Lesson 7: High Performance Techniques In Trading

Trading is highly competitive. Few traders make money consistently.

A minority of the traders make much of the money due to the zero-sum nature of the game. To succeed, we must learn some high-performance techniques that can give us an edge in the markets.

Research has proven that great trading is a combination of talent and high-performance techniques.

This lesson will look at some psychology techniques that we can use to enhance our trading performance.

Consistency in a random market requires a shift in mindset and behavior.

Habit 1 – Deliberate practice of skills

Have you ever heard of the 10,000-hour rule? Malcolm Gladwell rose to fame after he published the book outliers. In the book, he argues that you need to put in 10,000 hours of practice to attain mastery in any field.

The style of practice, however, matters. If you work without deliberate practice, it’s hard to perfect your skills or perform at an elite level.

Deliberate practice refers to a particular type of practice that is purposeful and systematic.

The best way to get better at trading is through deliberate practice. It means practicing to get better:

We are working on activities recommended by experts to develop specific abilities.

  • Identifying weaknesses and working to correct them.
  • Intentionally pushing yourself out of your comfort zone.

The essence of deliberate practice is to create a learning loop. A learning loop has three primary stages.

  1. Attempted performance – At this point, our concern is trying to perform a specific task. We can think of a trader who trades a particular setup on a simulation account.
  2. Feedback – This involves the use of feedback to try and improve our performance. Our success can help us know what we are good at, while our failures can direct us on what we need to improve our trading.
  3. Practice – This means that we get back to the playing field and perfect our trading.

Deliberate practice in trading

The following key points can help us assess our performance.

Pattern Recognition

Under pattern recognition, we can think of the following indicators to guide us:

  1. Trend Identification -Identify the direction of the trend.
  2. Pattern Recognition – monitor price action and pattern formation
  3. Setup Recognition – detect high probable setups in your trading system.

Risk Management

  1. Risk Analysis – Generate Low-risk Ideas
  2. Capital Allocation – Think about how much to risk on every trade setup.
  3. Trading management – Mentally rehearse what you will do in different situations.

Habit 2 – Daily Journaling

Great traders use feedback to improve performance.

A Journal can help us organize the feedback we use to improve ourselves as traders. Different types of journals serve other purposes for our trading.

  1. A psychological journal – This can help us understand our cognitive strengths. Before executing any trade, we can ensure we list down the reasons for the transaction.
  2. An emotional journal – We can understand our feelings better.
  3. A trade journal – Before and after shorts of our trade setups can help us map out which trade setup work and fail.

Habit 3- Manage your energy levels

Many people believe in managing time, but few think of managing energy. As a result, we don’t fail at managing time. Instead, a lack of focus or low energy levels results in our minds wandering and time ends up going to waste.

Great performers understand the value of managing energy. Eastern traditions have long been advocates of managing energy, and science has finally supported the theory. Getting fully engaged in a task requires energy. Thus, our trading performance is not ultimately determined by how much time we spend rather how much energy we extend to the markets.

To manage our energy level, we must think of the different forms of energy that humans generally hold. Physical, spiritual, emotional, and mental energies are types of energy. We have a moral obligation to decide where to channel our energy. Just like in physics, energy can not be destroyed. We can only direct it to other forms.

Rest is also essential for us to bring back our energy. The most affluent lives are characterized by the ability to fully engage in the challenge at hand and disengage periodically and seek renewal.

Habit 4 – Think outside the Box – (Be creative)

To make money in the markets, a trader needs to know something other people don’t know yet. He needs to be thinking ahead of the curve and anticipate what will happen before there is evidence in the markets that it will happen and everyone starts to get on board with the same trading hypothesis.

To do that, he has to understand some- things about the currency pair and how it is trading, what is going on in the economy, and a variety of other things. The more he knows, the more he can calculate the likely target or trajectory the pair will follow.

Creativity in markets will manifest in two ways. Either you look at standard information differently, or you have different information. The former is the safer and more likely strategy. We must therefore develop alternate ways of looking at markets for us to trade profitably.