The Effort Effect

What does it mean for traders?

The Stanford Magazine has an article an the work of psychologist Prof Carole Dweck who argues that the key to success lies in how you deal with failure.

http://www.stanfordalumni.org/news/magazine/2007/marapr/features/dweck.html

 

Great article. This is the paragraph that caught my attention:

"Cloninger has trained rats and mice in mazes to have persistence by carefully not rewarding them when they get to the finish. “The key is intermittent reinforcement,” says Cloninger. The brain has to learn that frustrating spells can be worked through. A person who grows up getting too frequent rewards will not have persistence, because they’ll quit when the rewards disappear.”

This makes me think of the records of many great performers, whether traders or athletes such as Roger Federer or Michael Jordan. They all had to confront massive frustration, and win that battle first before moving on to new heights. Roger spent 3 years losing match after match, many of them in the first round before he dug his heels in, made a 180 turn in his attitude (he used to yell, throw his racket like many, even pros, still do today) and developed his groove. MJ had to overcome the negative praise of his coach who told him he wasn't good enough for his high school team to go practice countless hoops in his yard. Michael Marcus, or Mark Cook both had to blow up and learn to deal with failure before etching the neural paths in their brains that would allow them to keep their risk small and stay in the game long enough to reap the profits.

I think this is what it comes down to: some traders will learn to deal with failure and others won't. It seems that success is really contingent on the trader's response when he is in that dark pit of a drawdown, he either fights back and develops proper trading/mental skills or gives up immediately/slowly. The brain has to learn that frustrating spells can be worked through and I think it takes time for those neural paths to be etched in. No wonder pros usually say it took them years before things started to click. But that's why they're pros, they had the risk control skills and persistence to keep at it through the learning curve. The majority cannot do this.

Those coming from a 'smart' reputation and prior success in previous businesses are particularly disadvantaged, because of the reasons stated in the article.

 

Achieving one's overall potential is not a large factor in trading since trading does not demand anything much relative to the common potential almost all people have.

There are a spectrum of speculations about the relation of successful trading to a host of other human traits and talents.

Mostly anyone can learn to trade if given the opportunity. No one mentioned in the article has addressed this particular topic.

ET is absolutlely the richest resource of documentation on what it is like for any kind of person who didn't get the opportunity to learn. The consequences are undisputable.


The oter sidede of the coin is equally interesting. It will be neat when the psychologists take up the field of learning to trade.

the first CNBC show on the millionaire thing was a very clear example of how people can miss the boat. Kiev, Steenberger, et al were a sketch.

Thanks for bringing the article to ET's attention.

 

Different perspective that is very enlightening. Thank you kiwi.

 

This quote sums up a lot of the problems people demonstrate on ET - an unwillingness to do the work required to improve:

"Students for whom performance is paramount want to look smart even if it means not learning a thing in the process. For them, each task is a challenge to their self-image, and each setback becomes a personal threat. So they pursue only activities at which they’re sure to shine—and avoid the sorts of experiences necessary to grow and flourish in any endeavor. Students with learning goals, on the other hand, take necessary risks and don’t worry about failure because each mistake becomes a chance to learn. Dweck’s insight launched a new field of educational psychology—achievement goal theory."

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The very people who refuse to do mundane exercises (feeling they are beneath them) are often the ones most in need of the exercise not only for the skills development but also for the psychological reinforcement of comfort and support. It also helps to prick their overinflated egos.

In skiing the ones who are not afraid to fall and have fun learn faster than the appearance conscious control freaks - who may not fall but neither to they progress very far. Eventually the ones having the fun don't fall much any more, even on tougher terrain, having built a solid knowledge base to cope with a much wider range of situations.

 

Thanks Kiwi

 

I was just thinking about that yesterday. Those who have something to prove, or an obstacle to overcome are more likely to achieve results than those who take it for granted.

I remember a quote in a cartoon, went like this "I practiced my guitar like crazy all the time so I would make myself look like a genius" Those who achieve success know what it takes, the rest think they're just unlucky.

 

Great article

thx...........

 

Thanks kiwi, was a good read.

Kind regards,
MK

 

Wonderful. Thank you Kiwi for bringing Carol Dweck to my attention and her book (which I look forward to reading).

Good Luck.