Treat yourself: The advantage of rewards

“Good habits, once established are just as hard to break as are bad habits.”– Robert Puller

The fourth blog in our habit series looks at rewards. We will look at why rewards help make habits stick, how they factor into your trading, and what rules to follow when picking a reward.

In order for a behavior to become a habit, it needs to be repeated consistently, so it becomes an automatic action. We are motivated to repeat a behavior if we think we’re going to get some sort of reward for it. A good reward will release the hormone dopamine also knows as the feel-good hormone.We tie the dopamine hit from the reward with the habit we’re trying to make stick.

The reward is the incentive our brain needs to repeat the behavior. The reward itself doesn’t have to be physical, or conscious, to be effective. It can be simple, like a beer after you clean the car, or intangible, like the runners’ high when you exercise.

In trading, good habits are the foundation to successful trading. To begin with, don’t overcomplicate things- pick your top three goals to work on. Do you want to journal all your trades on time for 30 days straight? Do you want to avoid overreacting in a losing streaks? Do you need to be more disciplined about stopping when you hit your target for the day? Once you have picked the good behaviors you want to work on, next up is picking the right reward- the one that will accelerate the good behavior becoming a habit.

When picking your rewards, it’s important to follow three rules. A reward needs to be:

Relevant: The reward should be relevant to the habit you’re trying to make stick. There’s no point in giving yourself a reward of your favorite latte when the coffee shop is an hour walk from where you trade.
Proportionate: The reward should be proportionate to the effort you’re exerting. For example, you shouldn’t reward yourself with a new car if you’ve kept to your stop losses for a week! If the new habit is small, the reward should also be small.
Actually rewarding: You should actually enjoy the reward you pick! You might want to be “good”, and pick something like a sudoku, but it won’t be effective if you don’t actually enjoy it.

A good reward might be an episode of the tv show you’re watching, a bar of chocolate, a game of tennis, 20 minutes on Twitter, a takeaway, or a massage.

To begin, pick the habit you want you work on and then pick your reward. Try it out for a few weeks, and if you find it’s not working, pick a new reward. Be flexible- it might take a bit of time and a few choices before you find the reward that actually motivates you. The investment will be worth it.

Imagine your reward is a beer after you have completed your journal, and planned your next day’s strategy. You will begin to associate completing the more tedious task with the pleasure of a cold sip of your favorite brew, and before long you will relish this new end of day task, as it is now tied in with the dopamine hit you get right after it, and have a bonus of going into the next trading day more prepared and less stressed.

Once the behavior becomes firmly established, the need for a reward decrease. You will start doing the habit automatically, without thinking. After 90 days, you can start to phase out your reward, and the new habit should continue.

To recap:

Rewards motivate us to repeat a behavior, helping it to become a habit
When choosing a reward, make sure it is relevant, proportionate, and actually rewarding
Play around with different types of rewards to see which is most effective for making your habit stick

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