Steve is also an author and in his latest book, TraderMind, he integrates the concepts of mindfulness into the world of high achievement and performance.
TraderMind is one of the new breed of what I call psychology 2.0 books and it’s currently one of my favourite trading psychology books and on my Top Recommended Books list on the blog.
So having worked with some many peak performers, in this show I have the opportunity to pick Steve’s brain and we get to explore many topics which I find fascinating.
Here’s are some of the big ideas and why you should listen. Learn about –
- the shared habits and routines he’s seen in peak performers,
- the importance of energy management,
- the traits of top traders and edges to explore and develop,
- the concept of marginal gains,
- mindfulness in trading,
- intuition vs. impulse,
- and much more.
In the end there was one theme that kept coming up over and over again.
Let me pose it now in a form of a question,
What can you and I do to better cultivate awareness inside and outside of our trading?
Awareness boils down to being able to objectively tune into with what’s showing up for you while you trade (that is your feeling and physical states, your emotional states, and thoughts) and then layering on what’s objectively happening in the the markets.
Unfortunately many of us operate disconnected from these states and ultimately are hostage to our feelings, emotions, and thoughts.
As Steve says in the interview, “the more awareness you have over these 3 the less influence they have over you”.
[05:42]Houston: Welcome everyone to Episode 22 of Trading Edges and, I’ve been a long time follower of today’s guest and I’m very excited to get to pick his brain today on today’s show and so on the podcast today – we have Steve Ward. And Steve Ward is a Trader Performance and Psychology Coach; he’s had extensive experience coaching athletes across numerous domains and numerous sports as well as coaching traders now. He’s the author of numerous titles including one of my favorites “Trader Mind and High Performance Trading,” so welcome Steve to the show.
[06:14]Steve: Thanks Houston; thanks for inviting me. It’s good to be here.
[06:19]Houston: Of course, it’s great to have you on; so, I gave a brief intro to your background and how you kinda got into the work that you do, so maybe you can just first begin by sharing what you do today and how did you get into the world of coaching traders?
[06:34]Steve: Okay, so I’ve always, I guess, had a fascination with performance and initially more from that, I guess a physical side and in later years from the psychological side; so I started off working in sports and performance psychology as you mentioned – worked in about thirty-three different sports with athletes and teams at national, international, Olympic level – all over the globe. I thoroughly enjoyed that, did some performance psychology for kind of high achievers in the corporate world and then literally purely by randomness I bumped into a guy on a sports psychology course who was a semi-pro tennis player but also happened to be a trader – we exchanged some emails following the course around his tennis and then he invited me to London to really, I guess, come and see could sports psychology be useful for traders – he felt it had been useful for him as a trader and a tennis player; and so we did some workshops, did some one to one coaching and I actually ended up doing three days a week for almost a year with his trading firm and yeah I was really hooked, the first day I turned up on the trading floor is the first Friday of March 2005, (inaudible[07:52]) payrolls and I can remember it literally as clear anything now just the countdown to the number coming out – a deadly hush and then an eruption of noise and then really through from ’05 through to ’06 spent more and more time working with the traders. I got some more requests to work with other trading firms and banks and really from 2006 onwards – probably after the winter Olympics in Turin in 2006, and a bit of work in rugby and then I pretty much transitioned to the markets world so since then I’m working with investment banks, hedge funds, investment funds, trading groups, energy companies, retail trading community, doing some graduate training programs, doing some performance enhancement programs, workshops, coaching, really a whole variety of projects – all I guess in a similar vein to doing sports psychology which is around trying to teach psychological skills and approaches to enable traders to get the best out of themselves.
[08:57]Houston: And, what have been kind of the lessons learnt there – have you been able to transfer the a lot of the domain expertise from the sports psychology world and performance world over to the world of trading or is there a lot of similarities in terms of the needs that traders have and the areas that they need to work on as an athlete would have – is that transferable?
[09:19]Steve: It’s a good question. I think that there is some transferability, so certainly in the early days because all I knew was sports psychology and I worked from that domain; what you realize pretty soon when you get into the trading world, is that trading is a cognitive activity whereas in sports you are almost trying to quieten the brain down and turn off and often a lot of time there’s chatter in the trading world that chatter can become quite important so there’s a difference there. I would say probably now maybe thirty percent, forty percent of what I do still comes from kind of what I would call the Sports Performance Psychology domain and then I guess what has been added into that which is different which is the work around maybe the behavioral finance, economics, decision making and risk and uncertainty; I think there are really some interesting work from science which is really relevant to the trading domain – not as relevant in the sporting domain so that has been a big interest of mine the last six or seven years particularly. I think around the stress system and the stress physiology system and what happens, kind of the highs and lows of trading again, once we get come of that in sports there’s a real uniqueness to that also in trading. So, it’s been a bit of an evolutionary process from a core working model of sports psychology performance and then adding into much more of the neurobiological type picture (Houston: right) to bring into that so…yeah.
[10:52]Houston: So what have you gleaned so far in your past ten years, can you speak to some of the performance habits that some of the peak performance traders – what do you see as some important practices or rituals or routines that some of these peak performers or traders share?
