Psychology of a Fresh Start [February Newsletter]

We're already one month into the new trading year.

How's things so far?

This month's newsletter will keep you on track, so keep reading to learn about the fresh start psychology, and to find out whether you have the right personality to trade.

Learn what questions to answer to get you headed in the right direction, and discover the surprising link between slinkies and effective trading...

Let's go!

As Seneca, the stoic philosopher, wisely said, "If you don't know what port you are heading for, no wind is favourable."

When it comes to establishing effective trading habits, it's about picking up new behaviours but also shedding old ones.

This process may appear daunting, especially for beginners in the markets. However, there's a psychological phenomenon called the Fresh Start Effect that can help you embrace significant changes.

The Fresh Start Effect revolves around the idea of using a landmark or milestone as a symbolic 'pin' on the map of your reality. It acts as a mental accounting period, allowing you to emotionally move beyond the imperfections from the past and get rolling with enthusiasm.

Many people associate this effect with the start of a New Year, but it can be triggered at any time you feel you're beginning again.

Imagine starting a new job, moving to a different city, celebrating a birthday, or even welcoming a new month. Each of these examples can serve as a fresh start, offering a way to redefine your trading habits and set yourself on a path towards exceptional trading.

Researchers have discovered an intriguing link between the Fresh Start Effect and an individual's mindset. It seems that the extent to which you can harness this psychological phenomenon for your own benefit is intertwined with whether you possess a growth mindset or a fixed mindset.

Those with a stronger ‘fresh start mindset’ tend to exhibit traits such as a higher capacity for personal change, optimism, and an internal locus of control.

The implications of this are profound, especially when it comes to breaking habits.

Kicking Habits

Take smoking, for example. While most people agree that it's a habit worth breaking, the chances of successfully quitting and avoiding relapse can be tied to major events that serve as fresh starts.

Researchers McDermott, Dobson and Russell state "Changes such as marriage and actual, or contemplated, pregnancy provide opportunities for targeted interventions to help women quit smoking and not relapse after having a baby."

Applying the Technique

You can apply this powerful technique in your own trading journey. Consider linking your new habit to a distinct "before" and "after" snapshot in your year.

For instance, you can say, "Before I read Louise’s book, I struggled to stick to my stoploss orders. After reading Louise's book, I always make it a point to consistently set, and follow, a stoploss order when I trade."

Identify meaningful milestones and use them as anchors to initiate positive change in your trading habits. With each new beginning, you have the ability to recalibrate, learn from past experiences, and approach the markets with renewed commitment.

If you believe this, then you may be feeding yourself a big, fat excuse.

Exceptional traders come in all shapes and sizes, and all types of personalities. And it’s interesting to question whether our tendency for introversion or extroversion changes as we age as well.

Research indicates that a person's core traits remain constant, even though their personalities may evolve with time.

Though our behaviour might fluctuate and we can learn new skills, our predictable patterns tend to stick with us. People often become more emotionally stable, agreeable, and conscientious as they age.

Psychologists define this process as "intrinsic maturation," and it's been observed in diverse countries and in primates also.

Evolutionary psychology explains that higher levels of extroversion may help with mating, but when it comes to raising kids and forging stable relationships, a desire to party may be less useful. Ultimately, a degree of introspection may help us age gracefully.

The first half of your years on this earth is about putting yourself out there, and the second half is about making sense of where you've been and where you're headed.

So wherever you are 'at' in the big continuum of personality, you can trade effectively. Learn the skills and you can excel.

It’s Time to Act

If you’re determined to make some changes, I challenge you to pull out a notebook and answer these questions:

1. What habits are you looking to develop outside of trading?
2. What trading habits do you want to develop?
3. Is there a date you can use as a 'fresh start' to help you initiate these changes?
4. What does your future self look like 1 year, 3 years and 5 years?

Of course, our personalities will always affect our actions, but you can make your process, and therefore your results, more predictable and less reactive by adopting good habits.

This is the way to combat inconsistency.

If you once were a child (hehe) you know what I'm talking about - the slinky!

This crazy little gadget was so popular, it seemed like if you didn't have one, your mate probably did.

Can you believe it all started out as a way for keeping equipment steady on ships at sea?

Richard James, a mechanical engineer was working on a new spring to stabilise equipment on ships during World War 2. But when someone accidentally knocked it over and it started 'walking' across a table. With some design tweaks, it became the slinky we all know and love today.

And you might be thinking, "Okay, cool story, but what's it got to do with me?"

As a trader, it’s easy to find yourself in a vacuum. It's easy to become overly focused on what you think is the truth about your trading plan or the markets. This is also known as 'overconfidence bias' - when you ignore what others have to say and you think you're a genius.

This is a common tendency, but it can prevent you from identifying potential areas for improvement and innovation.

If Richard James had disregarded feedback on his invention, it might not have advanced and become the cherished icon it is today. The slinky is the perfect example of how feedback can be beneficial.

So how’s your trading plan looking? Might be time to dust it off and do a review.

Stay informed, stay curious, and most importantly, stay disciplined in your strategies. Let's navigate these market waters together. Happy trading, and may your portfolio always be on the rise.

Louise

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