CHAPTER 1
Change
The Process and the Practice
The mind has exactly the same power as the hands; not merely to grasp the world, but to change it.
âColin Wilson
You are reading this book because you want to coach yourself to greater success in the financial markets. But what is coaching? At the root of all coaching efforts is change. When you are your own trading coach, you are trying to effect changes in your thoughts, your feelings, and your behavior. Most of all, you are trying to change how you trade: how you identify and act upon patterns of risk and reward, supply and demand.
There is a rich literature regarding change, grounded in extensive psychological research and practice. If you understand how change occurs, you are better positioned to act as your own change agent. In this chapter, we will explore the research and practice of change and how you can best make use of its sometimes-surprising conclusions. Coaching is about making change happen, not just letting it happen. Itâs about making the commitment to being a change agent in your own life, your own trading.
First, however, letâs learn about the process and practice of change.
LESSON 1: DRAW ON EMOTION TO BECOME A CHANGE AGENT
For some of us, the status quo is not enough. We experience glimpses into the person weâre capable of being; we yearn to be more than we are in lifeâs mundane moments.
That yearning starts with the notion of change. We desire changes in our lives. We adaptâwe growâby making the right kinds of changes. All too often, however, we feel stuck. Weâre doing the same things, making the same mistakes again and again. Do we wait for life to change us, or do we become agents of our own life changes?
The easy part is initiating a change process. The real challenge is sustaining change. How many times does an alcoholic take the initial steps toward sobriety, only to relapse? How often do we start diets and exercise programs, only to return to our slothful ways? If we focus on starting a change process, we leave ourselves unprepared for the next crucial steps: keeping the flame of change burning bright.
The flaw with most popular writings and practices in psychology and coaching is that they are designed to initiate change. These writings and practices leave people feeling goodâuntil it becomes apparent that different efforts are needed to sustain change. Successful coaching doesnât just catalyze change: it turns change efforts into habit patterns that become second nature. The key to successful coaching is turning change into routine; making new behaviors become second nature.
Thatâs where emotion comes in.
For years I had attemptedâunsuccessfullyâto sustain a weight loss program. Then, in the year 2000, I was diagnosed with Type II diabetes. My diet had to change; I needed to lose weight. If I didnât, I realized with crystal clarity, I could lose my health and let my wife and children down. Literally that same day I began a dietary regimen that continues to this day. My weight dropped 40 pounds (I shed the pounds so quickly that friends were concerned that I had a wasting illness) and I regained control of my blood sugar.
What was the catalyst for the change? Years of telling myself to eat differently, exercise more, and lose weight produced absolutely no results. A single emotional experience of the necessity for change, however, made all the difference. I didnât just think I needed to change: I knew it with every fiber of my being. I felt it.
So it is with traders.
Perhaps youâve told yourself that you need to follow your rules, that you need to trade smaller, or that you should avoid trading during certain market conditions or times of day. Still you make the same mistakes, lose money, and build frustration. Like my initial efforts at weight loss, your attempts at change fail because they lack emotional force.
Research into the process of successful versus unsuccessful therapy finds that emotional experienceânot talkâpowers change. No one ever felt valuable and lovable by standing in front of a mirror and reciting self-enhancing statements. The experience of a meaningful romantic relationship, however, yields the deepest of affirmations. Yes, you can tell yourself youâre competent, but experiencing success in the face of challenge provides a lasting sense of efficacy. Pleasure, pain: nature hardwires us to internalize emotional experience so that we can pursue what enhances life and avoid what harms us. That ability to internalize our most powerful emotional experiences helps us to sustain the changes we initiate.
The enemy of change is relapse: falling back into old, unproductive ways of thinking and behaving. Without the momentum of emotion, relapse is the norm.
Are you going to work on yourself as a trader today? Are you going to use today as an opportunity to learn and develop yourself, regardless of the dayâs profitability? If so, youâll need a goal for the day. What are you going to work on: Building a strength? Correcting a weakness? Repeating something you did well yesterday? Avoiding one of yesterdayâs mistakes?
