The key to better performance.

Friday summed this market up. After the weak ADP, we get a weak NFP. The Dollar (particularly USDCAD) trashes as yields fall and stocks initially dip then ramp on the back of a subsequent conciliatory US trade war statement going into this weekend’s G20 Summit which the USD and bond markets choose to ignore. Why? Our major 2019 projection that the USD would turn with yields and encourage sentiment driven stocks higher. The effect of the trade war is ironic and clear. A faltering protectionist US economy will pressure Trump to reach an earlier resolution with China. Secondly the consequential lower yields and indeed a lower Dollar will spur stocks into the projected 1929 and 1987 style blow out guided by our Russell 2014 template.

 

Monday following the summit will be interesting for both stocks and the USD. An opportunity to reduce our USD shorts to resell higher. But whether we will be able to rebuy stocks lower is less certain. What is really happening to the Dollar in terms of policy, direction and volatility will be the subject of a future newsletter. But this week we focus on how, as traders, we can withstand the volatility and pressures of a trading such a market both mentally and physically. In short, how we can remain emotionally intelligent and confident—and rely on our analysis such as an also useful First Monday DAX template.

 

In the last section on our series on emotional trading we look at how we can learn or improve our emotional trading intelligence. Both mental and physical well being can help sustain emotional intelligence and our ability to withstand the emotions associated with taking risk. This week we look at how we can build mental strength.

 

Everyone is different. Just like every trader has a different trading style that should be suited to their type of analysis, capital, mindset and market conditions, so too every trader’s lifestyle should be geared to helping them trade. Just as we believe in evidence-based analysis and evidenced based trading so too trading lifestyle should be based on evidence, that is, the trader themselves. In other words what will help them cope with trading emotions and stay confident. What works for one trader will not necessarily work for another. As in all aspects of trading beware of over-prescription. Balance is important and everyone’s equilibrium is different.

 

However there are some common themes to how we can all prepare ourselves to stay disciplined, detached and full of desire. Just as Paul Tudor Jones said the earlier you can make your trading decisions the better your results will be. So too the stronger you can make both your mental and physical stamina the better your performance. Or perhaps more accurate the less likely physical and mental strain of trading stress will derail you. Without wishing to be overly prescriptive, there are 5 key aspects of mental well being, that are inextricably connected to 5 key aspects to physical well being. How and the extent to which a trader can or chooses to incorporate them into their trading lifestyle is up to them. However as in all aspects of trading, process is important. And more one can embed such key themes into one’s lifestyle, in other words, through routines, the more able the trader will be withstand the pressures and enjoy the highs and the richness of a trading career.

 

Mental Well Being
There are many definitions of mental well being but the New Economics Foundation (NEF), a British think tank, is particularly useful for our purposes: being high in well-being means that you feel good about yourself (as a trader) and your (trading) lifestyle. Above all we feel good about ourselves when we are achieving goals in a way that instils confidence about our ability to do so in the long run.

From the point of view of “fulfilment” rather than “happiness,” high well-being incorporates having a sense of purpose in life. Knowing your goals, how to achieve them and that making progress towards them brings greater satisfaction in a trading career than the momentary brilliant trade as it instils confidence about future trading success.

 

Perhaps controversially our main goal should not just be to make money, but a continuous series of best trades.

 

How? You should also enjoy what you do.

 

They say “it is better to travel hopefully than to arrive” and there is a lot of satisfaction in accurate analysis of multidimensional markets and how they reflect the real world or not. However the purpose of trading is to make money. Mental well-being does stem from success, in our case. making trading profits, but it also comes from doing a job well. Being right, making money for the right reasons. Similarly and perhaps surprisingly a sense of future well-being can be derived from a lack of success, learning from mistakes.

 

People high in mental well-being function well in the world by having positive relationships and a sense of control in their lives.

 

The key to happiness or confidence or mental well being may be elusive, but taking advantage of a few simple strategies can do a great deal to improve your everyday feelings of well-being. The NEF published a thoughtful, research-based paper outlining Five ways to well-being.

 

1. Connect with the people around you.
Trading is a relatively solitary career. Many work by themselves. Even if you work physically with others (in a trading room) how we arrive at, monitor and take responsibility for trading decisions is very much an individual affair. And yet as, as people, we are social animals and almost require but certainly benefit from human interaction.

 

The British analysis of well-being agrees with U.S. data showing the importance of social support and relationships to an individual’s mental health and happiness. Having a minimum of 3 people with whom you’re close may be enough to protect you from a psychological disorder. Although it’s true that people who are in better psychological health may find it easier to make social connections, the NEF analysis suggests that having people around you who matter is even more important than simply having sheer numbers of close connections.

 

This is certainly true of trading where friends or colleagues can often provide a source of analysis or ideas or even a mentoring service, even if informally. I talk all day long with a number of professional traders, Part of the reason is the exchange of wisdom, but also to avoid distraction that may lead to over trading but also it is just fun. The best social relationships in terms of well-being are ones that in which other people are supportive and encouraging, and that you find to be important to your own sense of meaning in life.

