's easy to concentrate when we are in a quiet room and when we are calm and at ease. But how well do you concentrate under stress? What if you are trying to meet deadlines? How well do you do then? It's easy to become shaken and lose your ability to concentrate. When you aren't fully focused on your ongoing experience, however, it's easy for self-doubts to creep into your consciousness. You may start having second thoughts and may want to sabotage your trading efforts.
Rather than allow yourself to get distracted, it's vital to focus on the moment. Focus on the process of trading in the here-and-now. Don’t mull over past mistakes or worry about what may go wrong in the future.
The more you can stay focused on your ongoing experience, the greater your mental edge. But how can you concentrate more easily? First, it's useful to remember that concentration takes psychological energy, and your supply of psychological energy has limits. If you want to maintain concentration, you must be rested and relaxed. Get proper sleep and nutrition. If you're tired or hungry, you won't be able to keep your mind focused on trading.
Second, it's important to control your stress levels. Stress depletes psychological energy. Even when you are excited rather than agitated by stress, your psychological energy is depleted a little bit each time you encounter an event that gets your adrenalin pumping. It’s vital to deal with the usual background stressors that deplete psychological energy. Family hassles, chores you have to complete, and similar stresses and strains that take up space in the back of your mind may deplete psychological resources without you knowing it. Get rid of as much stress as possible.
Concentration is critical to achieving the proper mental edge. But it’s difficult to concentrate when under stress. By taking precautions, however, you can stay calm and focused and sharpen your mental edge.
Don't Feel Down: Look for the Silver Lining
These days, it’s easy to feel down. The economy isn’t doing very well, and perhaps family and friends are experiencing hardship. It may seem trivial, but it’s useful to look for the silver lining. Here’s a study I read recently that shows the value of looking on the bright side.
When things aren't going right, it is useful to look on the bright side: Remember that things could be worse. When you get a $100 parking ticket unexpectedly, for example, you might as well think, "At least I didn't get a $200 ticket or get towed." It works to think positively. A study by Dr. Chris Davis, a professor of psychology at Carleton University, and his colleagues illustrates the usefulness of looking on the bright side. Participants were asked to imagine they had just experienced a major setback. Some of the participants were instructed to look on the bright side in that they were asked to consider the fact that matters could have been a lot worse. Other participants were asked to consider how the situation could have been much better. The mood of the participants was measured and compared. Research findings clearly favored looking on the bright side of things. People who focused on how matters could have turned out much worse felt happier after a major setback than people who focused on how events could have been more favorable. So if you want to be happy after you encounter a setback, look on the bright side.
How you look at a setback strongly influences how you recover from it. If you view a setback as a dreaded event, and imbue it with strong personal significance, you'll feel so emotionally overwhelmed that you will be tempted to engage in avoidance and denial. Rather than taking decisive action, you will waste precious psychological resources denying the reality of the situation. It's better to take setbacks in stride, find solutions, and move forward. Don't mull over what went wrong. Instead, figure out what you can do next to improve to solve problems. Many people spend all their time coping with emotions. They may deny the trouble they are in, for example. This is a passive approach that is rarely effective. Research demonstrates that it’s much better to take an active, problem solving approach. Whenever you feel beaten down, it’s more useful to distract yourself from thinking negatively and focus on what you can do to change the situation in which you find yourself. You may want to get more information, or develop a specific plan of action. But whatever you do, don’t get stuck. Don’t mull over the possibilities too much and start thinking, "Why did things turn out so wrong?" It's vital that you stay focused on taking active steps to solve problems. Think like a scientist. Pretend you are merely solving a mundane problem, like finding the solution to a basic math problem. Figure out what you can do next. Don't question your abilities. Self-doubt is a complete waste of time and energy. Look on the bright side for a moment, optimistically search for ways to pick yourself up off the ground, and take decisive action.
When things aren't going right, it is useful to look on the bright side: Remember that things could be worse. When you get a $100 parking ticket unexpectedly, for example, you might as well think, "At least I didn't get a $200 ticket or get towed." It works to think positively. A study by Dr. Chris Davis, a professor of psychology at Carleton University, and his colleagues illustrates the usefulness of looking on the bright side. Participants were asked to imagine they had just experienced a major setback. Some of the participants were instructed to look on the bright side in that they were asked to consider the fact that matters could have been a lot worse. Other participants were asked to consider how the situation could have been much better. The mood of the participants was measured and compared. Research findings clearly favored looking on the bright side of things. People who focused on how matters could have turned out much worse felt happier after a major setback than people who focused on how events could have been more favorable. So if you want to be happy after you encounter a setback, look on the bright side.
