Sunday, February 23, 2014

Three D's, three C's and three P's

This morning I came across my old copy of Bob Rotella's Golf is Not a Game of Perfect. For those of you who don't know, Rotella has worked with many of the world's top golfers since the 1980's. It is a great book on psychology and golf, and helped me enormously when I was trying to improve my performance on the links. The great thing is, there are so many principles in there which can easily be applied to trading.

At the back of the book there is a list of 'Rotella's Rules' which summarise the points made in the book. Some of these rules I have listed below. For the purposes of this post, I have slightly changed the wording of these rules (such as substituting the word 'golfers' for 'traders') where required:
  • A trader must train herself in technique, and then learn to trust what she's trained;
  • The correlation between thinking well and making successful trades is not 100%. But the correlation between thinking badly and and unsuccessful trades is much higher;
  • Confidence is crucial to good trading. Confidence is simply the aggregate of the thoughts you have about yourself;
  • Trading is a game played by human beings. Therefore, it is a game of mistakes. Successful traders know how to respond to mistakes;
  • Traders must learn to love the challenges when they incur a loss. The alternatives - anger, fear, whining, and blaming - do no good;
  • Traders with great attitudes constantly monitor their thinking and catch themselves as soon as it begins to falter;
  • If a person chooses to trade, he must choose to believe that he can win. Winners and losers in life are completely self-determined, but only the winners are willing to admit it;
  • Patience is a cardinal virtue in trading. To improve, a trader must learn how to wait for patience and good thinking to bear fruit;
  • Traders who realise their potential generally cultivate the three D's - desire, determination, and discipline; the three P's - persistance, patience and practice; and the three C's - confidence, concentration and composure.
Most people starting out in trading feel that concentrating on a basic method of entry and exits is the be all and end all - this leads them off on the path of finding a holy grail that does not exist. Then, if they haven't blown their account, they may think about risk management. Often though, not having the correct mindset or psychological skills may be the barrier to achieving success, and this is the element that is neglected or overlooked.

Having the correct mindset is crucial in being able to achieve the performance you desire. Controlling your mind allows you to use good risk control, for example, and avoid self sabotage. It is something that you need to monitor regularly. Changes in your mindset (however small) can trigger a significant change in your ultimate performance - for better or worse. Using a list like Rotella's Rules may help you in improving your results.

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