by Cliff Wachtel, FX Empire
The Xmas and New Year holiday season means that markets go quiet, so current news stories of note become scarce or non-existent. For financial writers that means we seek out 'big picture' topics like:
- Reflections on the prior year and forecasts for the coming year.
- Ways to improve performance in the coming year, mistakes we learned to avoid, etc.
The following is a variation on #2 (still working on the forecasts).
Over the past few months I've been reading Eric Barker's blog, Barking Up The Wrong Tree, which focus on on life and career lessons, and a few recent posts served as the inspiration (and sometimes source, along with those from The Sensible Guide To Forex, winner of 2013's Best Forex Book Award) for the following collection of trader productivity tips
Much of the following is all about
- Maintaining or increasing your peak hours
- Minimizing the things that reduce these
Some of the following are obvious, some are not. All are worth reviewing, and integrating into your list of highest yield New Year's resolutions
PART 1: EXPLOIT, MAINTAIN, RECHARGE YOUR PRIME TIME HOURS
Part 1 is all about exploiting and extending the time when your energy, mind, and mood are at their best.
- Responding to emails
- More enjoyable ones that I'm more motivated to do even when tired
- Keep a consistent schedule, even on weekends. Slipping out of that routine makes it harder to regain it.
- Stop work an hour before bed to wind down. Most people need some transition time between work and bed. To ensure that happens...
- Use an alarm to get ready for bed: Set it an hour before your planned bedtime.
- If you lack strong day/night cues, add them. Get sunlight during the day. Dim the lights at night. Turn electronics off as bedtime approaches.
- Keep your bedroom dark and quiet. Even if you think you can sleep with some light and noise, these can still reduce sleep quality.
- Asset allocation
- Diversification by asset type, currency exposure, etc.
- Position sizing
- Periodic rebalancing or review of positions
- Stop losses
- Match Your Best Hours To Your Most Demanding Tasks Of The Day
- You Can't Cheat On Sleep - So Don't Try It
- Focus On Measurable Performance
- Find What Recharges Your Energy
- Choose a quiet place to work that's away from visual and auditory distractions. If you don't have that option, invest in earplugs, sound canceling headphones, etc. If your work area has a distracting view of a window, TV, hot coworker, whatever, do what you can to change your location of block out that view, drop the blinds, impose
- Keeping distractions off your computer: Banish non-work related during your work hours unless they're directly related to your trading or investment research. Even then, try to limit your viewing to scheduled times.
- Build Willpower: Doing these if far easier said than done. A trading or investing content site can contain all kinds of distracting material that's irrelevant to your research.
- Use And Expand Your Best Hours When Focus Is Best: As detailed in #1 above, that's the best starting point for having a clear head.
- Minimize Stress: it makes you distracted and stupid: In case life hasn't already handed you enough experiences proving this, Harvard University professors Eldar Shafir of Princeton and Sendhil Mullainathan tested the IQs of Indian farmers before and after their harvest-times. Before the harvest, as a consequence of being strapped for cash, the farmers were in a general state of anxiety, and their IQ tests were materially lower than after the harvest, when they were more much more liquid and did not have to deal with immediate cash shortages. The implication is that their ability to focus-was depleted by their financial worries. (via Eric Barker here).
- Allow Strategic External Distractions: In other words, take breaks, ideally at specific times, ideally ones that relax you fast but don't draw you away for long periods. For example, I work at home, so I've the option of taking 5 minutes with my two youngest (below) to ease stress.
- Minimize Stressful Decisions Before Making Trading Or Investing Decisions: Here's related but distinct variation on the above theme. Decision fatigue is real and well documented (for example see here). I discuss its dangers, especially for short term and day traders, in my book in the same chapter that I cover risk management. Of course even those with long term holding periods can make bad decisions due to decision fatigue if they make them during a stressful time when they've had to make many difficult decisions. Part of minimizing decisions is...
- Choose A Trading Or Investing Style To Suit You: In my book, The Sensible Guide To Forex, I discuss the importance of choosing a trading or investing style in the same Chapter 5 that I cover risk and money management RAMM), because the two are so closely related. For example, those who are risk averse will be prone to stress and its dangers to sound decision making if they engage in higher risk trading or investing.
- Avoid Multitasking: Focusing on one thing at a time improves productivity. Research shows we're more productive when we hit one task at a time.