An important first step is to set the goal. We cannot succeed as change agents if we donât perceive a clear path from the person we are to the person we wish to become. A valuable second step is to write down the goal or talk out loud into a recorder. This step helps cement desired changes in your mind. But will the pursuit of your goal truly possess emotional force? Will it transform you from one who thinks about change to one who truly becomes a change agent?
The secret to goal setting is providing your goals with emotional force. If your goal is a want, youâll pursue it until the feeling of desire subsides. If your goal is a must-haveâa burning need, like my dietary changeâit becomes an organizing principle, a life focus. You wonât become a better trader because you want to be. You will only coach yourself to success when self-improvement becomes your organizing principle: a must-have need.
Try this exercise. Before you start trading, seat yourself comfortably and enter into a nice slow rhythm of deep breathing. Imagine yourselfâas vividly as you canâstarting your trading day. Watch the market move on the screen; watch yourself tracking the market, your dayâs trading ideas at your side. Then turn your goal for the day into part of your visualization: imagine yourself performing the actions that concretely put that goal into practice. If your goal is to control your position sizing, vividly imagine yourself entering orders at the proper size; if your goal is to enter long positions only after a pullback, imagine yourself patiently waiting for the pullback and then executing the trade. As you visualize yourself realizing your goal, recall the feeling of pride that comes from realizing one of your objectives. Bask in the glow of living up to one of your ideals. Let yourself feel proud of what youâve accomplished.
Itâs important not just to have goals, but also to directly experience yourself as capable of reaching those goals. Psychologists call that self-efficacy. You are most likely to experience yourself as a success if you see yourself as successful and feel the joys of success. You donât need to imagine yourself making oodles of money; thatâs not realistic as a daily goal. But you can immerse yourself in images of reaching the goals of good trading and experience the feelings of self-control, mastery, and pride that come from enacting the best within you.
We are most likely to make and sustain changes when we perceive ourselves as efficacious: capable of making those changes.
Many traders only get to the point of self-coaching after they have experienced harrowing losses. The reason is similar to my experience with my diagnosis: it was the vivid fear of consequencesâthe intense feeling of not wanting to ruin my lifeâthat drove my dietary change. Similarly, after traders lost a good deal of their capital, they never want to experience that again. They trade well, not because they talk themselves into discipline, but because they feel the emotional force of disciplineâs absence.
Contrary to the teachings of proponents of positive thinking, fear has its uses. Many an alcoholic maintains sobriety because of the fear of returning to the pain of drinkingâs consequences. Emotion sustains the change.
With guided imagery that you feel as well as see, you can create powerful emotional experiencesâand catalyze changeâevery single day. Thatâs when you become a change agent: one who sustains a process of transformation. The key is adding emotional force to your goals. Your assignment is to take those lifeless goals off the piece of paper in your journal and turn them into vivid, powerful movies that fill your mind. Try it with one goal, one movie in your head, before you start trading. It is not enough to set goals; you must feel them to live them.
COACHING CUE
To each of your goals, add an or else scenario. Vividly imagine the consequences of not sustaining your change. Relive in detail specific failure experiences that resulted from the faulty behavior you want to change. When you add an or else condition to your goal setting, you turn fear into motivation. The brain is wired to respond first and foremost to danger; you will not gravitate toward the wrong behaviors if youâre emotionally connected to their danger. To this day, my diet is firmly in place. Fear has become my friend.
LESSON 2: PSYCHOLOGICAL VISIBILITY AND YOUR RELATIONSHIP WITH YOUR TRADING COACH
If you are to be your own trading coach and guide your trading development, we have to make you the best coach you can possibly be. That means understanding what makes coaching workâand what will make it work for you.
Research informs us that the most important ingredient in psychological change is the quality of the relationship between the helper and the person receiving help. Techniques are important, but ultimately those techniques are channeled through a human relationship. Studies find that in successful counseling, helpers are experienced as warm, caring, and supportive. When helpers are seen as hostile or disinterested, change processes go nowhere. Thereâs a good reason for this: relationships possess magic.
The magic of relationships is that they provide us with our most immediate experiences of visibility. I recently took a phone call from a reader of the TraderFeed blog. Many readers have provided valuable feedback about the blog, but this caller went far beyond that. He read every single post and then explained to me why he was drawn to the site. He put into words the very values that have led me to publish some 1,800 posts in the space of less than three years: the vision that, in cultivating our trading, we develop ourselves in ways that ripple throughout our lives.
