Building better trading habits (the easy way)
January 19th.
That’s the day most people will give up their New Years resolutions, according to a study of 800 million Strava users.
Why does everyone give up? We pick a goal for the new year, but we don’t take the time to develop the habits needed to achieve that goal.
A habit is a behavior that becomes so ingrained in your routine, the brain doesn’t think about it. It is second nature.
Positive habits are the cornerstone to long term trading success. The hard part is forming the habit, and making it stick. Once it sticks, it requires little effort and is carried out automatically.
What is the most effective way to create habits that stick? Using our knowledge in behavioral science insights, we have created a best practice guide for traders to building a habit easily , and having it stick. By the end of the 7 part series, you will be equipped with the best way to build good habits in your trading, and have them stay with you long term.
In this first of 7 series, we look at how we add new behaviour to an existing habit so that it can itself become a habit.
First, we suggest starting off with a small, specific habit that you would like to develop.
Your goal should be easy to recognize and measure against, so that you can easily identify when you are on track with it.
Saying “I want to read more” is too vague, and not easy to measure yourself against. Instead, a small, specific habit would be “I will read one page of a book each day`’.
Similarly, “I will make more money trading” won’t work, instead a specific habit might be “I won’t close a winning position until it reaches its pre-defined target”.
Secondly, to make something a habit, you need to repeat the action consistently and constantly. What is an easy way to do this? Piggybacking the new habit to existing behavior. This is known as anchoring.
For example, the habit of brushing your teeth is anchored to waking up in the morning. “Every day after I wake up, I brush my teeth”. You are piggybacking the new habit to a circuit that is already built in your brain, making the new habit much more likely to stick.
When choosing an anchor, think of something you do consistently every trading day. It is something that is already intrinsic to your routine, and you do it on autopilot. It should also be specific, and immediate. Instead of “taking my lunch break”, think “when I close my laptop for lunch”. You want to tightly associate your new habit to the anchor, so you can easily recognize when you should do it.
Make a list of possible anchors. They do not have to be trading related. Examples are waking up in the morning, making coffee, checking your signals, showering, going for a run.
Then, review the mindset you experience during each possible anchor. Ask yourself:
What do I feel when I partake in the anchor-am I happy, or calm? You don’t want something that results in high emotions, as this can negatively impact your trading. The ideal anchor is automatic-you do it without thinking, like brushing your teeth.
Is my mindset fairly consistent each time I do it, or does it vary? You want something consistent
Now, select your anchor. Each time you carry out that action, you will also do your new habit. For example: After you shower, you will do 20 sit ups. While you drink your morning coffee, you will review your risk parameters for your trading day.
You must be consistent- no taking days off. You are training your brain to associate your new habit with your existing routine, and building strong connections between the two. Eventually, with enough practice, your brain will automatically pair the two together, causing the habit to stick, and become part of your behavior.
To summarize:
Select a small specific habit that you would like to develop
Select a consistent specific anchor that you are already doing
And begin!