Article 3 – Building your Trading Resilience

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Building your Trading Resilience

US PGA Championship - Final chance of the season to win a major! – 9-12 August 2018


The On-Course View

The US PGA Championship is the final major championship of 2018 so for all but three players (this year’s previous Major winners) it is the last opportunity of the year to make it an exceptional one. Major Championships are life-changing not only for the financial benefits they bring with them but also in terms of the increased stature and credibility that a player receives from becoming a major winner. They join an elite club. The finest players of a generation are defined by major championships and the world’s finest players will be eager to demonstrate their quality and highly motivated for this week’s event.

The effect of this is that the pressure valve is ratcheted up a notch or two when it comes to player’s performance levels. Major winners are a rare breed, multiple major winners rarer still. The opportunity to add their names to the Wanamaker is what will have all the player’s minds focused. What has gone before this season no longer matters.

To win they will have to hold their nerve for 72 holes and fight off challenges from the finest players in the world. This will be a test of both skill and will. One thing is for certain is that there will be periods of time when things will go wrong and when their swings, nerve or putting stroke will abandon them! The player who will triumph will be the one who has the mental resilience and fortitude to endure during these necessary phases of the game.

Here are some of the techniques that players will be employing to mitigate this risk during the 72-hole challenge that awaits them:

1. Play to a plan – It is essential to play to a plan! In the heat of competition, a player’s emotions will rise and fall. If their decision-making does so in parallel, they will be doomed. Mistakes will happen, and one mistake is never a problem, but if they are compounded one after another then major championships have a habit of dispersing into the ether! Players must avoid this by having the structure and disciple to play to a plan. They will have mapped out how they will play the course, considering the fact that conditions and the lay out of the course may change. These will have even factored into B, C and D plans. This type of planning reduces the need for too much tactical thinking during the heat of battle. Allowing them to conserve energy and focus on course correction when things inevitably do not go to plan.

2. Preparation – "Everyone has a plan until they get hit" - the old boxing adage rings true and to win a major, players will need to dig deep. The pressure of the final nine holes of a Major Championship is uniquely and to cope with these types of situations players need to know how your body and mind will react during periods of high stress. Players must train and prepare for these periods so that they know not only how they will react but that also how to entrench the necessary coping mechanisms. A well-trained professional will use these conditions to elevate their performance to even higher levels such as Francesco Molinari in The Open Championship in July of this year. Players who have not prepared appropriately or who do not have the necessary processes in place will simply be unable to endure the sustained pressure that winning a major requires. Planning and training for the necessary "discomfort" that winning a Major requires is essential. Easy is to be avoided as winning a major is not easy, it’s mentally and emotionally challenging. So, don’t avoid preparing for the reality, embrace and be excited by the challenge!

3. Awareness of your thought patterns - Thoughts lead to emotions and emotions can surge like unstoppable waves, wrecking performances. So, learning how to think in effective patterns can create positive and helpful emotions. Poor thinking patterns can lead to waves of emotion that lead to erratic behaviour and poor performances and past major championships are littered with examples of situations where players in moments of high stress throw away the opportunity to win due to being unable to manage the moment. Golf is a series of individual challenges that take place one after each other. Our brains have evolved to link these events together and create narratives or stories about what is happening. The greatest players are able to see past this phenomenon reminding themselves that all they can do at any one moment is to be fully engaged and committed to that moment. Each shot requires our best effort.  In the end, that is all we can do - give our best on each shot. Though our minds are prone to look ahead as to what may occur or reflect into the past of what might have been, the true champion anchors himself in the present and deals with what matters most. The next shot. As Johann Wolfgang von Goethe noted “things that matter most should never be at the mercy of things that matter least.”

Excelling at the highest level of the game is about creating a mindset and attitude that allows players to thrive in pressurized moments. This may appear easy, like it’s part of their nature but the truth is it isn’t. It’s born of a million errors, mistakes and course corrections. Francesco Molinari’s calm demeanour whilst winning the last Major demonstrated how effective his coping mechanisms were. He experienced the same situation and circumstances as the other players. He simply processed it better. It was not easier for him. He simply was more prepared to deal with the challenges than his competitors. This week will be no different with the player who wins the US PGA and who will enter the history books of the game being the e one who will have developed their resilience most effectively.