[11:09]Steve: Yes, I think there are a few things really. I think the one thing – and this is probably true in sports as it is in trading – but in the early stages in terms of kind of peak performance habits, the most important habit is a habit of practice and learning the skill, learning the game, learning the craft and I think what you see in peak performers for whatever reason a motivation, a passion and an enjoyment for what they’re doing is you’ll see extensive time spent in practice and you see that across chess, across trading, across sports, across music – I think the key habit early on is a habit of practice and learning the craft. As you become more experienced, that habit doesn’t go away so the learning habit is a habit that I see right through into my most experienced and most successful trading class – that’s still active learners. So, learning about themselves and the markets, learning about different strategies, learning from other people so I think there’s a learning focus as a habit to build and I think if we kind of look at discrete performance habits – probably the two key ones which I think make a big difference in trading are habits around preparation (Houston: yeah) so how you prepare yourself for the trading day or for the trading session in terms of technical preparation, tactical preparation and then you’ll see mental, emotional and physical preparation. And I think probably another key habit probably evaluation, analysis, reflection (Houston: yeah) and what’s done there in terms of trade journals, trade logs, looking at trading data – looking at the patterns; so some kind of analytical type habit I think is really important and around that I think also, for experienced traders there are habits around lifestyle and how people blend trading and life and how they manage those two areas of life – I think that’s important habits to build. Habits around energy, looking after yourself and making sure because the brain sitting inside the body, the brain can only function as well as the body allows it to in terms of fueling and so there are key habits around energy management which are pretty critical. And then there are the other kinds of habits around what we do in terms of mental techniques, emotional techniques and so which are kind of wrapped around that on the outside.
[13:43]Houston: Yeah; and we don’t hear a lot of talk about energy management inside the trading world and I think it’s a bit of a shame because outside of other domains like you know, sports specifically they are very cognizant of managing energy – it seems the old school traders don’t even think about energy management, right. What’s your feeling about how receptive are traders to that topic of energy management? I guess once you tell them about it they get it, or are people still reluctant in picking some of the practices of energy management and renewal?
[13:14]Steve: It’s a great question and I think there are a couple of things: one is there’s a growing appreciation for the role of energy and I think overall intuitively we all know when we are tired or when we’re a bit run down or when we’re low in energy (Houston: or a hangover) We know that intuitively but I think what we’ve got now which makes the case more compelling is that we’ve got strong neuro science research which makes it very clear the link between energy and decision making but also energy and things like will-power or self control as we might call it discipline which mean energy, attention and focus between energy and emotional regulation. So we’ve got this embodied situation where the brain is sitting inside the body – so the brain is two percent of our body weight and it uses about twenty to twenty-five five percent of our energy consumption. So , the brain is pretty energy heavy and to function – particularly where we using higher order function, attention focused decision making, prioritizing self –control – its drawing down on the fuel its got available; so the more fuel we’ve got available the better we’re able to do those higher order cognitive tasks. So, that fuel is coming from the body and its released primarily through glucose so we need to make sure the body is energized and enable the brain to be at its best and I think whilst we do that – thanks to neuroscience research and also some work that I’ve been doing around the physiological monitoring of traders and looking at levels of stress versus levels of recovery, versus levels of physical activity, looking at sleep patterns; you know we very clearly see the differences in peoples’ trading performances when they’re energized and recovered and slept well versus when they haven’t and having that objective and research backing has made that case much easier to sell, I guess.
[15:19]Houston: Yeah; that’s a very good point, and I think it just loops back to the conversation we had before we started recording about this idea that you mentioned about capability versus capacity; maybe you can share this distinction for people.
[15:39]Steve: Yeah, I mean. For me, I guess it’s the elevator speech about what I do – that’s how I would explain it. If we look at performance in terms of two dimensions: capability – basically having the ability to do the job and do it well, skills, knowledge and often in the trading world, investing world the strategy and then the other dimension being basically capacity which is just having the mental capacity in terms of attention, focus, mindset, you know managing thinking – the emotional capacity around managing and regulating emotions and dealing with stress and pressure. Then the third rung really is the physical capacity and having energy available and I say this to clients that people with very high capability but with low capacity – that’s a classic under-performer. What we want to be really – I guess if we’re looking at who would be the most successful traders, they would be the ones with the highest capability – and also they would have to have the highest capacity (Houston: right) and so my role, primarily I guess is a function of increasing capacity because that’s where I’m trying to get the most out of people. Often there is some capability in terms of psychological skills, there’s an element of a cross-over but we can also see it’s kind of two discrete core areas as well.
[17:55]Houston: Okay, and so the work you do then around improving capacity, do you get as granular as creating diet programs for people and recovery programs and that kind of stuff or is it more high level works that teaches here’s kind of the fundamentals of improving your work capacity – what’s the type of work that you do there?
[18:17]Steve: Yes, so I do get pretty granular because I have quite an extensive background in sports and fitness and physiology as well as in psychology so I’m pretty fortunate that I’m able to get kind of granular so I wouldn’t go down to a particular discrete diet program but we would certainly look at the key building blocks of, for example, we have what is called the old trading performance rhythm which is basically a daytime cycle – approximately ninety minutes to two hours of peak energy – followed by a natural twenty minute dip. So we look at that kind of cycle how we might integrate that into the trading day – when would be key times in the day to take recovery, we look at when might key times be in the day when the trader knows they’re going to be under high cognitive load to make sure we have fuel available. We look at how we get a constant stream of energy through the day instead of avoiding peaks and troughs and energy flow. We look at food groups and what foods maybe are more useful or less useful but I wouldn’t go into here’s the exact foods to eat at an exact time to eat on a Monday to Sunday basis.
[19:31]Houston: Gotcha – that makes a lot of sense.
[19:35]Steve: I would say probably key principles I would say is as granular as I get down to so I give them the framework and the guidance and just let them play around it a little bit and personalize it themselves.
