How to stay inspired and trade confidently

Inspiration… that elusive motivator, driving you to take action. It can give you a flash of insight, a burst of enthusiasm, and a moment of clarity. It can open you up to the possibility of achieving something you’d never previously considered.

But what is inspiration exactly, and can it help your trading?

According to researchers, there are 3 main characteristics of inspiration – evocation, transcendence and approach motivation1. To translate - inspiration comes from something outside of yourself that transcends the ordinary, and the new awareness that this generates is vivid and concrete. It goads you into action. Inspiration can give you that “Aha” moment and can directly boost your confidence.

And it’s essential to seek out inspiration from different sources. Because if you don’t and you intend going through the motions without enthusiasm and joy, there’s a high probability you’ll run out of energy and drift away from trading.

But ask yourself…

• When you hear that another trader has made a profit in the markets, do you find inspiration in their success?
• When you watch a video about a Market Wizard and hear about their lifestyle, do you think to yourself “Well, it’s OK for them. They must be a born trader”.
• When you find out that someone who has been trading for less time than you has quit their job to trade full-time, do you silently curse them?

All of these reactions are signs that you might be operating from a fixed mindset, instead of a growth mindset. With a fixed mindset, you can feel threatened by other people’s success. You’re also more likely to avoid challenges and begrudge the effort it takes to achieve trading prowess.

Alternatively, traders with a growth mindset tend to welcome challenges, resiliently persist after experiencing a setback, and find inspiration in the success of others. It’s a part of developing psychological fitness. Make a conscious effort to move towards a growth mindset. It can impact the way you think about your results in the markets.

Who’s to blame?

Attribution theory also goes towards explaining why traders think the way they do. This theory revolves around the concept that people ascribe reasons to outcomes that are based on internal or external attributes. For example, when traders lose money, they usually blame bad luck, poor advice etc, rather than their own personal attributes of arrogance, fear and greed. This is perhaps one of the most difficult lessons to learn in your trading life. If you do not take responsibility for your own actions, then your trading ability will probably never improve.

The attribution of results to external circumstances is called an ‘external locus of control’. It’s a concept originally created by psychologist Julian Rotter (1954). As an example, a trader with external locus of control might say to themselves “I made a profit because the markets are easy to trade at the moment”.

Aim to develop an ‘internal locus of control’ and take responsibility for your own actions. Assume that all trading results are your responsibility and aim to find ways to improve your own behaviour. This is the quickest way to improve your trading ability. A trader with an internal locus of control might say to themselves “My equity curve is going up because I’m a disciplined trader and I follow my trading plan.”

So who are your trading heroes?

If you can’t immediately answer this question, then research your chosen profession. Seek traders you relate with and who you can emulate, in terms of their methods, but more importantly, their mindsets.

If you need some help finding inspiration, consider The Turtles.

The Turtles are one of the most successful groups of traders the world has ever seen. The group was formed due to a bet between two very profitable traders, Bill Eckhardt and Richard Dennis. Dennis was convinced that trading was a skill and could be taught, so he set out to prove his assertions. He chose a variety of different people from all walks of life who responded to a newspaper advertisement. Only about 50% of this original group continued trading. The others who quit could not follow the simple trading system set out for them due to some form of psychological resistance. The remaining group is called the Turtles because less than 50% of wild turtles actually make it to the ocean to have a chance at survival to adulthood. 50% die on their way to the ocean from predators or other dangers.

The Turtles consistently derive annual returns in excess of 70%, yet their trading system only produces correct entry signals 35% of the time. The probability of a ‘win’ is insignificant when you consider the importance of the size of your wins compared to the size of your losses.

Most professional traders would be able to teach you how to trade their system in about two hours. Why, then, do so few traders go on to achieve profitable results, even after being taught by some of the best minds of the trading world? It is because the majority of people are not instinctively set up to trade. 95% of traders never seek to improve their overall mindset and as a result inadvertently deprive themselves of extraordinary profits. These profits are achievable only by the 5% of traders who are prepared to get out of their comfort zone and work on their own innate deficiencies and acknowledge their personal strengths.

And one thing’s for sure, it’s highly likely that the Turtles have each developed an internal locus of control.

The good news is, research suggests you can train yourself into having an internal locus of control as well².

Good traders have achieved a sense of detachment from the market and have divorced themselves from chasing elusive profits. The way that you handle trading can come down to a formula:

A + B + C = D

A = The Event

B = Self Talk

C = Emotions

D = Reaction

The only thing that you don’t have full control over in this formula is ‘A’, e.g., a loss or a profit. How you compile every other part of this formula is up to you.

Even if you take high probability trades, it is still only a probability and not a certainty that you will make a profit. All traders must adjust to the concept that even high probability trades can sometimes create a loss. It is how you talk to yourself about this event, e.g., a loss and the emotions that you feel, that will determine your reaction.

And trading becomes a way of life. So many traders love the idea of pursuing freedom. To be pulled towards a lifestyle that is intellectually stimulating, where boundaries are not imposed by others. As Bronislaw Malinowski says: “Freedom in its essence is the acceptance of the chains which suit you and for which you are suited”. You get to choose your harness and your destination.

Work out why you’re trading and you’re more likely to be a success.

It has to involve more than just money as well. Pursuing this trading game involves getting outside your own goals and looking at your impact on your family, your legacy and your community. As Lao Tzu said: “Chase after money and security, and your heart will never unclench. Care about people’s approval, and you will be their prisoner. Do your work, then step back. [It’s] the only path to serenity.”

The skills and techniques you’ll discover in the IG Trading Psychology Hub will inspire you to manage your life more successfully, and gain increased control over your thoughts, your feelings and your behaviour. This, in turn, is likely to positively impact your trading behaviour.

Your level of success will rarely exceed your level of self-development. Draw inspiration from the field of high-performance psychology as well as from other successful traders and allow their examples to light you up from within and goad you into action.

Louise Bedford is a full-time private trader and author of The Secret of Writing Options, The Secret of Candlestick Charting, Charting Secrets, Trading Secrets and Let The Trade Wins Flow.

Sources

^1. Thrash, T. M., et al. (2010). Inspiration and the promotion of well-being: Tests of causality and mediation.
^2. Fredric D. Wolinsky, et al. (2010). Does Cognitive Training Improve Internal Locus of Control Among Older Adults?