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Do successful traders have different mental models

While much of the focus on trading is around chart patterns, scanners, analytical techniques, indicators, quantitative techniques etc., most of it is commodity. Everyone has access to same tools, techniques, books, research or analysis. So why is it that some traders are very successful and some are not. You can largely divide the traders in to those with consistently good returns, those with mediocre returns and those who are unsuccessful. Most of the time you will find mediocre traders continue to have mediocre returns for long time and their best years never exceed beyond a certain thresh hold.

Much of the same things you will notice in life in general. Vast majority remains stuck in sea of mediocrity. It has nothing to do with innate talent or efforts. Much of it has to do with mental models.

Mental models are deeply held mental images, beliefs, and assumptions. The mental models play a very important role in dealing with world around us. We interpret the world according to our mental models. Two people with different mental models react and interpret same data and same situations differently. Mental models include what a person thinks is true but not necessarily what is actually true.

Successful people in most walks of life have different mental models than mediocre people. That is why successful people can see and act on opportunities which others do not see.

One thing which you can do to be successful in trading or in life in general is to change your mental models. But in reality it is one of the most difficult things to do. Movies often have very dramatic scenes of mental model change leading to transformation in leading character. But in real life changing mental models requires a sustained and structured process and many times requires facilitation by an outside entity. There is a vast array of books and techniques dealing with this field. I have spent years studying this fascinating field of mental modeling.

Once you have the right mental models you see the markets and the trading opportunities differently.

10 KEYS TO SUCCESS

1.  How you think is everything – always be positive.  Think success, not failure.  Beware of a negative environment.

2.  Decide upon your true dreams and goals.  Write down your specific goals and develop a plan to reach them.

3.  Take action.  Goals are nothing without action.  Don’t be afraid to get started.  Just do it.

4. Never stop learning.  Go back to school or read books.  Get training and acquire skills.

5.  Be persistent and work hard.  Success is a marathon, not a sprint.  Never give up.

6. Learn to analyze details.  Get all the facts, all the input.  Learn from your mistakes.

7. Focus your time and money.  Don’t let other people or things distract you.

8.  Don’t be afraid to innovate.  Be different.  Following the herd is a sure way to mediocrity.

9.  Deal and communicate with people effectively.  No person is an islan.  Learn to understand and motivate others.

10.  Be honest and dependable.  Take responsibility.  Otherwise, nos. 1-9 won’t matter.

10 KEYS TO SUCCESS

1.  How you think is everything – always be positive.  Think success, not failure.  Beware of a negative environment.

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2.  Decide upon your true dreams and goals.  Write down your specific goals and develop a plan to reach them.

3.  Take action.  Goals are nothing without action.  Don’t be afraid to get started.  Just do it.

4. Never stop learning.  Go back to school or read books.  Get training and acquire skills.

5.  Be persistent and work hard.  Success is a marathon, not a sprint.  Never give up.

6. Learn to analyze details.  Get all the facts, all the input.  Learn from your mistakes.

7. Focus your time and money.  Don’t let other people or things distract you.

8.  Don’t be afraid to innovate.  Be different.  Following the herd is a sure way to mediocrity.

9.  Deal and communicate with people effectively.  No person is an islan.  Learn to understand and motivate others.

10.  Be honest and dependable.  Take responsibility.  Otherwise, nos. 1-9 won’t matter.

STOCK TRADING IS ABOUT ATTITUDE

“If you want to be good at something, practice.  Practice deliberately, and do so for many years.”  Mike Bellafiore, One Good Trade

If the activities that lead to greatness were easy and fun, then everyone would do them and they would not distinguish the best from the rest.”  Geoff Colvin, Talent Is Overrated

“He that is good for making excuses is seldom good for anything else.” Benjamin Franklin

“Commitment, perseverance, and discipline are the characteristics that move people beyond desire to action, that differentiate mediocrity from greatness, and that separate greatness from superstardom.”  Doug Hirschhorn, 8 Ways to Great.

“I always felt that my greatest asset was not my physical ability, it was my mental ability.”  Bruce Jenner

“Those who are motivated by the love of the game attain a deeper sense of satisfaction from their work than those who are driven solely by the pursuit of wealth.” Brian Shannon, Technical Analysis Using Multiple Time Frames

“A free lunch is only found in mousetraps. “ John Capuzzi (more…)

The Difference: Mediocrity vs. Greatness

In Trading, the STATISTICS show that smarts, experience, etc. are not the differentiating factor.
The BEST (most successful guys I know and work with) have winning %’s of less than 50%.. actually, the average is between 45-55% but the point is, basically, winning percentages don’t matter – so they might as well be a random event.

 So, what does make a difference?

 

  • CONVICTION in ideas
  • INTERNAL CONFIDENCE
  • TRUSTING YOURSELF
  • GETTING BIG IN TRADES you believe in
  • LETTING WINNERS RUN
  • CUTTING LOSERS QUICKLY
  • SWITCHING DIRECTIONS QUICKLY

 

 These are many of the factors that allow some people to become monster traders over time. It’s not my opinion, just my observations. 

GEMS from :The Daily Trading Coach

The Daily Trading Coach covers just about any psychology or behavioral issue  the trader may face.  I cannot help but recommend it.  There are 101 lessons here divided into 10 chapters.  Let’s dig into each chapter and uncover a gem within.

Today again completed reading this Book…Yes 5th time !!

1. The Process and the Practice:  “Confidence doesna’t come from being right all the time: it comes from surviving the many occasions of being wrong” (27). 

2. Stress and Distress:  “Thinking positively or negatively about performance outcomes interfere with the process of performing.  When you focus on the doing, the outcomes take care of themselves” (56). 

3.  Psychological Well-Being:  “We can recognize the happy trader because he is immersed in the process of trading and finds fulfillment from the process even when markets are not open” (72).

4.  Steps Toward Self-Improvement:  “Your trading strengths can be found in the patterns that repeat across successful trades” (105).

5.  Breaking Old Patterns:  “Many trading problems are the result of acting out personal dramas in markets” (133)

6.  Remapping the Mind: “When we change the lenses through which we view events, we change our responses to those events” (168)

7.  Learn New Action Patterns: “Find experienced traders who will not be shy in telling you when you are making mistakes.  In their lessons, you will learn to teach yourself” (203)

8.  Coaching Your Trading Business:  “Long before you seek to trade for a living, you should work at trading competence: just breaking even after costs” (230)

9.  Lessons From Trading Professionals:  “If you don’t trust yourself or your methods, you will not find the emotional resilience to weather periods of loss” (267)

10.  Looking For the Edge: “The simplest [trading] patterns will tend to be the most robust” (311).

And a final admonition:  “Know what you do best. Build on strengths. Never stop working on yourself. Never stop improving. Every so often, upset the apple cart and pursue wholly new challenges.  The enemy of greatness is not evil; it’s mediocrity.  Don’t settle for mediocre” (341).