At the end of that conversation, I felt understood: I was visible to another human being. When my mother died, I kept my composure until I approached her gravesite; then I lost it. My two children instinctively reached out to comfort me. Itâs something I would have done for another person in that situation. At that moment, I saw a bit of myself in my children. Once again, I was visible.
An unfulfilling relationship is one in which we feel invisible. We can feel invisible because weâre misunderstood or mistreated. We feel invisible when the things that matter most to us find no recognition among others. I recall one particularly unfulfilling relationship with a woman. We were on the dance floor at a club and I suddenly stopped dancing altogether. She didnât notice at all. She was in her own world. It was a perfect metaphor for everything I was experiencing at the time: I was there as a kind of prop, a rationale for being on the dance floor. No one was really dancing with me. The profound, wrenching emptiness that I felt at that time was a turning point; never again would I settle for invisibility.
In Iggy Popâs classic song, invisibility is a kind of âIsolation.â But if thereâs anything worse than being isolatedâcrying for loveâwhen youâre with someone, itâs being isolated from yourself. We are truly lost when weâre invisible to ourselves.
Many traders donât really know what they do best; theyâre invisible to themselves.
All of us have values, dreams, and ideals. How often, however, are these explicitly on our minds? To live mired in routine, day in and day out, estranged from the things that matter most to us: thatâs a form of invisibility . To compromise the things you love in the name of practicality, to settle for second best out of fear or convenience: those, too, leave us in isolationâfrom ourselves. Strange as it may seem, we spend much of our time invisible to ourselves. The day-to-day part of us dances away, oblivious to the other self, the one that thrives on purpose and meaning.
Itâs a real dilemma: How can we possibly coach ourselves to success if the very strengths that would bring us success are invisible to us? After all, the single best predictor of change is the quality of the helping relationship. What, then, is our relationship to ourselves? If we are to be our own trading coaches, the success of our efforts rests on our ability to sustain visibility and draw on the magic of a fulfilling relationship with ourselves.
To coach ourselves successfully, we must be visible to ourselves and sustain the vision of who we are and what we value. But how can we do that? Thereâs a simple strategy that can build a positive, visible relationship with your inner trading coach: identify a single trading strength to express as a goal for the coming dayâs trading.
One way I do that when I coach others (and when I work on my own trading) is to ask traders to identify what they did best in yesterdayâs trading that they want to continue today. Set a positive goal, based on strengths, to keep you in touch with the best within you. It affirms your competencies and keeps these visible, even during challenging market times. Too many of our goals are negative: we declare that we wonât do X or that weâll do less of Y. Instead, frame a goal for today that says: âHere is what Iâm good at, hereâs what I did best yesterday, and hereâs how Iâm going to make use of that strength today.â
Trading goals should reflect trading strengths.
In the relationship between you the trader and you the coach, the quality of the relationship will play an important role in your development. The best relationship is achieved when goals are linked to values and express distinctive strengths. Relentlessly identify, repeat, and expand what you do bestâeven (and especially) after the worst of trading days. Only through repetition can we turn positive behaviors into habit patterns. When you are in the habit of identifying and building strengths, you will then be truly visible to you. The magic of that relationshipâand the confidence it bringsâwill sustain you through the most challenging times.
COACHING CUE
Review the last weekâs entries in your trading journal. Count the number of positive, encouraging phrases in your writings and the number of negative, critical ones. If the ratio of positive to negative messages is less than one, you know you arenât sustaining a healthy relationship with your inner coach. And if youâre not keeping a journal, your coach is silent. What sort of relationship is that?
LESSON 3: MAKE FRIENDS WITH YOUR WEAKNESS
The notion of change is a challenge and a trap. It challenges us to aspire to more than who we are, but it can also trap us in self-division. When we entertain the notion of change, we divide ourselves into qualities we like and those we donât. We parcel ourselves into strengths and weaknesses, good and bad, acceptable and unacceptable.
Once we make such a division, it is only natural to embrace the good and avoid the bad. We dismiss our shortcomings as mistakes, bad luck, or exception...