Last month in San Diego I was fortunate enough meet and hang out with Dr. Andrew Menaker. He has a Ph.D. in clinical psychology and has been a performance coach for money managers and professional traders since 1995. It was a real pleasure to talk trading and pick his brain about the importance of going to cash and taking mental breaks. We were on the same page on a lot of the things we discussed. I thought that was cool.
Earlier today I received an email from him where he discussed the importance of Discipline and the difference between temporary self-confidence and true self-confidence. I wanted to share his thoughts with you guys. I hope you find it as interesting as I did:
The “D” Word
Everyone talks about discipline and trading. It’s probably not a stretch to say that discipline could be the most common word used in trading. I have received many, many emails over the years from traders asking me how they can improve their discipline.
Traders often tell me how they need better discipline for a variety of actions including waiting for the proper entry, to enter without hesitation, to hold a winning trade that is in a small pull back, and to get out and take a profit. Many traders desire discipline to resist placing a revenge trade in order to make their money back. One of the more common themes I hear around discipline is simply the discipline to accept a loss.
In this issue of my professional psychology tips I share a perspective on discipline that is probably new for you; a perspective that will help you to build discipline that is more sustainable.
Most traders equate discipline with willpower. This association is perfectly understandable. My view of discipline will change the way you look at your trading. But before I share this new perspective I want to tell you that willpower is a topic that I will address separately in a future email to you. And as you may have now guessed, what I’m about to tell you is that discipline is not necessarily an extension or a part of willpower.
Years ago in graduate school in psychology I thought I wanted to be a sports psychologist and work with professional and other elite athletes. I learned some very important things while I was studying sports psychology and elite performance. (By the way, trading psychology and sports psychology have some things in common but there are also some very significant differences that I will address in a future email).
I learned that discipline is actually related to one’s self-confidence more than it is related to willpower. The best way to explain it would be to describe what I see as three general types of self-confidence.
I refer to the first type of self-confidence as temporary self-confidence. This is the trader who feels good or hopeful, or confident, etc. because their last trade was a winner or they’re on a hot streak. Their confidence level is a function of their P&L. And the flipside here is the same temporary self-confidence also disappears very quickly after a loss or a series of losses. In other words, temporary self-confidence is a situation where one’s confidence is closely tied to your P&L.
The second type of self-confidence is labeled false self-confidence. This is the person who talks big and poses like a big shot. This type of trader often takes big risks in an effort to either impress others or to assuage their own discomfort, and the results can be terrible.
Finally, we come to what I call true self-confidence. This is confidence that does not depend on recent results. It’s not based on impressing others or the need to escape the discomfort of not making money. It is based on a deep sense of inner trust. This is the person who has a history of doing the right thing, regardless of the outcome. Doing the right thing in the sense that they know they have some type of edge and act in their own best interest and trust and understand that doing so over time has a positive impact on results.
It is important to understand that the self-trust involved with true self-confidence runs deep enough to provide resilience in the face of disappointment. Even profitable trading can bring disappointment. It’s rare that we have the perfect trade with no heat, or we capture the entire move. The ability to act in your own best interest because you are resilient, even in the face of disappointment, this is true self-confidence, the kind you want in trading and in life.
Almost everyone says that discipline is a requirement to succeed in trading. But most people never talk about what really underlies discipline. The answer is true self-confidence that comes from resilience and self-trust.
The ability to be resilient in the face of disappointment provides a much stronger foundation to build discipline upon. In one of my future professional trading psychology tips emails I will address why willpower alone is not enough for discipline.
If you’re interested in developing this type of self-trust and resilience, consider my self-paced Advanced Course . It addresses the necessary ingredients required to build resilience and true self-confidence with many practical exercises to help you along the way.