How you look at a setback strongly influences how you recover from it. If you view a setback as a dreaded event, and imbue it with strong personal significance, you'll feel so emotionally overwhelmed that you will be tempted to engage in avoidance and denial. Rather than taking decisive action, you will waste precious psychological resources denying the reality of the situation. It's better to take setbacks in stride, find solutions, and move forward. Don't mull over what went wrong. Instead, figure out what you can do next to improve to solve problems. Many people spend all their time coping with emotions. They may deny the trouble they are in, for example. This is a passive approach that is rarely effective. Research demonstrates that it’s much better to take an active, problem solving approach. Whenever you feel beaten down, it’s more useful to distract yourself from thinking negatively and focus on what you can do to change the situation in which you find yourself. You may want to get more information, or develop a specific plan of action. But whatever you do, don’t get stuck. Don’t mull over the possibilities too much and start thinking, "Why did things turn out so wrong?" It's vital that you stay focused on taking active steps to solve problems. Think like a scientist. Pretend you are merely solving a mundane problem, like finding the solution to a basic math problem. Figure out what you can do next. Don't question your abilities. Self-doubt is a complete waste of time and energy. Look on the bright side for a moment, optimistically search for ways to pick yourself up off the ground, and take decisive action.
Lessons From "Wall Street"
When I started this blog, I did not want to restrict my emphasis to trading, since the Mental Edge Newsletter and Blog at Marketwise.com focused on trading, but many readers have appreciated my column about the movie "Wall Street." Regardless of your profession, it's useful to make sure you are true to your own values as Bud Fox learned.
Lessons from Bud Fox
I recently re-watched "Wall Street." It’s a great movie, Michael Douglas as Gordon Geckko, Charlie Sheen as Bud Fox. The glamour, the wealth, and drama of the markets makes you want to watch this movie over and over again. In the movie, Geckko argued, "Greed is good." In the past, I’ve seen that saying in its negative sense. Sure, greed can motivate you to strive for perfection and keep you persisting in the face of adversity, but greed has its downside. It is often said that the markets are driven by fear and greed. Greed for money can be destructive, but Geckko actually did not merely restrict his argument to the unbridled pursuit of money. He argued that greed for whatever you truly desire is good, which may be a quest to make the world a better place or to find true love and raise a family. But clearly, it appears on the surface that Geckko is interested in the mere acquisition of money and power at all costs. He warns Darien Taylor that people like he and she aren’t the kind of people who take personal relationships seriously, and as we see in the movie, Geckko has no problem sacrificing his relationship with Bud Fox for a quick profit. Greed is not always good.
Greed may not always be good, but passion is. And in the end, Bud Fox learns this important lesson. Passion must be directed toward a goal that is consistent with one’s character. When Bud is about to be arrested for insider trading, Lou, a senior member of the brokerage where he works advises, “Man looks into the abyss, there’s nothing staring back at him. At that moment man finds his character. And that’s what keeps him out of the abyss.” We’ve all been there. I’ve seen traders lose their life savings and hold on to a pipedream of winning it all back with only enough capital to buy a few shares of the QQQQ. Trading is not for everyone, and certainly, risky trading with money you can’t afford to lose is not for everyone. In his Market Wizards interview, Dr. Van Tharp suggests that traders find a style that is right for them. Too many would-be traders are motivated by greed and trade in a style that is not right for them. Long term investing is right for some traders, and that’s fact.
Many would-be traders don’t want to accept their limitations. They can’t control their emotions yet believe they can magically learn how to do so. I’m not saying it can’t be done, but some people are never going to be comfortable with skydiving, and that’s what they are essentially trying to do when trading huge positions in volatile markets where it’s difficult to manage risk. If you have trouble controlling your impulses or emotions, you must face the facts: You are not going to be able to change a lifetime of emotional and behavioral patterns quickly and easily. Look at how hard it is to lose weight. Some people can do it easily, while others will experience health problems and still not be able to control their impulses. It’s vital to find out what you can do, but you must settle for a trading style that is consistent with your personality and life history.
