new markets, new patterns
A topic that has been on my mind as we approach the New Year that warrants a blog post is that of adapting to changing markets, inspired by Dr. Brett Steenbarger’ s Trading Psychology 2.0. In an ABCD approach to covering the aspects of the new psychological approach to markets, ‘A’ is adapting to changing markets. Markets are constantly evolving and in most instances edge is not constant throughout different market environments. Therefore, we as traders must first and foremost be aware of markets evolutionary dynamic, and then adapt ourselves and our trading systems to the evolving market conditions.
Discipline is great for doing more of what works. When status quo no longer works, however, adaptability becomes the new discipline.
readiness for change
In a section of Trading Psychology 2.0 Brett references the work of James Prochaska et al whose work focuses on personal change and understanding that change does not occur all at once. Rather, there are stages for change whether in our trading or personal lives:
- 1.) Pre-contemplation: Little awareness of need for change, so we remain comfortable for now
- 2.) Contemplation: Once old ways fail us and consequences accumulate, we actively begin considering change
- 3.) Preparation: Initial, incremental steps towards change
- 4.) Action: Change becomes an overriding priority
- 5.) Maintenance: Sustaining new, constructive behavior patterns and avoiding a relapse into prior, problematic ways
The implications the above described stages have on your trading will differ based on the problems you are personally being confronted with. It could be as simple as needing to stop trying to trade against the trend, or as complex as fear controlling our trading subconsciously. The stages are a framework to work on fixing trading problems that limit your potential as a trader before the New Year.
Comfort- the antipode of urgency- is the enemy of adaptation
ready, set, adapt
Understand: change is a process. We must first aim to be mindful of the areas in our (life) trading that need change. Then we can settle upon a framework of practices and habits to implement that encourage new positive behavior and thinking patterns, more in line with our ideal. The maintenance of those habits and practices is of the utmost importance to maintain change. Your business is on the line here, do not be stubborn.