[19:47]Houston: Yeah, this sound like the folks you’re working with are more like – I think most traders are this way if they’ve been in the business for any amount of time – they’re a pretty motivated group of individuals right? So, do you find things even if you’re very motivated, do you find things that continuously trip up very motivated individuals? Are there things that just kind of get people blocked or stuck?
[19:08]Steve: There can be a few things; certainly one thing over the last few years has been for experienced traders – when things change, when market conditions change – that’s a big tripping block for people. So they’ve been successful trading in one way, markets change then suddenly you’re doing the same thing and getting the same results and is it a temporary change, how long will it last, do I need to change now, do I wait till next week? So, psychologically the uncertainty that comes with that change is very challenging for experienced traders (Houston: right); obviously, losing runs which could be a function of change – losing runs psychologically is very difficult for some people; winning runs, you know can be equally as much of factor that can trip people up – the over-confidence and the euphoria that can come from extended winning runs and the complacency. So, I think at the higher end of the spectrum, it tends to be some kind of change event or it tends to be where the nervous system is being stretched towards the extremes – either towards the above average wins or above average losses.
[21:36]Houston: And a book that came to mind when you were talking about that was that great book – The Hour between Dog and Wolf (Steve: absolutely) it has that great story of a number of traders having great runs and then followed by disastrous runs and …
[21:41]Steve: We see that all the time – I’m working with thousands of traders a year so you come across similar patterns (Houston: yeah) and that is for a lot of people is a repeatable patterns in terms of runs of profit followed by runs of losses and then it gets down to position sizing, how we manage our position sizes and when we’re winning versus when we’re losing but there are a whole lot of factors which come into play. But in fact, we’ve all got a very similar nervous system so when we’re winning, we can’t help but get a bit excited that’s what the nervous system does. (Houston: It’s the physiology, right – exactly) It’s physiological, exactly. So, it’s biological – it’s outside of our conscious control and this is the way training and over time experience and having some techniques and having the awareness of this how to manage it is really important; it’s not so much we can stop the activation of the process, it’s just that we can then manage the process better. And I think, again this is an edge that experienced traders have – it’s that they’ve been through the highs and lows and each time you go through either a high or a low, you get an opportunity to learn how to manage that for yourself better.
[22:55]Houston: Yeah. That’s well said – especially if you survive that low.
[23:00]Steve: Well exactly, and this is the key thing – it’s all about survival of one high to the next high and survival of one low to the next low and this is why – if I can come back to what I said earlier about learning being such an important core skill because you want to be learning from the highs – you want to be learning about what made the high a high in the first place and how you maybe can extend a high or make the high higher next time. And, if a high became a low too quickly, you know, what happened there? (Houston: right) Also, when we’re at the lows, there’s a lot of learning there as well so I think all the time, if you’re on a high or a low, if you can keep the lenses open, what am I learning from there? Then that’s a real key skill to have as a performer; and certainly in sports at the highest levels that’s what they’re getting better and better at – they get really good at noticing when we didn’t play well, they really get into that which is natural because we played well but why was that really being as curious about success as we are about failure. (Houston: exactly) It’s what I would call a differentiator between the great and the good.
[23:07]Houston: Yeah and that really brings up a couple of question that I would love to ask about that: maybe the first one I will is just around – maybe I’ll take it this way first – so you talked about trading edges there so beyond just having a positive expectancy in terms of a system or set up you maybe trading or a playbook of set ups you may be trading; what other edges should trades be trying to develop? So, you said that one already – it sounds like the one you just talked about there is having a resiliency or having to be reflective and learning at whatever stage you are at – are there any other edges that you want to call out that people need to develop or do you see in real peak performers?
[24:49]Steve: Yeah, I think resiliency is a really important one as you mentioned; I would say creativity (inaudible[19:19]) I would say an opportunity seeker, I would say that’s a real edge that people can have, having that real ability to be able to look at things a bit like, I guess like a puzzle and always looking for ways or opportunities. If you’ve got that kind of mindset, that can be a real edge for sure. (Houston: Yeah) I think there are people who for whatever reason are able to either through genetics or through learned experiences, are less reactive to the swings, the emotional and the stress wings that trading brings; so developing the ability to be able to manage the highs and lows at a physiological level can be a massive edge. I think that on a mental side: things like concentration and focus, distractibility I think is strongly linked to discipline so if you can maintain focus on the right things – doing the right things at the right time – I think attention and focus becomes a real key edge. Experience can be a big edge I would say; the energy we talked about earlier can be a massive edge over time. I think another key edge actually, outside of the person can be the environment that somebody is in – they will have an environmental edge in terms of where you’re sitting, where you’re trading from, people around you – that can be an edge. So, I think there are multiple edges and certainly one of the things that have been popular in the UK is this concept of marginal gains which is something that came through from the British cycling team from Dave Brailsford and it’s really about this sort of aggregation of small improvements; and I see that really as being small edges. If we are a bit fresher than the guy next to us or a bit fresher than the guy we’re trading against, if we’re that little more attentive, if we’re a bit more disciplined, a bit more focused and if we’re a bit more experienced, if we’re a bit more resilient – any one of those maybe quite marginal but once you start to put all these things together (Houston: right) and this is one of my key philosophies and in working with people is: let’s be looking at what can we do to improve more readily, what more changes can we make (Houston: yeah) but it’s putting all these things together where I think the real magic begins to happen.
[27:23]Houston: So well said, and I love the idea as well – the study of small gains because it seems people are always looking for the really big gains or at least they want to have that pivotal turning moment when everything just suddenly shifts and changes and that rarely happens, right? It’s kind of a storybook kind of thing, you don’t really see that play out and, it’s not sustainable if that happens usually?