 

Since the development of social media, the quantity and arguably the quality of connection with other traders has increased significantly. Previously many single traders may have struggled to trade alone (particularly a number of ex-institutional traders who are used to dealing rooms). Now social media has allowed many traders to maintain virtual relationships as well as the other benefits from working from home or away from the city. Social Media trading will be the subject of a future newsletter

 

2. Be active.
In my experience, success generally is often more a function of energy and hunger than any natural ability. In many cases skill does not have to be natural but can be learnt. And that requires work and activity. NEF focused on physical activity as one of the key components of mental well being as without sound health it is very difficult to feel good. However given the demands of a trading career, being healthy is possibly not enough to enable a trader to stay focused and balance. Which is why it is the subject of next week’s newsletter. But being active beyond trading is important in another sense. Emotional balance is essential to withstand mental pressure. Emotional balance, it can be argued, can be derived from a general balance. Too many traders focus too much on staring at screens.

 

It is one reason I do what I do so that I don’t screen watch as this would risk over-contemplation of my P&L and invoke unnecessary emotion. Finding something productive – not necessarily to do with markets. Finding balance throughout life is important. Spouses or families put unwelcome pressure on a trader if they spend too long in the market. I was surprised recently when a Bloomberg journalist who spend a few days with me said I was unusual amongst other traders he met. I appeared to have a normal healthy life, playing with my kids, going to concerts or just spending time with girlfriend. Certainly the appearance of some beleaguered traders you see suggests they do not have enough going on outside their trading lives to release pressure and simply enjoy themselves.

 

3. Be curious.
NEF said those with a sense of high mental well being are curious about what’s going on around you and in the world. For traders that is essential in three ways. Firstly. It helps develop market narrative and analysis. Secondly it helps the trader gauge how market sentiment is translating into positions and price movement. Thirdly, mindfulness of oneself is a pre-requisite of self control against harmful emotions.

 

Being engaged with your surroundings is one component of well-being, but a particularly important one for traders as a dynamic environment conditions most of their activities. As a key to well-being, curiosity therefore seems like a natural factor to include. NEF stated that the best type of curiosity to promote well-being goes beyond being interested and engaged in your environment however.

 

I recall my first report meeting at Oxford on a Saturday morning with six professors. “You are probably the most intellectually curious and out of the box thinkers of your year… you seemed surprised?” “No just hung over”… “And most over-confident". Oops.

 

The best thing about mindfulness as a key to well-being is that it takes no special skills. Mindfulness doesn’t even take up any time. All it takes to be mindful is the willingness to reflect on your inner state and experiences.

 

4. Keep learning.
Beyond curiosity, mindfulness and physical activity, mental stimulation through continued education, formal or otherwise, adds several important components to the mix. First, by exposing yourself to new educational or conference experiences, you might actually become more socially active. However, formal education about markets (or economics) or techniques or instruments is a useful foundation but beyond that its use becomes limited. Nothing beats experience.

 

One of the reasons is because the world and particularly markets are forever changing over time. Techniques or an understanding of relationships frequently do not match reality of markets. Markets and the number of variables is too complex. Experience, mindfulness, curiosity of markets teaches an understanding of how interrelationships can and do change day to day.

 

Perhaps it is ironic that this should come from one of the major exponents of fractals whose premise is that markets repeat themselves. But they repeat themselves in similar conditions. Understanding the complex set of conditions is important then and facilitates the discovery of fractals.

 

Exploring markets is important but exploring ones trading performance and oneself is arguably more important as we emphasised previously.

 

Learning from mistakes or underperformance can help avoid them in future. But analysing success not only helps understand why the trade(s) was paid off but will also embed the market conditions so they can be more easily recognised in future. Our tracking of the First Monday of the month, quarter or year is one of many good examples.

 

5. Give.

Giving to others encourages a feeling of well being. It doesn’t just apply to those who have made a fortune and are in a position to give easily. Doing something for nothing or even self sacrifice for a greater good makes us feel good about ourselves and promotes self confidence – an essential quality of a successful trader.

 

Going beyond your own personal desires or self-interests is one of the best ways to enhance your feelings of well-being. It does feel good to obtain reinforcement in the form of personal rewards, but your overall well-being is more enhanced when you do something for someone else From our perspective, giving away analysis or trade ideas on social media or our weekly newsletter encourages a feeling of well-being but it also facilitates discipline and rigour and will often get something back.

 

There are many keys to mental well-being that are outside of our control, but these five are well within our range of abilities, no matter what our situation. However, it does require application and thought and the healthier and fitter we are, the stronger mentally will be through difficult moments, the higher our emotional intelligence generally and the more successful we will be as traders.

 

Here’s to making the very best.

 

Good Luck

 

 

Ed Matts
Founder
Matrix Trade

 

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