My favorite scene in “Wall Street” is when Bud confronts Geckko in the park. Geckko is perplexed why Bud betrayed him, since Geckko gave him what most people want: wealth, love, and status. He asks, “You could’ve been one of the great ones Buddy. I looked at you and saw myself. Why?” Bud replies, “I don’t know. I guess I realized I’m just Bud Fox. As much as I wanted to be Gordon Geckko, I’ll always be Bud Fox.” The moral of the story is to look into the abyss and see your true nature. Discover what’s important to you and let that drive you. Passion is good, but you must know what drives you and accept it. And also, you must accept your limitations. Few will win the Nobel Prize, and I’m sure you don’t expect to, so why set unrealistic standards that you can’t achieve? Indeed, few actors even get to star in a movie like “Wall Street,” and as much as I enjoy Charlie Sheen on “Two and a Half Men,” he has never again achieved the movie stardom of his youth. And similarly, few traders become Market Wizards who can turn a small stake into a fortune. And few traders achieve enduring success that lasts from market to market.
An important prerequisite to trading with a proper mental edge is to know your limitations and work with what you have. That doesn’t mean that you can’t work up to trading at a higher level, but you have to have a realistic approach that builds on your strengths and works around your weaknesses. That’s all you can do. You can build up your trading skills through practice and experience and feel good knowing that you have mastered a skill that few have developed. Don't focus all your passion on money and the accumulation of it. Instead, focus on developing your skills and enjoying the process of trading. In the long run, you'll find that you will enjoy the game, and ironically, when you don't worry about making huge profits, you will actually trade more profitably in the long run.
Lessons from Bud Fox
I recently re-watched "Wall Street." It’s a great movie, Michael Douglas as Gordon Geckko, Charlie Sheen as Bud Fox. The glamour, the wealth, and drama of the markets makes you want to watch this movie over and over again. In the movie, Geckko argued, "Greed is good." In the past, I’ve seen that saying in its negative sense. Sure, greed can motivate you to strive for perfection and keep you persisting in the face of adversity, but greed has its downside. It is often said that the markets are driven by fear and greed. Greed for money can be destructive, but Geckko actually did not merely restrict his argument to the unbridled pursuit of money. He argued that greed for whatever you truly desire is good, which may be a quest to make the world a better place or to find true love and raise a family. But clearly, it appears on the surface that Geckko is interested in the mere acquisition of money and power at all costs. He warns Darien Taylor that people like he and she aren’t the kind of people who take personal relationships seriously, and as we see in the movie, Geckko has no problem sacrificing his relationship with Bud Fox for a quick profit. Greed is not always good.
Greed may not always be good, but passion is. And in the end, Bud Fox learns this important lesson. Passion must be directed toward a goal that is consistent with one’s character. When Bud is about to be arrested for insider trading, Lou, a senior member of the brokerage where he works advises, “Man looks into the abyss, there’s nothing staring back at him. At that moment man finds his character. And that’s what keeps him out of the abyss.” We’ve all been there. I’ve seen traders lose their life savings and hold on to a pipedream of winning it all back with only enough capital to buy a few shares of the QQQQ. Trading is not for everyone, and certainly, risky trading with money you can’t afford to lose is not for everyone. In his Market Wizards interview, Dr. Van Tharp suggests that traders find a style that is right for them. Too many would-be traders are motivated by greed and trade in a style that is not right for them. Long term investing is right for some traders, and that’s fact.
Many would-be traders don’t want to accept their limitations. They can’t control their emotions yet believe they can magically learn how to do so. I’m not saying it can’t be done, but some people are never going to be comfortable with skydiving, and that’s what they are essentially trying to do when trading huge positions in volatile markets where it’s difficult to manage risk. If you have trouble controlling your impulses or emotions, you must face the facts: You are not going to be able to change a lifetime of emotional and behavioral patterns quickly and easily. Look at how hard it is to lose weight. Some people can do it easily, while others will experience health problems and still not be able to control their impulses. It’s vital to find out what you can do, but you must settle for a trading style that is consistent with your personality and life history.
