Wednesday, June 15, 2011

The Kirk Report

The Kirk Report

Dr. Bob’s 10 Rules

Posted: 15 Jun 2011 07:59 AM PDT

10 Rules

In looking for paths to improve myself and to help those who I’m privileged to mentor, I have been reading a number of books and articles regarding applied sports psychology. Many of these books can offer more perspective and guidance regarding the mental aspect of trading much better than most books I have read that focus exclusively on trading and the markets.

Traders and investors, after all, have a habit for making things far more difficult than they really need to. And, as many of you are aware, the biggest challenges in the markets usually come from within and not from the market.

One of my favorite in the applied sports psychology realm is Dr. Bob Rotella. Dr. Bob is a sport psychologist for many professional golfers and is considered one of the best in his field. He has written a number of terrific books about golf and trading. In fact, if someone in the trading field simply performed a search and replace feature for the word “golf” with “trading” I think many would think these are some of the best books about the mental side of trading ever written.

To give you some idea, a couple of years ago Dr. Bob wrote this article to help golfers achieve better performance. The concepts outlined there are as helpful to a golfer looking to win as it is a trader looking to achieve peak performance in the market. To see what I mean – let’s review each of Dr. Bob’s 10 rules and my own interpretation of Bob’s comments as they relate directly to trading:

Rule 1: Believe you can win. If other traders can do well in the market, so can you. However, if you don’t have enough courage and confidence in yourself, you will never achieve success. The events over the past few years have tested many people in this way and many now believe the game is rigged against them and, even worse, that no matter what they do, in the end they will ultimately fail in the markets. In my experience, nothing could be farther from the truth and those who will win in the markets first start by believing they can do it. Of course, those who do create success also must back up that belief in themselves by working hard and show consistent determination to find, develop and exploit their trading edge.

Rule 2: Don’t be seduced by results. You must stay in the present and focused on executing each trade to the best of your ability. Don’t let yourself think about how much you hope to win, but instead focus on both proper and consistent execution and risk management. Do this and the results you desire will follow.

Rule 3: Sulking won’t get you anything. One of the worst things you can do for your prospects of winning is to get down when things don’t go well and market conditions are not favorable. If you start feeling sorry for yourself or thinking the trading gods are conspiring against you, you’re not doing your job by focusing on the next trade. Good traders readily accept and realize their mistakes, they learn a lesson if there is one to be learned, and they quickly move on to the next trade. They don’t let a series of bad trades or mistakes carry over to the next.

Rule 4: Beat them with patience. Every time you have the urge to make an aggressive trade, especially out of emotion, take a step back and reevaluate. The moment you get impatient, bad things tend to follow. In tough markets, stay patient and let others beat themselves in order to be ready and fully prepared to pick up the low lying fruit from the sheer destruction and capitulation from others.

Rule 5: Ignore unsolicited advice. You will have lots of well-meaning friends and experts who want to give you advice. Don’t accept any of it. In fact, stop them before they can say a word. Formulate your own opinions and generate your own analysis and you’ll do far better as your skills develop and improve. In life, as in trading, to succeed you must find your own way as no other person no matter how much you may want them to is going to take you where you really want to go.

Rule 6: Embrace your personality. The key is to find what works best for you and this can take years to discover. There are many good approaches out there, but in reality there is only one trading approach that will best utilize your skills, talent and personality to create and sustain your profitable edge. One of the most common mistakes a trader can make is to try to embrace or copy a strategy of someone else. Like a fingerprint, your strategy and focus should be unique to yourself. Yes, learn as much as you possibly can from others who are successful, but still understand that in the end your priority is to develop your own strategy toward the markets and that path will be unique and unlike any other.

Rule 7: Have a routine to lean on. Every trader should follow a mental routine on every trade. It keeps you focused on what you have to do, and when the pressure is on, it helps you manage your emotions and nerves. While none of us have any control over the markets, we all have control on how we trade and the decisions we make. Having a solid routine will inject consistency that will keep you calm under pressure. No matter if the market is up 2% or down 2%, your routine should look exactly the same each and every day.

Rule 8: Find peace in the market. The market has to be your sanctuary. Yes, you will experience both good and bad times (everyone does), but through it all you must learn to enjoy and revel in the journey. It is the path you take that will provide the most content, not the end destination. In time, you must also learn never to trade for emotional or ego satisfaction, but instead, trade because you enjoy the challenge.

Rule 9: Test yourself. Don’t look for easy trades and setups at all times. Test yourself by working challenging trades and difficult markets in order to test and improve your skills. For example, if you’re uncomfortable and not skilled in trading options, spend a month just trading options. If you’re uncomfortable with shorting stocks, spend a month just shorting stocks. We only have the opportunity to improve if we constantly test ourselves and work on things we find most difficult. If you don’t learn to work on your weaknesses, sooner or later they will catch up to you when it will hurt the most.

Rule 10: Find someone who believes in you. Having confidence in yourself is important, but it helps to have someone who believes in you, too, whether it’s a spouse, a friend or a mentor. No man’s success can be entirely attributed to his own actions. You must surround yourself with people who believe in you and will hold you accountable for your progress.

As you can see, this is a very powerful set of rules that will not only help you trade better, but also to help you find more success and contentment in any challenging endeavor.