[27:46]Steve: As a coach, it’s beautiful when you get it – you do get it every now and again when sometimes you just change somebody’s mindset, you can flick a switch and that can really send them in the right direction but the majority of the time, you know, it changes often – they say it’s evolutionary, not revolutionary; that’s probably good guidance for most of us when we are working towards change and performance improvement for me is purely a focus of behavior change. We do things differently to get better, so if we see it as being a revolutionary process around small changes, small improvements doing a little bit more of this or a bit less of that, or starting something new or stopping something you were doing before – it’s that process over time and that’s the key thing for people. It’s the process that takes effort overtime which becomes the key challenge for most people because that comes down to, have you got sufficient drive and motivation to sustain the energy required, to keep applying the effort over the time period required.
[28:55]Houston: Yeah, when you say that what it brings up for me, it sounds like the mark of a professional – the person who checks in everyday, puts the required effort in, has the sustained focus and motivation to do the process versus someone who’s maybe a gambler and wants to take shortcuts and wants to get the results right away without putting in the work.
[29:14]Steve: Certainly, and I think the one you bang on there and I think the one that is recognized and this is where it is really important is at the highest levels and of all the things that need to be done on a daily basis or a weekly basis, not all of those things will be enjoyable (Houston: right) so if get the highest levels of performance – and this true in trading, sports, chess, whatever it maybe , the military and so on – is the highest performers consistently doing a whole variety of things but within that variety there are going to be tasks which are going to be uncomfortable and unpleasant but they will do them regardless because their values and motivations will be strong enough that they will drive them through those tasks, irrespective of the level of discomfort. Lower down the hierarchy of performers, when people get in situations which are uncomfortable our natural tendency becomes to avoid, you know (Houston: right) we are averse to discomfort so we tend to focus on the trades that we like or we do the tasks that we enjoy doing and we’re not as good at the things that we don’t enjoy. That again is a major distinction between good and great – is who is willing to do uncomfortable.
[30:35]Houston: Right, and so let’s go back again to that idea of managing our highs and our lows and the second thought I had around that was when you were saying that; to me it kind of ties into this ability to be reflective but then also this idea of being accepting where you are. So, if you are in a low, you can try to block that and say “this is not really a low” and kind of suppress or ignore those feelings but we just talked about there the greats are the ones who really accept where they are in that cycle, can really be honest with themselves and not maybe give it a negative spin or even a positive spin but just to be aware and cognizant of where they are at without sugar coating it or making it worse than it is. So, a lot of that just seems to be tied to maybe one of the elements that are in your book – this idea of mindfulness and being able to be present in that moment and the situation that you are in.
[31:39]Steve: Yeah, I’m not ignoring the beauties of – mindfulness can be a big topic – and there’s a huge collection of techniques and strategies and practices and so on so there’s also within mindfulness some very simple but I guess very beautiful principles and I think one of them is this idea around what you experience in the moment, it’s kind of what is in that moment and being open to – and you use the word Houston, which is absolutely the right thing – this idea of acceptance in this moment right now the experience I am having is my experience and being open to that and as you say at the highs and at the lows it tends to be harder but if we’re not accepting of that, then really what it means is that we’re either suppressing or we’re denying that. (Houston: yeah) One of the things about around being in a particular emotional low or such, is you’ve also got a potential whole number of challenging emotions that you go through but it might be anger, frustration, there could be some blame and if we are not open to that then those emotions stay within us; and any emotion that is inside us, kind of lingering around is very likely to have an influence on our next decision, our next trade, or our next investment. So we need to be skilled in dealing with the highs and the lows and an awareness of what is going on and also having that acceptance around that right now. Once you’re, in a kind of mode of acceptance, it’s much easier to move forward into what’s the appropriate action to take but also as you’re taking that action from a situation of acceptance, you’re doing it with less influence from the emotions that maybe affecting you not feeling the excitement and the euphoria at the highs or it could be the fear and anxiety at the lows; but without the acceptance, then we’re in denial and suppression and that’s not a great place to be.
[33:53]Houston: Yeah, so true. Only with acceptance, can you maybe prevent things from snowballing out of control and if you’re sliding downwards and you don’t want to increase the pace and velocity of that slide and I’ve heard stories of people running up accounts and then running them back down just as quickly – it’s the same thing – people are just not being aware f exactly where they are at that point and just letting it kind of take over and things kind of go parabolic at that time.
[34:25]Steve: Yeah, I mean, if we’re not in acceptance then we’re in aversion (Houston: yeah) and we all know that in trading one of the big challenge s lots of aversion – we don’t like taking losses – why, because they are uncomfortable. So, we’ve got an aversive response and if we were accepting of the sensations of discomfort and if we were more open to that, then by nature we would reduce our aversion. So, immediately we would have a big shift in our trading behavior; if we were more open to the discomfort of feeling regret then we would get a big shift in our behavior, if we were more open to accepting the feelings of uncertainty and the anxiety that brings, if we were more open to that immediately we would get a big shift in our behavior. So, I think for all traders, the bid challenge is – and this is where I think mindfulness has quite a bit to offer – it is in the relationship between what we have an aversion to and the impact to our trading behavior and on the flip side being more open to that, being more willing and being more accepting of that experience and learning to be open to an experience and managing that discomfort. I think when people can get to that, that’s where they can see real tangible shifts in their trading behavior.
