Behavioural Trading: Turning the Behavioural Spotlight on Yourself.
If you think being given the trading strategies of the best traders in the world, or a signal system which tells you where to buy and sell will make you a successful trader, then I am afraid you have not yet worked out what trading is!
Behavioural trading is the idea that success comes not from knowing where or what to buy or sell, but to how ‘to be’ when buying, selling and managing your risk.
There is a common belief, that the best traders succeed because they can control their emotions and because they think before they act.
That is far too simplistic: The successful traders I have met succeed because they master the behavioural side of trading, not because they can control their emotions.
I worked as a trader for over 20 years, and for the past 10 years have been coaching traders from across the buyside and the sellside of markets. The idea that you can help someone who lacks discipline to suddenly become disciplined is nonsense, but equally it does not mean they cannot become a successful trader.
Some of the best traders I work with continually moan about their lack of discipline, yet they are very happy when their hunches lead them on to act on a news event which turns out to be the trade of the year. – Discipline would never have allowed them to take that trade.
Behavioural Trading is about knowing yourself as a trader or investor. Becoming aware of yourself, of who you are, how you function, what needs you have, and working out how you are going to meet them.
“Behavioural trading is the idea that success comes not from knowing where or what to buy or sell, but to how ‘to be’ when buying, selling and managing your risk.”
Behavioural Trading is not Behavioural Finance or Trading Psychology
Behavioural Finance looks at the markets and investor behaviour to make sense of what is happening.
Trading psychology is an observational assessment of what people engaged in trading are doing from a psychological perspective.
Both take a third person perspective. They look at the behaviour of others and try to make sense of them.
Behavioural trading is about turning the spotlight back on yourself and making sense what is happening for you.
It is about becoming aware of who you are, your nuances and habits, your behaviours, what drives and motivates you, what pulls your strings, what contributes to your success, and what undermines you.
The more you know and can make sense of how you function as a trader, and the more you can start to take control of how you work as a trader, and the more you can develop and sharpen your edge.
“Behavioural trading is about turning the spotlight back on yourself and making sense what is happening for you.”
The Metaphorical Mirror
Behavioural Trading is learning to look at yourself in the first person and to be objective about it. To see the real you, not an idealised version of yourself.
Back in the year 2000, some 15 years into my own trading career. I was asked by the bank I worked at, to join an Executive Coaching programme.
Though the programme was intended to focus on developing me as a manager, the real value was what I learned about myself. – The structure of the coaching was highly reflective; the coach effectively took me on a journey through myself.
If I am honest, until then, I had largely survived as a trader. – Though that was not how I saw it at the time.
Using the metaphor of the music charts, my career until then had seen me produce a few hits and even a number one, but I could not say hand on heart, ‘I was a really good trader’.
After the coaching, things started to improve dramatically.
It was not quite a light switch going on, but rather the beginning of a new phase which snowballed in the years ahead. The years after the coaching were by far the best of my career.
The coaching had held up a metaphorical mirror which for the first time allowed me to see myself not as I wanted to see myself, but as other would see me. – This was hugely empowering.
That coaching was the catalyst for what I now call ‘Behavioural Trading’.
Developing your ‘Behavioural Trading’ Capability.
‘Behavioural Trading’ helps people to craft a way of trading which fits themselves.
When we learn to trade, we go with the ideas and methods of others. Somewhere along the line we must develop a way of working which fits ourselves.
When I work with great traders, I have noticed how often they have crafted a way of working which is personal to them, which suits their personality, their beliefs, their style, their philosophy, their attitude to risk. This crucially helps foster trust; trust in themselves.
“This crucially helps foster trust; trust in themselves.”
If I was to say what is the greatest attributes successful traders possess, it is self-trust.
After my own coaching experience, for the first time I felt that at the end of each year I could trust myself to generate a significant positive return.
Luck was no longer going to be the defining factor, I had it in me to make good performance happen.
That is Behavioural Trading
Footnote
People ask me often why I no longer trade. – During a conversation in 2009, the same coach who worked with me in 2000, planted the idea in my head of working as a coach, helping others to develop their behavioural trading capability. I jumped at this idea, believing I could still trade and coach. The truth is, trading is full on, I found splitting myself between coaching and trading impossible. – Coaching was my new passion, and I chose to focus on this.
Please visit our Behavioural Trading blog page to see more articles on this fascinating topic.
We also run a Linkedin Group called Behavioural Trading, your membership of that group would be welcome.
At Alpha R Cubed we work with people and businesses in the financial markets to help them explore how they could help improve and develop behaviour to catalyse stronger and more effective performance. If you are curious about how we could help you or your business, please call us or email me at steven.goldstein@alpharcubed.com.