My favorite scene in “Wall Street” is when Bud confronts Geckko in the park. Geckko is perplexed why Bud betrayed him, since Geckko gave him what most people want: wealth, love, and status. He asks, “You could’ve been one of the great ones Buddy. I looked at you and saw myself. Why?” Bud replies, “I don’t know. I guess I realized I’m just Bud Fox. As much as I wanted to be Gordon Geckko, I’ll always be Bud Fox.” The moral of the story is to look into the abyss and see your true nature. Discover what’s important to you and let that drive you. Passion is good, but you must know what drives you and accept it. And also, you must accept your limitations. Few will win the Nobel Prize, and I’m sure you don’t expect to, so why set unrealistic standards that you can’t achieve? Indeed, few actors even get to star in a movie like “Wall Street,” and as much as I enjoy Charlie Sheen on “Two and a Half Men,” he has never again achieved the movie stardom of his youth. And similarly, few traders become Market Wizards who can turn a small stake into a fortune. And few traders achieve enduring success that lasts from market to market.
An important prerequisite to trading with a proper mental edge is to know your limitations and work with what you have. That doesn’t mean that you can’t work up to trading at a higher level, but you have to have a realistic approach that builds on your strengths and works around your weaknesses. That’s all you can do. You can build up your trading skills through practice and experience and feel good knowing that you have mastered a skill that few have developed. Don't focus all your passion on money and the accumulation of it. Instead, focus on developing your skills and enjoying the process of trading. In the long run, you'll find that you will enjoy the game, and ironically, when you don't worry about making huge profits, you will actually trade more profitably in the long run.
Popular Post: Impossible Dream
In reviewing the number of people who reviewe the Mental Edge Newsletter, I discovered that a a large number of people read my column on setting realistic goals. I wonder why it was so popular. If you have an ideas, please let me know.
Here's the column.
The Impossible Dream
The lyrics to “The Impossible Dream” are moving: “To dream the impossible dream. To fight the unbeatable foe. To bear with unbearable sorrow. To run where the brave dare not go. To right the unrightable wrong. To love pure and chaste from afar. To try when your arms are too weary. To reach the unreachable star. This is my quest. To follow that star. No matter how hopeless. No matter how far.” This is quite a romantic way of pursuing a noble goal, but in reality, few of us have the time and money to pursue an impossible dream, but that’s what many people try to do. They set up impossible goals for themselves and never achieve them. Setting more realistic goals is more productive.
Living a life to pursue a noble mission has its time and place. We certainly need selfless heroes in the world, especially these days. But some people don’t realize how they have set themselves up for failure. They try to do the impossible. It’s like believing that one can work a full time job and achieve a 4.0 at a competitive Ivy League university. Unless one is a genius, it can’t be done. People set unrealistic goals all the time and pay the price for it. They often feel stressed out, stuck and spin their wheels.
If you set unrealistic goals you will always feel on edge, and ready to crack under the strain to perform. Realistic goals, in contrast, will help you stay calm and focused. In setting goals, it’s important to have realistic expectations. Trying to do the impossible is unrealistic; modest goals are more realistic, and thus, more satisfying. Yet many people have wild dreams and unwisely reject modest, achievable goals for ones they can't possibly achieve. Since their expectations are often unrealistic, they fail quickly, feel disappointed, and just give up. Setting more realistic expectations eases some of the pressure and helps you build up sound trading skills.
Many people underestimate how long it takes to achieve lasting success. They fail to find out what it takes to achieve their goals and think success is easier to achieve than is possible. Unrealistic goals are hard to achieve. They require a heroic effort, yet many novice traders think only minimal effort is needed. They over-estimate their ability level. They overconfidently think that they have skills and abilities that they do not yet have. Don't ever underestimate the tendency to be overconfident. Conquer the tendency to trade beyond your skills by cultivating a sense of healthy skepticism regarding your trading skills and your trading strategies. Be realistic about what you can actually achieve.
In the end, it’s important not to get your hopes up too high. Motivating yourself by fantasizing of grandiose potential rewards will likely fail in the end. The only way you’ll achieve lasting success is by setting realistic goals. You must accept the fact that trading is just plain hard work that requires time and money, lots of money if you want to trade for a living. You’ll have to put in a heroic effort to achieve success. With enough persistence, hard work, and determination, however, you will build up the skills you need to become a successful trader, but you need realistic plans, not pipedreams.
Here's the column.
The Impossible Dream
The lyrics to “The Impossible Dream” are moving: “To dream the impossible dream. To fight the unbeatable foe. To bear with unbearable sorrow. To run where the brave dare not go. To right the unrightable wrong. To love pure and chaste from afar. To try when your arms are too weary. To reach the unreachable star. This is my quest. To follow that star. No matter how hopeless. No matter how far.” This is quite a romantic way of pursuing a noble goal, but in reality, few of us have the time and money to pursue an impossible dream, but that’s what many people try to do. They set up impossible goals for themselves and never achieve them. Setting more realistic goals is more productive.