[35:45]Houston: So maybe I this time, I’ll just give your book a quick plug – I think the book is Trader Mind and I’ll let Steve talk more about it, what’s inside that book because it’s a pretty big – it’s a thick book – it has a lot of stuff in it, it’s really packed but there are elements in that book that has to deal with incorporating mindfulness into your trading and Steve goes at it from a very practical perspective, not just an airy, fairy approach to incorporating mindfulness but it’s really very practical, and you have some really good exercises. There’s mindfulness in there but there’s also a lot of stuff around behavior and psychology so Steve, I’ll let you maybe just talk about the book which came out in 2014- is that right?
[35:27]Houston: 2015, I’m sorry.
[35:28]Steve: My apologies let me think now – it might be in 2014, you might be right. (Both laughs) You probably know more than I do. So, the book evolved really Houston from a growing I guess curiosity, around mindfulness in general which probably started for me in about 2009; having read a bit, seen a bit on some of the news and in the papers, been to a few conferences and talk, I did some studying myself, did a whole number of courses as a student then became a teacher of mindfulness. I started experimenting and using it with my trading clients – they really enjoyed the techniques – so it was actually things that you could do so they were physical practices rather than just theories and concepts and as I guess over the years they became my guinea pig so I tried it out on more and more people in different ways, blended it into my current approaches. I guess the book is kind of based around a combination of factors: one, I think mindfulness now is quite main stream so the timing was good to cover that topic with traders. I think traders, investors were curious about it from what they were reading; the practical experience I had working with my own clients was really positive in terms of their feedback and the gains they noticed, so I just really tried to package all of that in a book. I always – through my approach – I’ve always kind of favored a practical type approach, I tried to make that pretty central because mindfulness can be seen as – you said the phrase – airy, fairy it can be seen in that way a little bit sometimes so I try to may sure there is plenty of solid research in the book so it’s slightly more research heavy than my first book because I was consciously trying to make sure people really got why it was important and some of the neuroscience behind it. And like you said, I’ve also done – it’s not a pure mindfulness book – it’s a mindfulness based book and so the approach is from acceptance therapy, from performance psychology to a bit of visualization in there; there’s some work around habits and behavior so it’s kind of mindfulness based but it’s not mindfulness in its entirety and I think that we’ve got in there: it covers stuff on how to use mindfulness approach to managing thinking, dealing with stress pressure, emotions, energy, the highs and lows of winning that we’ve touched on and at the end of the book I’ve tried to put in for people an eight week program so that once you’ve read the book or as you read the book – to try and build on the idea around mindfulness. Mindfulness is a skill, so it’s all about the practice so that again was an intention behind the book was to encourage people to adopt a regular practice even if it’s just a few minutes a day – just to do something regular but often.
[39:32]Houston: Do you have any – I’m putting you in a spot here – but do you have any techniques or practices that you can share that can maybe help people who struggle with impulse control or maybe issues around self control or discipline?
[39:45]Steve: Okay, so I think when we look at impulse control and discipline what was often happening is there’s a lack of awareness fundamentally. So, we keep noticing it until it’s too late, so to reduce impulsivity – there are many ways – but just one way we’ll look at. I think the fundamental skill is awareness – this is a very quick and simple technique – it’s called the triangle of awareness, so if you’re imagining an equilateral triangle and then at the top apex we have body sensations and then along the bottom two apexes we’ve got thoughts and emotions. So those kinds of three components of our experiences that we have moment to moment, as we move from this moment into the next moment and into the next moment, we might be noticing shifting in our body sensations in terms of heart rate, breathing, muscle tension, we might see shift in our thoughts, we might see shifts in how we’re feeling. So, a good starting point n mindfulness is to take the triangle of awareness and then regularly during the trading day – maybe every hour to begin with – set an alarm on the phone or on your computer and when it beeps, just take a few moments and just work your way through that triangle. Just check it – what am I noticing in the body right now? (Houston: yeah) What am I noticing in my thinking right now? What am I noticing in my feeling system, emotional feelings, and physical feelings, right now? And just begin to bring that awareness and then what you can start to do, if you want to go further is to take it as a natural technique for two or three minutes and actually sit down and spend two or three minutes working through the triangle. So, just really learning to begin to be in your experience and noticing what’s happening while it’s actually happening from moment to moment and be aware of these shifts; and that’s fundamentally what mindfulness is about – it’s about developing moment to moment awareness, noticing what’s happening while it’s happening and then what happens is when you have an impulse or an urge which we all get, most of s we don’t really recognize it till the impulse or urge is really strong. So, our awareness is coming too late and now the impulse is strong, it feels really uncomfortable to act on the impulse so to get rid of the discomfort we take action on the impulse; you kind of get a short term gain – it feels good acting on the impulse – the challenge in trading and investing is that now often the impulsive behavior in the short term leads to a long term negative effect. So, we might be in a winning trade and we get the impulse to jump out of the trade, we get out of the trade early and then we see it go on to get a profit or the impulse might be to stay in a losing trade to avoid the discomfort of losing so we stay in the trade in the short term to feel better but in the long term the trade becomes a bigger loser. What we need to be able to do is to be able to get better at identifying the changes in our experiences earlier so it’s all about having that awareness and then particularly with impulses and urges, once you start to notice an impulse or urge it can be very interesting to pay attention to where that impulse or urge is in the body. There’s a great technique that I talk about in the book called urge surfing – it came from some work in addiction therapy where the addicts are advised to beware of the urges to drink or to smoke or take drugs. The whole idea is that the urge starts like a ripple in the ocean and the urge gets bigger and bigger and bigger and the wave kind of increases in size and at the peak of the wave when we are most likely to act on the urge but if people can get better at noticing the urge earlier then that has a big impact on the success rate of riding the wave and such. One you’re on the wave, you kind of maintain awareness of the urge then that also can help you through the experience so I think that just that basic awareness is critical and you can use it anytime – we have all had moments in trading where we’re more at risk than not – so once we know where our crucial moments are, they are the times to check in what’s happening with my thinking right now, what’s going on with my feeling system because the more aware you are of any of those three points the less influence it will have on you. I guess, I have done it in a very long winded way but this really the key thing – the awareness reduces the influence of those areas.
