I really enjoy your podcast and thank you for doing it. You are spot on and have added a lot of value to my thinking and challenged limiting mindsets I wasn’t even aware I had.
It would be really helpful if you talked about drawdowns and your “process” for getting through them and overcoming the standard human emotions they generate. Assuming someone is doing everything perfectly in their trend following execution (proper position sizing, diversified, ignoring the news, not looking at charts, using risk capital, etc.), do you have a process for getting through a drawdown when time marches on so slowly and our impulses are now now now?
Let’s say you believe trend following works how do you keep yourself sane and unemotional during difficult stretches. Do you have a process you use?
Thank you!
Kind Regards,
[Name]
Have you listened to all of my Basso, Faulkner and Seykota podcast episodes?
All of the psych pros across my podcast, i.e. Odean, Kahneman, Statman, Ariely, etc.? That’s just a few.
In 1995, psychologist Daniel Goleman published his best-seller Emotional Intelligence, a powerful case for broadening the meaning of intelligence to include our emotions. Drawing on brain and behavioral research, Goleman demonstrated why people with high IQs often flounder, while people with modest IQs often do extremely well. The factors that influence how well we do in life include self-awareness, self-discipline, intuition, empathy, and an ability to enter the flow of life, character traits most traders would not consider particularly useful for garnering profits from the markets.
Being self-aware also means understanding what you want out of life. You know what your goals and values are and you are able to stick to them. For instance, if you’re offered a high-paying job that doesn’t square with your values or your long-term goals, you can turn it down promptly and without regret. If one of your employees breaches corporate ethics, you deal with it instead of either ignoring it or worse yet making a half-hearted response because you pretend to yourself it won’t happen again.
Emotional self-control makes anyone more productive. However, Goleman is not saying we should repress our feelings of anxiety, fear, anger, or sadness. We must acknowledge and understand our emotions for what they are. Like animals, biological impulses drive our emotions. There is no way to escape them, but we can learn to self-regulate our feelings and, in so doing, manage them. Self-regulation is the ongoing inner conversation that emotionally intelligent engage in to be free from being prisoners of their feelings. If we are able to engage in such a conversation, we still feel bad moods and emotional impulses just as everyone else does, but we can learn to control them and even to channel them in useful ways.
A trend follower’s ability to delay gratification, stifle impulsiveness, and shake off the market’s inevitable setbacks and upsets, makes him not only a successful trader, but also a leader. Goleman found that effective leaders all had a high degree of emotional intelligence along with the relevant IQ and technical skills. While other “threshold capabilities” were entry-level requirements for executive positions, emotional intelligence was the “sine qua non” of leadership. Without emotional intelligence, someone can have superior training, an incisive and analytical mind, and infinite creativity, but still won’t make a great leader.
Now consider recent feedback to me in email:
Psychology is not a science, an art, a philosophy nor a religion. Why would I want to waste my time with people whose subject is completely unworkable?.
Yours truly,
[Name], a satisfied Scientologist for 48 years.
I can understand that. If I was in a cult I would say the same.
Note: Take a listen to some of the best minds in the field of psychology here.
My guest today is Anders Ericsson, a Swedish psychologist and Conradi Eminent Scholar and Professor of Psychology at Florida State University who was internationally recognized as a researcher in the psychological nature of expertise and human performance. Ericsson studied expert performance in domains such as medicine, music, chess, and sports, focusing exclusively on extended deliberate practice (e.g., high concentration practice beyond one’s comfort zone) as a means of how expert performers acquire their superior performance.
The topic is his book Peak: Secrets from the new science of expertise.
In this episode of Trend Following Radio we discuss:
Discipline and practice
Solo and group practice
Flow state
Social Motivation
The late birthday rule
10,000 hours of practice
Nature vs. nurture
Brain plasticity
“To optimize the benefits of deliberate practice you have to be in control of your own training.” Anders Ericsson
My guest today is Catherine Stott, the author of, “Hypnotrading: A practical guide to using hypnosis and NLP to improve your trading performance: Self-hypnosis and psychotherapeutic techniques for traders.” Catherine believes that hypnotherapy and neuro-lingustic programing can help traders defeat inner challenges and become more successful. She got started working with traders after helping a friend, who happened to be a trader. He helped her understand the world of trading a bit more throughout their sessions and this ignited her interest deeper. She has been helping traders for years but didn’t start HypnoTrading until 2014.
The topic is her book Hypnotrading: A Practical Guide to Using Hypnosis and NLP to Improve Your Trading Performance.
In this episode of Trend Following Radio:
Stress vs. anxiety
Meditation vs. hypnosis
Being in a relaxed state
Negative self talk
Fear of success
Modeling
P-A-C-E-R
Luck and expectation
Defining goal setting
“It’s about your experience rather than your academic ability, and your drive and thrive for learning and achieving.” Catherine Stott
I was watching survivor last night with my mom and my mind was blown when the person who got kicked out said this:
I was very confident that whether we won or lost [the challenge] things would work out for me. I really don’t know what happened that made my tribe want to vote me out tonight. I don’t think the numbers lied to me, it’s the people that lied to me and when you count fictitious promises you get a fictitious total.
She was saying that she got kicked out because of the people, not the “numbers”, but the people are the numbers. They are who vote. Just like saying you don’t lose money because of what the market does, you lose money because of what other people do to make the market go up and down. Just trying to blame your loses on the “people” rather than “the numbers.” It’s all the same thing. The game is made up of people who make up the numbers.
You might not be willing to devote the time and energy to understand how electricity actually works, or the mechanisms of your democracy, or the insights behind irrational decision making. More likely, you don’t want to expend the emotional labor to push through feeling dumb as you dig deep on your way to getting smart.
That’s always been an option. You can just use the tool without understanding it, copy the leader without realizing where she’s going, follow instructions without questioning them.
You can choose to be a cog in a machine you don’t understand.
If that’s working for you, no need to change it.
It made me ponder: trust the Fed, trust buy and hold, etc. If it’s working for you, no need to change it.