Living a life to pursue a noble mission has its time and place. We certainly need selfless heroes in the world, especially these days. But some people don’t realize how they have set themselves up for failure. They try to do the impossible. It’s like believing that one can work a full time job and achieve a 4.0 at a competitive Ivy League university. Unless one is a genius, it can’t be done. People set unrealistic goals all the time and pay the price for it. They often feel stressed out, stuck and spin their wheels.
If you set unrealistic goals you will always feel on edge, and ready to crack under the strain to perform. Realistic goals, in contrast, will help you stay calm and focused. In setting goals, it’s important to have realistic expectations. Trying to do the impossible is unrealistic; modest goals are more realistic, and thus, more satisfying. Yet many people have wild dreams and unwisely reject modest, achievable goals for ones they can't possibly achieve. Since their expectations are often unrealistic, they fail quickly, feel disappointed, and just give up. Setting more realistic expectations eases some of the pressure and helps you build up sound trading skills.
Many people underestimate how long it takes to achieve lasting success. They fail to find out what it takes to achieve their goals and think success is easier to achieve than is possible. Unrealistic goals are hard to achieve. They require a heroic effort, yet many novice traders think only minimal effort is needed. They over-estimate their ability level. They overconfidently think that they have skills and abilities that they do not yet have. Don't ever underestimate the tendency to be overconfident. Conquer the tendency to trade beyond your skills by cultivating a sense of healthy skepticism regarding your trading skills and your trading strategies. Be realistic about what you can actually achieve.
In the end, it’s important not to get your hopes up too high. Motivating yourself by fantasizing of grandiose potential rewards will likely fail in the end. The only way you’ll achieve lasting success is by setting realistic goals. You must accept the fact that trading is just plain hard work that requires time and money, lots of money if you want to trade for a living. You’ll have to put in a heroic effort to achieve success. With enough persistence, hard work, and determination, however, you will build up the skills you need to become a successful trader, but you need realistic plans, not pipedreams.
Friday, July 18, 2008
A Sharp Mental Edge
Why do you need to sharpen your mental edge? A sharp, mental edge means you are aware and alert, ready to take advantage of opportunities that come your way. Depending on your personality and background, cultivating the proper mental edge may be difficult, but not impossible. It is just a matter of working hard to achieve your goals.
In his book, "A Strategy for Daily Living," Dr. Ari Kiev observes, "A successful life does not result from chance, fate, or good fortune, but from a succession of successful days lived in pursuit of a worthy pursuit." Dr. Kiev points out that you can work toward your goal every day, day after day, and in the end, you will achieve your goals. Perhaps you will make more progress on some days than others, but what is most important is that you never give up and spend every day working toward your goal. That's what it takes to develop the proper mental edge for trading. Developing the proper mental edge is a process that takes time. It's a result of gaining the wealth of experience you need to succeed.
Many people make the mistake of thinking they need to be an overnight success. It’s part of the American dream. The media reinforces the myth, which is sometimes true but the exception rather than the rule. Most people are not lucky enough to achieve success over night. It takes time. When you work under the assumption that you can be at the right place at the right time and succeed without talent, hard work, and a wealth of experience, you will feel disappointment when you face setbacks. It is more useful to acknowledge that success takes time for most people.
It’s also vital to admit that you are human and that as a human, you have mental limits. You cannot do it all. You have to work with what you have. You also have a limited amount of psychological energy to achieve your goals. One of the best ways to maximize your psychological energy is free up mental energy that is used up by other psychological processes. For example, handling stress, and mulling over interpersonal conflicts uses up precious psychological energy. By spending leisure time resolving interpersonal conflicts or effectively coping with daily hassles, you will have more psychological energy to devote to achieving your goals.
You can only work with what you have, but if you take the proper steps, you can free up poorly allocated psychological resources, and allow more resources to be dedicated to achieving your goals. By taking concerted measures to free up energy, you can expand the limits of your mind, and sharpen your mental edge.
In his book, "A Strategy for Daily Living," Dr. Ari Kiev observes, "A successful life does not result from chance, fate, or good fortune, but from a succession of successful days lived in pursuit of a worthy pursuit." Dr. Kiev points out that you can work toward your goal every day, day after day, and in the end, you will achieve your goals. Perhaps you will make more progress on some days than others, but what is most important is that you never give up and spend every day working toward your goal. That's what it takes to develop the proper mental edge for trading. Developing the proper mental edge is a process that takes time. It's a result of gaining the wealth of experience you need to succeed.