[44:48]Houston: And what I’m also hearing you say is that we should not actually try to change those impulses, right – you’re not trying to get rid of those feelings or emotions that are bubbling, which some people try to suppress them or maybe try to control them – you’re simply trying to apply some awareness to it to create that space maybe to make better decisions or to maybe change your course of actions?
[45:13]Steve: Yeah, you’ve picked up on a really key point there which I’m really pleased that you’ve done – I guess in old psychology we talk about controlled emotions, controlled impulses, controlled thinking and so on. I think we are in a shift being lead by neuroscience and I think we see this replicated in the mindfulness types studies around, this is again going back to the acceptance and noticing and been aware of being open to and we are experiencing it without the need to have to control it. (Houston: right) The challenge with suppression whether it be of an impulse or be a thought or whether it be an emotion is the suppression is energy hungry, so it is a bit like if you imagine holding a beach ball. Suppression is the equivalent, you have got a beach ball, you’re in the water and you are holding the ball under the water. So the ball hasn’t gone away, the ball is still there and you are using energy to hold it under, but what it means for us as traders is – when we are in suppression mode of either thinking, emotions, impulses, whatever it might be, we are taking our attention internal and what it means is we lose situational awareness of what is going on around us externally, so we start to miss out on what is going on, on the screens around us as we go internal in suppression and we are using up vital brain energy by doing that. Then also what happens eventually is at some point if we then at a later date forget about what we are doing, we take our hands off the ball, the ball now comes flying out of the water and this is what I talk about when traders are involved in revenge trading or when they are kind of tracing loses, where they kind of get over excitement and too much euphoria is if we try and suppress these emotions or these impulses they don’t go anywhere they are going to coming out later at some point and they come out with greater charge, but if we can, so the metaphor would be basically I guess: if we can have the beach ball but have it on the water, so we are aware it is there, we are not trying to suppress it, likewise we are not playing with it, we are not throwing in the air and indulging in it, but we just got an awareness that it is there, then we could take anything that could be useful from that, cause particularly with emotions, emotions can give us quite interesting data about what is going on around us, but likewise we are not using up any more energy than we need to and we are not getting the adverse effects of it which I think is really critical.
[47:46]Houston: Nice, that’s very helpful, because you are right, like I think the old school literature always been try to control or suppress our emotions and as you just said there our emotions are just another stream of information that can yield a lot of interesting tidbits.
[48:05]Steve: When I do work with traders and emotions. The classic example I give to people is fear, if we look at the emotion of fear for sure we can all Google or go into our search engines, type in emotions in trading or fear in trading, we would find multiple articles around kind of how to trade without trade fear and I would say okay great, so let me give you an situation. Skip outside of trading, let’s imagine a book called Live Without Fear and again there probably have been books like that are very similar, but then we have to look at okay well, if we have fear, if we look at it purely through evolutionary terms, it would be no sense in us having a feeling that was unimportant, so we wouldn’t have fear unless at some point we needed fear, so what this fear do. Basically fear is the emotion we get when the brain has detected a potential threat and before we had the cognitive brain, before we had the kind of higher brain and we were working purely from emotions and such, we would be out, we would sense some danger very quickly, the brain would alert us to the danger through the emotion of fear, that would then mobilize energy, so that if we needed to we could then go into flight, fight or freeze. Now if we were humans without fear, most of us would be dead by now, if we were traders without fear it would be exactly the same, why would we not want to be aware of the risk in the market cause that it what fear tells us, it is telling you about potential risks. On the flip side of that excitement, when do we get excited when we see a potential opportunity it’s a reward alert, so when we are out and about wherever we are, if we detect an opportunity, we might be in a bar, we might see a (inaudible[50:04]) with a potential partner in a bar, it could be on the trading screens a setup coming up, but we will know that there is an opportunity, cause the brain will quicker than we can think it will detect that, it will come through the limbic system and then we will get this feeling of excitement which again mobilizes energy so we can act on it should we wish to, so as you say, emotions are basically the data, is a continual stream of data, it is information processing from the world around us faster than conscious thought and critically it’s also mobilizing the energy so we can act on it. If we look at fear and excitement essentially, they are two emotions that often traders go “I don’t want to get any fear, I don’t want to get too excited”, but without any of that you would miss out on fundamentally what trading is all about, which is risk and reward.
[50:55]Houston: Yeah, so there’s nothing left?
[50:58]Steve: Nothing left, exactly and even if you consciously identify the threat or you can consciously identify opportunity, you would have no energy mobilized to act on it, so the goal is not to be without these impulses or emotions, but is to be able to work with them much more effectively for sure at the extremes they can definitely get in the way, so we will be able to regulate and manage, but we don’t want to be in the absence of either, because it actually can provide real edge in terms of our situational awareness what’s going on around us.
[50:30]Houston: Well said, so is this one final talking point I will try to weave in here is. How this kind of tie into then the role of intuition, we hear a lot of traders especially you quote in your book and bring out a few really good examples of some of the trading greats like George Sorrows, I think he is as an example of him making some gut decisions and trusting his gut make these trading decisions, what’s then is how do we weave that in with what we have been talking about as emotions and tuition, do they play together, are they connected. What are your thoughts around that?
