Trading presents you with much challenge, pressure and often periods of adversity. Traders lose, they make mistakes, they encounter tough periods in the market, they go through drawdown and they have setbacks. What separates those who ‘bounceback’, who keep going and eventually make it through and those who get beaten by their situation? Toughness – resilience is the deciding factor.

“I can think of no psychological characteristic more important to long-term trading success than psychological resilience. Resilience has been defined in a number of ways, sometimes as a process, other times as a trait. In all cases, resilience presumes exposure to stressful conditions and an ability to maintain high levels of social, emotional, and vocational functioning throughout this exposure.

My experience with traders suggests that even the most successful ones go through periods of drawdown. Sometimes these drawdowns are extended, either in time or in the amount of money lost. Some traders bounce back from these losses; others don’t.”

Brett Steenbarger, traderblogspot.com

Think back over the last few months of your trading. When, and how, have you been resilient?

Mindset : The Middle Man Of Your Experience

Psychological resilience is a mindset – it is about how you mentally deal with tough situations. What you chose to think and say to yourself in those events and what beliefs, attitudes and perceptions you have that underpin them.

The diagram below shows how your mindset operates. An activating event such as a loss is filtered through the traders mindset in terms of their beliefs, attitudes, perceptions and this generates a feeling and a set of subsequent behaviours and actions which is then played out as the traders performance. The activating event can be the same for many different traders and yet the outcomes, how they perform could all be vastly different based on their mindset. It is therefore not the events that happen to us that actually determines our results but rather our mindset that dictates how we respond.

psychological resillence

Developing Trader Toughness: Lessons From Cognitive Psychology and The US Military

Thirty years of research suggests that resilience can be measured and taught and the US army is currently testing this with its ‘Comprehensive Soldier Fitness’ program, developed by prominent psychologist Martin Seligman, which aims to build a soldiers psychological fitness as well as their physical fitness. A key component part of this program is resilience training, building mental toughness, enabling soldiers to deal effectively with the traumas of war, and interestingly to enable soldiers to move away from PTSD (Post Traumatic Stress Disorder) to PTG (Post Traumatic Growth).

Seligman has found that three factors were important in dealing with setbacks and being resilient.

1. Seeing the event as temporary

2. Seeing the event as local

3. Seeing the event as changeable

(It’s going away quickly; it’s just this one situation; and I can do something about it)

How you interpret the events that occur to you is a critical factor in your experience of them, reaction to them and performance after them. The meaning of any event is the meaning you give it. 

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