In the Trading Psychology 2.0 book, I outline several new frontiers for improving trading performance. One of the most interesting and promising is the enhancement of creativity. Simply put, the success of traders and investors rests on their ability to perceive unique, distinctive market opportunities that are not apparent to others. For the faster, shorter-term trader, this means detecting patterns in price action that reflect shifts in supply and demand. For the slower, deeper-thinking investor, it means piecing together information about companies and economies and arriving at original theses that ultimately will drive the behavior of other market participants.
Having worked with very successful market participants who operate in both the faster and slower modes, I can attest to the role of creative insight in the trading process.This not only pertains to the generation of ideas, but also their management. During the life of a trade there are many decisions to add to positions, take them off, or hold them. For the discretionary trader, all of these decisions are more or less informed by creative insight.
Here are a few ideas relevant to the role of creative insight in trading success:
1) Few trading processes–from market preparation to research/idea generation to risk management–are designed to maximize the creativity of the trader. Indeed, common trading behaviors, such as discussions on trading floors and ongoing following of price action on our screens, actively interfere with creative outcomes.When traders talk about “process”, they often mean the repetition of helpful practices. This is valuable, but the following of routines via habit patterns, will not in itself maximize the creativity of a trader’s thought process and, indeed, may work against it.
2) Maximizing creative thought requires an unusual degree of flexibility.What we know about creativity suggests that multiple brain centers are at work in processing information, reflecting multiple cognitive processes.Processing multiple, different sources of meaningful information and processing all that in different cognitive modes (analytical, reflective, etc.) aids the insight process.Sitting in one place and staying in one dominant mode of analysis/thought is a great way to stifle creativity.
3) Creativity is never maximized in our normal, routine states of consciousness. Research into creativity suggests that a variety of moods and levels of cognitive focus/awareness impact creative thought.There is a very strong case to be made that many of the commonly noted psychological problems experienced by traders–from performance anxiety and overtrading to frustration and lack of discipline–stem from states that actively inhibit creative thought.
In short, a major problem with trading performance is that traders focus on what they perceive to be their “edge” in markets when in fact “edge” is the result of a process, not a static set of market relationships. Where there is no creativity, there can be no edge. Reducing “edge” to a rote series of patterns virtually ensures that the trader will fail when market regimes change.It is the ongoing creative process that fuels our adaptation to evolving market conditions.
The implications of this perspective are profound.The most useful self-coaching traders can do is reverse-engineering their best trades and especially the processes that led to the relevant decisions. A solution-focused perspective suggests that all experienced, reasonably successful traders already are tapping into creativity at various points in the trading process.The key is distilling *your* ingredients of creative insight and turning those into robust routines that can provide you with an actual, ongoing edge.