[52:10]Steve: Yeah, definitely connected, because again we are into that kind of feeling system. The feeling system is kind of very fast; I guess, with intuition people tend to be in one or two camps and I am always curious when I do workshops with traders, I always kind of ask who is in favor of intuition and who is against it. The fact of the matter we all have intuitive capabilities, because it is coming in through the feeling system and if we kind of get a gut feel. We know that a gut feel is a real physiological entity and again as you mentioned John (inaudible [52:46]) book, so he talks about some things in there so we know that the neurobiology of gut feel is real, so we got these kind of I would call them unconscious intelligences – they are signals that we are getting about what is going on around us and certainly if I speak to experienced people in special forces as exactly the same as experienced investors and traders, they would all talk about how it plays a role in their decision making. I would clarify that it is not always the main factor, so it is not that they are acting purely on gut feel, but likewise they are not ignoring their guts, so typically with fund managers here they had a feeling about a stock, maybe they felt it is going to be good, but they were then going to check it out, so they kind of combining that the intuition, the feeling and then they are combining that with some thinking in terms of going and physically checking it out or maybe they get a feeling about this doesn’t feel quite right or it doesn’t feel quite right again I will check it out, maybe do a bit more research, speak to somebody, you what actually I may have been right, it may have been wrong. It’s another part of the arsenal of the tool kit that people can have should they wish to use it and I think particularly as you go to maybe shorter time rate trading where it is kind of a much more of a flow type experience where you probably are much more kind of in the zone has a much more feel to it, then probably things like pattern recognition this have been learnt implicitly outside of conscious awareness all start we probably play a much more bigger role so if you a three to five year time horizon investor we kind of going into corporate meetings and lots of research and analysis, maybe it is little bit less of a function of what might be there, but you might still get some hunches, intuitions and gut feels about people in meetings and kind of how things are going, but it is not magic, it’s developed through experience, it’s basically where you are learning things implicitly without knowing you are learning them and then getting signals from the brain, from the gut as there are familiarities coming in your kind of present moment experience, so I would say certainly, I would say the top traders I work with there is probably a bias towards those people utilizing in some way intuitional gut feeling or saying it plays at least some role in what they do.
[55:18]Houston: Fascinating and I wonder if those with those individuals, I wonder if it is something they actually, is it something that they are harnessing, or trying to allow to show up or try to blocking those things outright that you talked in the beginning about some folks they try to deny any existence of intuition so they just want to play by the rules or their trade plan, and you maybe have that flip side where people might say I want to listen to this, and I’m actually going to cultivate it and see what comes out of it and see if I can actually harness it?
[55:52]Steve: Yeah, I think that’s the decision we all have to make for ourselves, it’s almost like we’ve got the ability there, and some people are through genetics or through learning, through where they’ve grown up are much more open to that or are much more used to that, or not so. So some people are very quantitative and it’s that we kinda have to be very rational and very measured. And those people generally less likely to be intuitive, but those people who are qualitative and kind of much more using the feeling system and are maybe more in tuned with that. So there will be some kind of genetic stroke of cultural differences in peoples’ upbringing, and a sort of openness to it and then the word you use that is a great word, I think is cultivated and then I think we are open to it; then the skill is can you actually make it into an edge, and then really it’s how to cultivate it. So A: it takes time, you can’t just turn it on and it’s there. It’s very domain specific, so your intuition is around maybe trading stocks which could be different to FX, you need to be specific to the domain to the market in which you are trading so you need to build up experience in those specific fields, and you can’t just be globally spread around everywhere. So you need emersion to do that, you need to put in lots of hours of practice, so you would probably want to get into some kind of analysis and reviewing so, maybe if you act on an intuitive hunch, record it – what happened – if you didn’t record it what happened? You need to build up that kind of data bank to really get a feel as to whether you can trust it and rely on it enough and you can also do things like mental rehearsal and visualization which can also help to build that intuitive feeling by replaying situations, pre-playing situations, so it’s just about getting enough market hours to really build that field; so cultivation is exactly the right word.
[58:08]Houston: Great advice and so, I’ll just pull up one final passage from the book. I thought about it before but I could never verbalize it but how do you tell the difference between intuitions versus just an impulse? Do you have any thoughts around that you can share?
[58:24]Steve: Let me just share – It’s something that I read in Denise’s book – Market Mind Games – which she kind of talks about the distinction: is it kind of a slow moving kind of type feeling, or is it kind of an aggressively type, got to do it right now type feeling. You know and I think it’s quite hard because we can’t quantify and it’s even quite hard as an individual to work out what it is, but I think just having that in mind a slow burner versus a quick jump straight on me I have to act straight away. Having that almost at the two end of the continuum is I think a useful differentiator. But it’s the question we all struggled with, how do we know which one is intuition, or is it in to wishing? I think we use it in trading a little bit so again this is where the experience comes in, and I think that another thing that we could use as the differentiator and it’s just come to my mind is if emotion or stress levels are high then for most people our intuitive abilities are probably reduced. So at emotional highs or at stress level kind of highs, then we probably want to become a bit more wary about our intuition and that’s where maybe it’s going to be kind of jumping on as quick or as aggressive whereas in a kind of middle range and that’s our normal operating system we get a slow burn o, the sensing, the feeling which is more truly and intuitive type feel.