Meditation Can Increase Attention Span, Ability To Focus
- Form A Routine
- Focus On Your Contribution To The Greater Good: It's More Than Money
If you don't have that much control over your schedule, then do what you can to move your peak hours to the hours of those tasks.
Maximum productivity means organizing your tasks around your best hours. Match up the most demanding of your most important tasks of the day to the hours when you have the most energy. Allocate the second most demanding and important tasks to your next best hours, and so on.
Energy, not time, is the key to top performance.
Working on time management skills will yield limited results without considering that for humans, unlike machines, all hours are not equally productive.
Know if you're a morning or night person. Few of us have more than 3-5 peak hours a day. If you need more, experiment with nap length and scheduling. Learn how well your body responds to coffee, tea, and other available stimulants can extend those hours, both with and without a nap. Use these with discretion. Many of us find that these are more like taking loans on energy that must be repaid. We also build tolerances to these, which limits their long term benefits if they're overused.
Most of us with jobs don't have full control over when those most important and demanding tasks come, so it's up to us to make sure we've had the right combination of sleep and simulants
I reserve trading or investing decisions for hours when my mood and energy are good. I might do research, trade diary review and entries, during less productive hours, but final review of decisions to enter positions, and order placement, waits for those hours.
I use the non-peak times for less demanding and less critical tasks like:
Identify the most demanding tasks of your day and do whatever you can to turn hours available for them into your peak hours.
For example, part time traders or investors with full time jobs should not be making trading decisions or placing orders when their energy or mood is low.
This issue is especially relevant for discretionary short term and day traders, those who need to make decisions while their market is open. Forex traders have more flexibility because these markets are open over around the clock, 5 days a week.
Traders or investors with holding periods of many weeks or months have more flexibility because they can place entry and exit orders without markets needing to be open.
You know how much sleep you need to function each day. Reducing sleep soon reduces mood, energy, as well as your intellectual and emotional functioning. In other words, won't seem as smart, creative, pleasant or sensitive to others. Impulse control also suffers - and that's a real problem for anyone who must make investing decisions during that time.
Author Eric Barker has a great article on tips for getting the most out of your precious sleep time. To summarize the article's top tips:
See here for the full article.
Measurable feedback keeps you focused.
Example & Application
Whenever possible, have as many relevant measurable performance gauges as you can. For traders or investors, the obvious ones like ROI, income, percentage of winning trades, etc. over a given period are obvious examples.
Less obvious but equally important for traders and investors are the things that tell you you're sticking to your plan, such measures of discipline as:
What if you have no plan, or journal in which you track these, or don't even recognize these terms? Then stop right now and put whatever time you're investing into trading or investing towards studying basic risk and money management. I discuss much of this in Chapter 5 of my book. You can view the table of contents for it here, (use the Look Inside feature) to get a no-cost quick overview of the topic.
We're not machines, so find what recharges you and schedule it into your week.
PART 2: PROTECT YOUR PRIME TIME HOURS
Here we cover how to defend against the things that will cut the length and effectiveness of your prime time.
Minimize External Distractions
This sounds obvious but there are a lot of components to doing it effectively. However there's no choice, because distractions can render your best hours worthless. The steps to beating distractions include:
Therefore to be effective at eliminating external distractions, you need to work on cutting out the ones lurking between your ears. Speaking of which...
Minimize Internal Distractions: Staying Focused
Lucy (top) and Bubba
As with decision fatigue, there's lots of research supporting this idea. For example this article describes how a mere 5 day program improved attention span and lowered stress levels.
Building a weekly routine is one of the best stress reducers. Routine cuts your decision making and gets your body into a routine of work, rest, eating, sleeping, etc.
It may sound cliché or downright corny, but here too there's no shortage of research showing those who see their work as accomplishing bigger things than an income are more motivated, energized, and productive. Each trade offers you a lesson, each winning trade gives you the chance to contribute in multiple ways, etc. See here or here for examples.
Want to know more about the psychological side of market success as well as risk and money management (RAMM)? You can get a free overview of that by reviewing Chapter 5 of my book here. Get these aspects of your game down and the profits will take care of themselves. See them applied in Chapter 7, by the way.
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DISCLOSURE /DISCLAIMER: THE ABOVE IS FOR INFORMATIONAL PURPOSES ONLY, RESPONSIBILITY FOR ALL TRADING OR INVESTING DECISIONS LIES SOLELY WITH THE READER.