Denise Shull is an ex-trader, trading desk manager and a leading performance coach to pro investors and athletes. Founder of the The ReThink Group and author of Market Mind Games, she is the inspiration for Wendy Rhoades (the hedge fund trader coach in the hit series Billions). Denise's recent session at RealVision Crypto in Las Vegas was one of the event’s most popular. Is she hodler? You bet.
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Investment is a human perception game — a bit like poker — as much as it is an analytical percentage game.
We often forget that we are only ever trading other peoples’ perceptions of market risk.
Anyone can get better at trading by thinking about of the two sides of this coin: Predicting others, whilst also understanding oneself (which is the risk management side of this coin).
Here are eight techniques you can use to achieve this:
Trading is hard. For some it’s easy at first, but consistently and reliably taking money out of the market for years – i.e. being a pro – is hard. Recognize that self-improvement takes time and it will take years to truly learn the craft of it.
You should look to develop skill so you can trade successfully in different market conditions. Define them: up, down, sideways. Recognize their speeds and rhythms. Market conditions change and it’s everything. Prioritize the ability to notice what the pros call “regime-change”. It’s the dominant feeling about market behavior from the people who manage the huge asset pools. A trend day isn’t the same as a chop day, for example. The same idea can be applied to longer timeframes.
There are factors that we can’t predict or control. Even when our trading is performing well, we have to accept that there may have been other factors at play.
Get deeply in tune with the fact that you cannot know what will happen. Writing, singing, painting, or meditating about this ambiguity can help you do this. Accepting that you don’t have full control will mean you react better to setbacks and enable you to develop an approach that is more grounded and sustainable.
Trading has lots of sporting analogies but it is NOT like sport. You can’t make anything happen, the game never ends, and there is never an ultimate winner. These facts matter to the mental mindset of trading. If anything, trading is more like sailing or surfing - where you react to the elements and your skill lies in how well you can achieve your goals, given an environment which is totally out of your control.
I’m often asked if the best traders share certain personality traits or characteristics. The answer is no. I work with top traders and hedge fund managers overseeing billions in both traditional and digital assets. They are all over the board in terms of style and process except for one thing: They know their style and strategy — and they stick to it. Or, at least they do when they are making money!
As Sun Tzu said, knowing yourself is the key to winning battles. You need to learn to be the trader that YOU are — mimicking the style of another will work until it doesn’t. Put another way, you’re aiming for a point where you can be explicit about your process — understanding what you believe, and why you have conviction in something (or not).
This self-knowledge is even more important in crypto where there is a huge volume of commentary and opinion on twitter, telegram etc. Markets are social, so of course it matters what everyone else is thinking. But you have to create a lens to see through that, and know how to use it.
Conventional wisdom advises us to suppress our emotions if we’re going to make good decisions. But if we somehow achieved that, we’d be left with no conviction and no decision!
Decision science shows over and over again that without emotions like confidence, one cannot take a trade -- just like one cannot make the simplest of decisions without some sense of what is right.
Instead, it’s actions that need to be controlled. This is the logic of the situation but over and over people still confuse the emotion with the actual trade. When we suppress our emotions, they eventually re-emerge in impulse, idiocy and even illness. In other words, conventional wisdom around suppressing emotion actually adds risk!
We need to look at the practical value of our senses, feelings and emotions – all of which are knowledge and expertise in bodily form. If we lean into them, we can gain focus, wisdom and power.
This starts with recognizing that our judgments come from our predictions of future emotions, which in turn are based on our beliefs and past experiences. Every waking moment of every day, we are predicting the implications of whatever is in front of us. The interpretation is in the form of an expected feeling/emotion. If you embrace this dataset, you can begin to separate intuition from impulse, and recognize which feelings should be acted on, and which are irrelevant.
Be curious about how you do things, not judgmental.
Notice when you are feeling frustrated. Recognize this feeling and sit with it. Try to describe the feeling. What are the feelings below that sense of frustration? Understand this feeling — don’t act impulsively because of it.
Be careful when making decisions after a string of wins; a good run of trading success tends to make us feel bulletproof or overconfident. In that context, we can take on too much risk.
Conflicted about a decision? Take 30 seconds. Get up from your desk, go and make a coffee, walk around the room. Movement gets the blood flowing to the brain and can help us unblock or get a new perspective on what we’re trying to solve. It might take more than 30 seconds but make the conflict explicit - admit it and weigh it.
Use some weekend time to reflect on the emotion-predictions you are making during the week. Are you managing your own volatility? If you were your own price chart, what would it look like?
This is a tip for managing yourself while deciding to enter/exit trades (or, indeed, for any trade decisions that matter).
Instead of asking “exit/enter?”, ask “is now the right time, or should I wait/not wait?” and “what will happen if I wait?”. This slight change of focus de-energizes the answer a bit and can give you perspective which is sometimes harder to achieve when you are trading solo and without colleagues you can discuss decisions with.
Don’t trade out of the need for excitement, boredom or annoyance with something else (i.e. using trading as a defense mechanism to process other feelings). No position is a position - despite what some will tell you.
A great trader used to use a baseball analogy: Singles and doubles all day long and you are MVP (most valuable player) at the end of the year. In other words, making smaller returns over the long term can be just as powerful as massive shorter term wins and losses.
One of the exciting things about crypto trading is that returns can easily and often be measured in 10x, 20x, 100x – especially in a bull market. However, there are traders who make smaller returns, but consistently – following a process they feel comfortable with and which is within their own personal risk-management approach. It’s less glamorous and is far from what some new traders think trading should be like. But, over the long term, it can be just as profitable.
Crypto trading is 24/7. Does this mean there are more opportunities to make money, or just a greater chance that you will get burned out and start making bad decisions?
It’s important to know the rhythm of your market, but you have to create your own ability to walk away from it.
Yes, crypto trading offers more chances to make money. But this needs to be balanced with ‘rest scenarios’ for yourself. When we are fatigued, we take too much risk (back to knowing yourself).