Many people make the mistake of thinking they need to be an overnight success. It’s part of the American dream. The media reinforces the myth, which is sometimes true but the exception rather than the rule. Most people are not lucky enough to achieve success over night. It takes time. When you work under the assumption that you can be at the right place at the right time and succeed without talent, hard work, and a wealth of experience, you will feel disappointment when you face setbacks. It is more useful to acknowledge that success takes time for most people.
It’s also vital to admit that you are human and that as a human, you have mental limits. You cannot do it all. You have to work with what you have. You also have a limited amount of psychological energy to achieve your goals. One of the best ways to maximize your psychological energy is free up mental energy that is used up by other psychological processes. For example, handling stress, and mulling over interpersonal conflicts uses up precious psychological energy. By spending leisure time resolving interpersonal conflicts or effectively coping with daily hassles, you will have more psychological energy to devote to achieving your goals.
You can only work with what you have, but if you take the proper steps, you can free up poorly allocated psychological resources, and allow more resources to be dedicated to achieving your goals. By taking concerted measures to free up energy, you can expand the limits of your mind, and sharpen your mental edge.
Don't Choke, Stay Calm and Focused
Whether it is trading or playing sports, conventional wisdom suggests that people who put too much pressure on themselves tend to choke under the strain. For example, compare the Olympic performance of Sarah Hughes to Michelle Kwan in the 2002 Winter Olympics. Michelle tried to meet high expectations of winning the Gold Medal and made several mistakes in her performance. Sarah, on the other hand, went into her performance with fewer expectations and a carefree attitude. She said, "I really thought there was no way in the world I would win. Realistically, there was this little window, but I didn't think I would win. I went out and just skated." By taking this carefree attitude, rather than putting pressure on herself, she skated freely and without worry. This stance allowed her to react to the moment, express her creativity, and win the Gold Medal.
Many times you can lose their mental edge merely by believing that it is too difficult to profit under volatile market conditions. Part of this belief is based in fact, but it may also reflect a pessimistic state of mind.
Researchers Liqing Zhang and Roy Baumeister (2006) showed how what people think about their ability to handle stress impacts their financial decisions. Participants played a game of chance that was similar to continuing to invest in a losing trade: they were told they could win a jackpot of $10 if they patiently played long enough by feeding the investment in 25-cent increments. Each participant was given $5 in quarters to play the investment game. They had the choice of continuing to put in quarter after quarter to keep an investment going or cutting their losses. In one group, participants were told that most people choke under pressure when playing the game and that if they were prone to crack under strain, they would have difficulty. In a second, “control” group, participants were allowed to play the game without this feedback. Participants who were threatened by being told they would choke under pressure lost more money than people who were not threatened. These findings suggest that if you believe you will crack under the strain, then you will. But such beliefs can be limiting. It’s more useful to make a solid effort and believe it will pay off.
When trying to perform at your peak, it’s vital to have a solid, realistic belief in your abilities. If you can feel assured that you will not choke when under pressure, you can cultivate the proper mental edge you need to win.
Many times you can lose their mental edge merely by believing that it is too difficult to profit under volatile market conditions. Part of this belief is based in fact, but it may also reflect a pessimistic state of mind.
Researchers Liqing Zhang and Roy Baumeister (2006) showed how what people think about their ability to handle stress impacts their financial decisions. Participants played a game of chance that was similar to continuing to invest in a losing trade: they were told they could win a jackpot of $10 if they patiently played long enough by feeding the investment in 25-cent increments. Each participant was given $5 in quarters to play the investment game. They had the choice of continuing to put in quarter after quarter to keep an investment going or cutting their losses. In one group, participants were told that most people choke under pressure when playing the game and that if they were prone to crack under strain, they would have difficulty. In a second, “control” group, participants were allowed to play the game without this feedback. Participants who were threatened by being told they would choke under pressure lost more money than people who were not threatened. These findings suggest that if you believe you will crack under the strain, then you will. But such beliefs can be limiting. It’s more useful to make a solid effort and believe it will pay off.
When trying to perform at your peak, it’s vital to have a solid, realistic belief in your abilities. If you can feel assured that you will not choke when under pressure, you can cultivate the proper mental edge you need to win.
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