How To Become a Resilient Trader

In this episode, we focus our discussion on resilience and why it's such an important characteristic for you to develop as a trader!  Despite what you see on social media, trading is not as easy as it is portrayed and the reality is that you will face challenges and obstacles on your journey that will test you financially, mentally, and even physically.  Every single trader, yourself included, will go through periods of losses and drawdown and whether you can bounce back and recover to new highs will largely depend on your resilience. Our goal with this episode is to introduce you to resilience, the role it represents in your trading, and some strategies that you can apply to start becoming a more resilient trader! What is Resilience?

• the capacity to recover quickly from difficulties; toughness.

Why Is resilience such an important characteristic for traders? 

• Trading is a very demanding job; you will be presented with challenges, pressure, and adversity
• The largest source of adversity in trading will be dealing with losses and drawdowns. 
• Your ability to keep a level head will determine whether you will bounce back successfully or not. 
• The key is not to try to avoid these periods, but to be in a position to be able to bounce back from these challenges. 
• Successful traders will endure these challenges and overcome these adversities whereas unsuccessful traders will fail to do the same

Now when we consider how to build resilience, we like to break it down into 3 different sub-categories that we can work on as traders. These sub-categories include:

1. Financial Resilience 
2. Physical Resilience 
3. Psychological resilience 

Let's dig a bit deeper into each one: Financial Resilience; 

• If you are going to survive rough patches in the market, you will need a sufficient supply of capital. 
• To build your resilience in this category, you will want to focus on having enough personal capital to survive slow periods and drawdowns without the need to make money trading in order to pay the bills
• If trading capital is a large portion of your personal wealth then every loss will have a double impact; both your trading capital and personal wealth will take a hit which increases the pain and emotional impact of the loss
• If trading capital is small, then you can either accept it for what it is and manage risk accordingly or you will force yourself to take on too much risk while chasing unrealistic expectations.
• Having a good base of capital will allow you to take risks appropriate for the account size

Physical Resilience: 

• This relates to having the energy required to cope with all of the stress and challenges when things aren’t going our way 
• When trading is tough it can take a lot of out you mentally and emotionally but also physically 
• You can build up your physical resilience by practicing good habits; getting enough rest, eating well, doing meditations and getting active, and working out. 

Psychological Resilience: 

• This relates to how you mentally deal with tough situations
• What you choose to think and say to yourself in tough times and the beliefs, attitudes, and perceptions you have about them determines the outcome that you will manifest. 
• Cortisol production shoots up when you are stressed and adrenaline increases when you are elated; this takes energy to produce and removes energy from you - almost like a withdrawal from your energy bank 
• Similar to what we refer to as the mental capital meter- you need to have a high amount of mental capital (7+ out of 10) in order to be able to handle the stresses and pressure from trading. 
• When you are low in energy your mood gets affected and you become more easily irritated and frustrated which is the opposite of what we want as traders 
• One strategy you can use to build resilience in this category is to ask yourself what a loss and/or drawdown means to you and examine your responses. Take note of positive and negative beliefs and commit to reframing the negative ones with positive beliefs (ie. I am not a successful trader if I make a mistake - reframe to mistakes are an opportunity to learn, trading is not a game of perfection )
• Consider taking the “big picture” approach to events and looking for the positive in any situation; Ask yourself  “What can I learn from this”.
• This line of thinking generates new possibilities for future outcomes; see losses or setbacks are a cost of learning.
• Another idea is to think back to a loss or setback and visualize yourself 6 months or more into the future reflecting on the loss or setback - what do you notice? 

Practical Strategies to Building Resilience

1. Ensure a positive relationship with personal capital, your trading capital, and the size traded 
2. Maintain and top up your mental capital meter; focus on sleep, exercise and nutrition 
3. Develop positive resilient beliefs, take positive perspective of events and practice positive self talk

Resources

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• Connect with our community online: Trade Pro Academy
• Catch up with our earlier episodes: Mind Over Markets Podcast