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.
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