Wednesday, March 30, 2011

The Power of Focus............




Let’s take a break and look at some trading psychology tips. Today our ideas are coming from one of my favorite books that’s not really trading-oriented. We’re going to be looking at a few highlights from a book called “The Power Of Focus”, by Jack Canfield, Mark Hansen, and Les Hewitt. While there’s no way to do the book justice in our limited space here, hopefully you’ll take away some of the more important pieces of the book. And best of all, you’ll be able to apply them immediately.

Your habits will determine your future. This is not news to any of us, but what I found interesting was something of an aside in the book. The book contends that the results of bad habits don’t show up until well after the habit has been learned. That’s unfortunate too, as we all know that it’s incredibly difficult to unlearn something. The implication is that that you’ll be engaging in a destructive behavior, but you may not know it until it’s far too late to actually do anything about it. In fact, up to 90% of your everyday behavior is based on habits. Have you made it a habit to spend an hour a day preparing and doing trade research? Have you committed to waking up an hour earlier to plan your trading or work day? Or do you hit the snooze button a few times, and miss out on reviewing the news and charts of your positions? Habits are the key to success.

Your goals must have a number. And this doesn’t just mean the total returns on your trades, as an overall goal is still too ambiguous to actually use in making daily plans. You need to know how many trades per day, week, or month it will take to achieve your goal. Of course, you’ll also need to know what type of return you need to average on each trade to reach that goal. As the book states so accurately, “a goal without a number is just a slogan.”

Take decisive action. They say 80% of success is showing up, and that’s probably a pretty good rule of thumb. So how does one “show up” to be a trader? By taking trading action! And if you’re not taking the action you know you should be taking, you absolutely must understand and admit that you’re procrastinating. Stings, doesn’t it? But recognizing the truth is the first step to attacking any problem. The book explains six reasons for procrastination; think about which ones apply to you.
1) You’re bored.
2) You’re overwhelmed.
3) Your confidence has slipped.
4) You have low self-esteem.
5) You don’t enjoy what you do.
6) You’re easily distracted.

So, the reasons for your procrastinations may be diverse. However, the resolution of all of them is the same. The first thing you need to is ask yourself a LOT of questions — mostly “why” questions, but also a lot of “how” questions. Why are you bored? Why has your confidence slipped? Why don’t you enjoy trading? Then move on to the other set of questions. How can you feel less overwhelmed? How can you prevent distraction? How can you feel good about trading again? And finally, the last portion of the book details how you can cement that change, once you’re happy with your new you.

Become an active decision-maker. There is a difference between being willing to make decisions, and being proactive about making decisions – being proactive puts you in control. To do this, there are four steps to follow:
1) Think – About what action will best accomplish your goals, and why.
2) Ask – The questions that must be answered to make an intelligent decision.
3) Decide – Establish if-then scenarios for each option, and choose the best “then.”
4) Act – Then repeat the whole process, again and again.

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