[1:00:04]Houston: Great distinction there and I think just to tie that in – we need to have that kind of awareness; if you can’t recognize these things you were just describing, then it will be very, very difficult to tell the difference. So cultivating that awareness is probably the most important skill
[1:00:22]Steve: Absolutely, and so in the body, we all know about the five main senses, and then there is our sixth sense which is basically called inter-reception. Inter-reception is the ability of the brain to read the signals in the body and it’s very high in athletes, it’s very high in Special Forces soldiers so they got very good mind body connection. Now, inter-reception can be developed through mindfulness practices, particularly ones where there is movements involved; you can do mindful walking, you can do mindful exercising, mindful stretching, yoga is a good example. Also mindful practices where we are tuning into the body, a practice called the body scalp – what we are basically training ourselves to do is to become more open to the signals in the body – now my senses – where people have got stronger levels of inter-reception where their sixth sense is higher, then probably gut feel and intuition are going to be stronger. So again, intuition is an ability we’ve got, you use the word cultivate practices, so we could use mindfulness based practices particularly the body based ones, you know, to cultivate that through a very tangible process, so to almost accelerate our ability to get it. So it’s almost like a radio signal, and we all we have the radio signal there and I think what the cultivation process does Houston, is it kind of cleans it up and it makes the signal stronger and I think when the signal is stronger and clearer then it will more maybe bring into our decision making.
[1:02:04]Houston: Yeah that’s beautiful, that’s a great, great point. So let’s begin to wrap things down, so I know you’ve written a couple of books but do you have any other projects to share, that you are working on, to share with the audience?
[1:02:21]Steve: Yeah, there are a couple of things to look at very quickly; one, is we touched on it a little earlier – there’s some really interesting work that I’m doing some research looking at the physiological side of trading, so what’s going on around stress, recovery, activity levels? Certainly with my institutional guys we see a lot of high demand scenarios and an absence of good recovery so we look at how to build energy, how to build recovery. Again, it’s all built around this idea that no matter how good the capability is, we want capacity to be high and what we’re seeing is that energy is a big part of that capacity. So I think that it’s really interesting stuff to do and even for people trading at home – be aware of our energy levels, be aware of the times and things that require energy, the things that draw energy, the things that give you energy. No matter how good your brain is, it still needs fuelling and its taking fuel from the body and I think that’s a real key thing; don’t overlook and don’t play down the importance of energy in terms or your trading and then really, I guess the other thing is potentially maybe another book on the way as I mentioned briefly before. Again I’m really interested in this idea around the nervous system and what’s going on in the nervous system; John Cozer talks about this in his book, John did great job in explaining what’s going on and I think the next level is some tools and techniques and practices that can really help to manage that so I’m quite keen on putting something out over the next year or two around what we can do in that domain.
[1:03:57]Houston: I love that angle, and I’ll be watching so Steve please, share with us as your work progresses, because I really respect the work you’re doing and again I‘ll just give your book a plug, it’s Trader Mind, and I’m putting it as one of my top recommended books around trading psychology – it’s probably one of my favorites right now – but I’m curious do you have any books that you really like, whether it’s trading related or not related to trading, do you have any book that you often recommend to people?
[1:04:23]Steve: I’ve got an extensive – I’m looking round – I’m sitting in my office and I’ve got literally about four book shelves with probably two, three hundred books up there, and another sixty-five on the Kindle. So I give you a quick selection of ones, there may be too many here, but a few that come to mind. I think the Market Wizards books and Hedge Fund Wizards books by Jack Schwager; it’s fantastic and should be a definite read for people, I think all the books that (inaudible[1:04:54]) has done are superb on the trading psychology front. Likewise Denise Shull with Market Mind Games – great book; John Coates’ book you talked about The hour between Dog and Wolf is also a great book. Slightly away from trading, there is a book called Mind-set by Carol Dweck, who is at Stanford – phenomenal book definitely in my top ten books of all time. There’s a great book around attention focus with kind of a mindfulness crossover called Focus by Daniel Goldman, which again I think that’s a superb read; there is a guy called Matthew Sayed, ex-table tennis player turn sports writer, he writes for the Times here in the UK – he has done two brilliant books one called Bounce – all about talent and talent development. And his latest book called Black Box – Thinking all about failure and success. And on the mindfulness side probably Full Catastrophe Living, by Jon Kabat-Zinn which is obviously a classic in that field. Another book – it’s probably a curve ball but it’s one that I absolutely love, it’s a book called The Rise of Superman, I don’t know if you’ve read it yet Houston. (Houston: yeah, I have it’s a great book) That’s one of my favorite books – it’s all about flow and phenomenal; it’s one of the books I read last year and I think there is not maybe as much in there for the trader but there are just some of the ideas around flow, peak performance and the neuroscience behind the flow and it’s just fascinating, so I think it’s just an interesting read.
[1:06:27]Houston: Those are some great titles – thank you for sharing. So just one final question, if people have enjoyed this conversation today Steve, what’s the best way for them to stay in contact with you, or if they want to reach out to you, or follow you. What’s the best place they can do that?
[1:06:39]Houston: Awesome; it’s been a beautiful conversation today; I really had a lot of fun, so I appreciate your time today.
[1:06:55]Steve: Thanks for the invitation, I thoroughly enjoyed it and yeah, thanks very much again.
[1:06:59]Houston: You bet – so as usual you can find all the show notes, all the transcripts and all the books that Steve mentioned there – I’ll put them on the resources page and you can find that on thetradingedge.org/episode22. Thanks again, Take care.
http://www.highperformanceglobal.com – Steve’s website
– Steve’s book – TraderMind: Get a Mindful Edge in the Markets
MTA Interview With Steve On Mindfulness For Traders
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