The On-Market View

Resilience, whether known as "golf toughness," at the course or "market toughness" for traders, originated from a key psychological aspect mostly associated to sport performances, but nowadays applicable to all departments of life.  The ability to bounce back from a poor performance or a detrimental mistake is crucial to an athlete, as much as it would be for a trader, as the core reason is to still be in-the-game. As much as traders hate to admit it, losses are simply part of trading, so are making mistakes just part of being human.

At present and in the world of finance, traders are occasionally knocked back and forth by the market’s volatility, which is then reflected in the ebb and flow of their trade performances, as well as in their trading account.  

As for traders, the research team here at FP Markets have learnt that there are many ways in which traders could respond to setbacks, predominantly to losses. The distinction amongst these traders could easily be categorised into three major groups, as follows:

  • The Revenger

    The Revengers, they seem not to give up even after multiple loses, often by increasing their risk-taking. They were clearly frustrated with their losses, but their primary aim is driven by the need to get the money back. They refuse to quit. They blame the market for playing them out and would believe that it will soon reverse whilst redoubling their trading efforts.

  • The Risk-averse Trader

    Risk-averse traders could also be frustrated with their losses, but their primary objective is to not allow those losses to pile up. These traders takes breaks between their trading activities, calms themselves down, and often stops trading for the remainder of the day.  Their main goals are to regain emotional equilibrium and not let frustration drive their decision making.

  • The Reality Checker

    Reality checkers are no different from the others, because they are also frustrated with their losses but they don’t stop their trading activities. Instead, they determinedly track down the sources of their poor trading and would continue to analyse the markets further, until they figured out where they may have missed something or made a mistake. Only once all information has been gathered to their satisfaction, will they return to trading.

Out of the three groups mentioned above, the ‘Reality Checkers’, over time, prove to be the most successful ones. They were every bit as frustrated as the first two groups, but they can direct their frustration towards their betterment. This basically means that they have operated with a growth mindset. They stayed engaged in the process of analysing the markets constructively and were not discouraged to go back to basics, if necessary. It wasn't so much that they had mastered the markets; rather, they mastered the course of turning setbacks into learning successes.

So what are some actions you can take to begin building your trading resilience?

It will take some work and patience that won’t happen overnight, but here are the Top Three Tips for you to begin the process of creating some resilience in trading the financial markets:

1. Have a Trade Plan. 

Like a Golfer with a set of game plans, a trader could have a short, medium and long-term trade set up in order to trade the markets in accordance to his goals or risk appetite. This will allow traders to be more organized whilst help them work towards an attainable goal while levelling out the short-term bumps. The ride will be much smoother if there is a  Standard Operating Procedure (S.O.P) so as to know where we are going. Plan the Trade and Trade the Plan whilst giving you the freedom to modify based on circumstances.

2. Accept that Trading is a game of Probability, not Certainty. 

The reality is, you will experience losses. Even pro traders do. Decide to cut your losses early if things don’t go to your Plan. Try viewing your little setbacks pertaining to your trades, as challenges and as an opportunity to build your mental or emotional resolve. Use both winnings and losses as important feedback that can be looked at after.

3. Become emotionally aware.

Developing market toughness involves becoming more emotionally aware; remember you can’t change what you don’t already know. Pay attention to both the negative emotions that block your ideal trading state and lead your emotions down a spiral, as well as the positive emotions that can elevate you skywards. Consistency in one’s trade performances is about focusing on the set ups in accordance to your trade plan, minus the distraction emotionally from previous trades or future trade you be planning to execute.

Want to know more on ‘Building your Trading Resilience’? Register today for FP Markets newly launched ‘Building your Trading Resilience Series of Online Courses’.

WEBINARS - Building your Trading Resilience - Series of Online Courses

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