What’s the big disconnect? Here it is in simple terms:
97% of traders believe that psychology plays an important role in trading.
96% of traders believe emotions can negatively affect your trading decisions.
91% are able to recognize when emotions like fear, greed, anger, overconfidence and lacking confidence impact your performance.
Only 34% have a system in place to manage those emotions.
One of my first questions when I was looking at the data was “I wonder what these answers would have been 10 years ago?” My guess is that the percentage of those first three stats would have been much lower. Many fewer traders would believe that psychology is important or that emotions impact trading decisions. And even fewer would be able to recognize when emotions like fear, greed, anger, overconfidence and lacking confidence impact performance.
The fact is, the experts in the trading psychology community have done great work in laying the foundation. Experts like Mark Douglas, Brett Steenbarger, Van Tharp, and Denise Shull have all helped traders to be more aware. And I would be that you wouldn’t find 90+% of people in other fields able to have that much awareness of the impact that psychology or emotions has on their job. I doubt we would find the same results from a survey of 1,200 engineers, teachers, lawyers, or doctors.
Pivoting from Awareness to Action
So the good news is that the trading community has won a significant battle. We don’t have to fight for awareness anymore. I was part of that wave in Poker a decade ago when my first poker book came out. In trading, it’s huge to get to this point. Stand up, high five, run a victory lap – it’s big news. And it’s clear of the next opportunity. Now we can turn our attention to closing that 56 point gap between awareness of emotions and a strategy to manage them.
I’m excited by this opportunity. I’ve spent the last 16+ years honing a system that is strategy-based, practical, and repeatable. That said, while I’ve been working with traders privately for years, I understand that my work is brand new for many of you. Some of you are just beginning to work with my book, The Mental Game of Trading, and others are finding out about the book for the first time now.
But rest assured that my goal from here forward is to figure out how to close that gap. What are the resources you need? What needs more explanation? Where do you need extra help? These are the questions I’m curious about and if you have thoughts, please email me directly.
A Mental Game Quick Guide
The first step that I’ve taken to help you all develop a strategy for trading psychology is to provide a quick guide for my system. The system is laid out in The Mental Game of Trading and some of my readers suggested this would be helpful. I shared drafts with a handful of traders who gave me feedback and I’m actually offering two different formats because some of you may appreciate one more than the other. You can find them on the worksheets page.
I have other ideas of what might be helpful and in January will ask for your feedback in a follow up survey designed to help me narrow in on what will serve you best. If you want to participate, be sure to sign up for my newsletter. (Scroll to bottom of the page.) There will be plenty of space in the survey for you to share any ideas you have as well.
Data can be very useful. Sometimes it changes the way you think about a problem entirely. Sometimes it validates a hypothesis you already had. For me, this survey told me I am in the right place at the right time. I am passionate about helping you perform at your best and I know improving your mental game is a key part of your success. Clearly we’ve got work to do and I’m excited to dig in and dramatically change that number in future surveys.
Thoughts From Survey Partners
I also asked some of my survey partners what they had to say about the results and what they think the industry needs. Here’s what they had to say:
Morad Askar of Convergent Trading, recognizes the situations where retail traders tend to struggle the most with their emotions, it’s “Situations of extremely high or low market volatility, like we’ve seen in several indices recently. This kind of activity can cause traders to second guess themselves as changes in market behavior can be abrupt. Changing market dynamics can lead to an erosion of emotional capital, increased trading errors, and frustration. This is when accountability and peer group-support really matter.”
Corey Lane from Traders Army, shared these thoughts on the survey, “Most traders tend to focus on mastering the mechanics of their trading. And while that is important, it’s clear that the skill that often gets ignored, is the mastering of one’s self, and their emotions around trading and investing. As educators, it’s not only an opportunity for us to focus on this with our students, we feel like we have an obligation to help train the student in the area of emotion management. Without it, it’s leaving the door wide open for a difficult road ahead for the student, no matter how well they’ve refined their trading strategy.”
Kim Klaiman from Steady Options thinks the 34% may be even too optimistic, “We know that many traders overestimate their abilities.” And thinks that one of the reasons for this disconnect, however large, is because humans desperately want to believe there is a way to make money with no or little risk. That’s why Madoff existed, and it will never change.
Steve DArgenio from Microefutures Trading Community worries, “Many members in our trading room feel, incorrectly, that spending mental capital addressing the emotional issues is time better spent mastering the technical aspects of trading. So the challenge we have is showing them the ROI benefits of working on the emotional actions items needed in tandem with the technical.”
The power of a survey grows exponentially based on the size and scope of the participation. We would never have gotten there without our terrific partners. Big thanks to: