In this episode of Truth About FX, Walter dives into the different types of human psychology and useful tools that you can use to keep you guided on the right mindset. He also talks about an expert named Michael Seligman and how his theory on the different aspects of positive psychology and resiliency can really help you get on the right track of your trading.
Walter also shares a really cool test to help you identify your resiliency issues and why resiliency is one of the MOST IMPORTANT keys to becoming profitable. All these and more in this episode of Truth About FX podcast…
Download (Duration: 12:54 / 31 MB)
In This Episode:
00:31 – positive impact
01:51 – commonalities
02:55 – resiliency
04:05 – built as pessimist
05:18 – idea of reframing
06:10 – self-sabotaging
08:16 – old Freudian idea
09:50 – major piece
11:16 – living on a couch
12:03 – stick with it
Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.
Hugh: Hi, Walter. I know you’re always reading about cool psychological studies. Have you read anything recently that could have a positive impact with traders?
Walter: Absolutely! I would say probably one of the biggest things I’ve been thinking about this year as we record this is the idea of resiliency. In Psychology, they do a lot of work on why people are screwed up. That’s actually the most popular course. The most popular course in Psychology that people take in Psychology Majors is Abnormal Psychology. Everyone wants to know about the freaks so I guess that makes sense.
I think also as part of it is we’re always trying to diagnose people. “Oh, she’s a Narcissistic and he’s depressed” or whatever. What’s interesting is there’s this guy – and he’s a really famous Psychologist – and he came up with this idea of Positive Psychology.
He actually came to Sydney and I saw him and he’s such a cool guy. He’s getting up there in age so he’s kind of an older gentleman now. All that they do is totally different from what most Psychologists do.
Most Psychologists, they look at differences. They look at why is this group different from that group? Why are these people not able to do something? It’s a lot of breaking down groups in looking at differences. Even our statistics are set up to look at differences and very rarely do we look at commonalities.
This guy, Martin Seligman is his name. It wasn’t cheap to go and see him but he was great. He had this talk and he could go sign your book. You can ask him a question and he would answer it for you and all that.
This Positive Psychology moved him which is really has taken off around the world. We even have schools here in Australia that have adopted this framework. A lot of like, if you’ll talk to life coaches, a lot of life coaches will be influenced by Martin Seligman as well.
I think and I thought about it. I actually asked Seligman himself. I asked him about “What’s one skill that you think — I’m thinking from a parenting point of view like what’s one skill — that you want to teach your children?”
I always thought it was kind of this idea of you can do whatever you want to do — remove limitations sort of thing. We’ve talked about this in our previous podcast. You’ve mentioned the trader who’ve said, “You can only make 2% a month in forex,” or something like that. These limitations come from many different places, usually from authority figures.
But I asked him. I said, “What’s the number one thing?” and he said, “Resiliency.” I thought about it and I think that resiliency is probably the thing. If you have the thing that if we could score traders on resiliency — and we can’t do that, by the way — and you could figure out who’s more resilient and who’s not so resilient.
The groups would separate. We would have one group of resilient traders who basically stick with trading long enough to make it work and we’ll have another group of traders who aren’t very resilient and they end up giving up for whatever reason.
They give up trading altogether. They give up their system and they’re always in a cycle of doom looking for a better system. I think resiliency — if you guys go and look up Positive Psychology work or resiliency work in Psychology — I think that is a very fruitful place.
The idea here is that you want to… One of the key ideas — I’ll just give for our listeners — one of the key ideas is you have to kind of reframe the way that you look at things. Even Martin Seligman himself has noted that the key is a recovering pessimist.
We’re all kind of — not all of us but most of us listening to this — we’re built as pessimists. The reason why is obvious. We are pessimistic if we look for problems and issues then we are more likely to survive because we’re always considering what bad things could happen. You’re thinking like as a hunter gathers humans in the jungle. They should be looking out for that saber tooth tiger or that snake or that falling tree. These things you have to watch out for those things to survive.
It makes sense that that would be the kind of survival instinct that has evolved in people. That makes a lot of sense but in modern days, we don’t have to worry about the saber tooth tigers and we tend to catastrophize which is, one bad thing happens and we just think “Ahh, this is never going to work. My trading system has been down for four weeks now. This is never going to work.”
You’ll start talking about, “I’m never going to be able to quit my job. I’ll never be going to be able to make money. I’m just throwing money on this. I’ve spent this much money over the last two years and it is still not working, blah, blah, blah. My cousin was right, forex is a scam.” All of these just start piling up.
I think what one sort of resilience skill that a lot of people can take from this is this idea of reframing it and looking at it for what it is. And so, if you have for example four-week losing streak, you don’t have to catastrophize and say that this guys is falling and you just look at it for what it is. “Okay, I’ve had four weeks losing streak.”
Is it because it’s only really going to be a couple of things. Is it because one: I’m not executing my strategy correctly so it should’ve made more money than it did. Maybe it’s still in a drawdown but maybe I wasn’t very good at executing the strategy.
Two: is it that the markets aren’t really very good for this strategy so it’s just a normal drawdown. There isn’t really anything wrong here. It’s just kind of unlucky. Or is there some outside factor, maybe me, that is affecting this?
Is it “It could be my broker, it could be me. The fact that I’m kind of self-sabotaging.” It could be something along those lines as well. Assuming that we have a system that has a positive expectancy and will make money, it’s usually some sort of execution problem, some psychological problem, or it could just be bad luck.
Those are the reasons why we’re getting into losing streaks and really the question is: is it likely to pull out? You can go back and look at your data and say, “Over the last twelve years, this system has had a drawdown at least this far. And in fact, double this far before so it shouldn’t surprise me that I have a drawdown of 10% over the last four weeks because we’ve seen a 20% drawdown over the last twelve years, a bunch of different times.”
These are the sort of things that you can reframe and “Look, it’s not the end of the world. It sucks that we’re down right now but it’s most likely that the market is not very responsive to this trading system. And then if I keep pushing forward, I’ll probably be okay.”
That’s a different way of approaching it rather than catastrophizing and letting things snowball in your head. The skills of resiliency, I believe, are very critical and can probably predict how well you do as a trader.
I think if you get a group of traders together, like I said, you test them on resiliency. You break them into two groups. You come back five years later, I think the ones in the very resilient group are much more likely to be still trading and trading in profits than the ones that aren’t very resilient.
I think that’s a really critical key. There are tons of books that you can look up: Martin Seligman, you can read all of his books. He’s got like twelve books out there on different aspects of Positive Psychology and resiliency in particular so I would definitely have a look at that.
Hugh: Cool. You’ve mentioned that there’s kind of a test that you could take. Is that something that you have in your forum or is it a specific test that you use to measure resilience?
Walter: Yeah. I can post it for listeners if you want. I’ll put it in the notes there for you so you can go to the test and see how things shake out. Again, remember a lot of people, I think Freud did this service because a lot of people think that your personality is set by the age of five. This is an old Freudian idea. It is not true.
You can change a lot about who you are psychologically. Your personality is malleable. It changes and all you have to do is just determine. If you’ll come out as not being as resilient, that doesn’t mean that you are stuck that way. It’s just flagging it.
People who are introverted can become more extroverted. I’m a great example of that. I was very introverted as a kid but later on, as I got older, we moved a lot and I had to make friends going to 12 different schools by Grade 6. I was always meeting new kids and I had to get good at making friends and then I started to become a magician.
I was performing on stage for people and so that sort of brought that out in me too in terms of getting away from that really introverted aspect of my personality and kind of changed me a bit.
That’s certainly the case with resiliency. If you find that you’re not very resilient and you’re having issues, I would definitely take the test in the show notes. It’ll help you identify, this is the issue for me so going forward, I need to build skills so that I’m able to overcome drawdowns.
It really comes down to overcoming a lack of confidence with your trading and overcoming those losing streaks. If you can tackle those two things, I know I get it. I’m assuming here that you have a system that works and that your risk is all in order and that all that stuff, that’s a given. You’ve got to have that in place, obviously.
That’s not all of it. The major piece here with resiliency and I think you’re a good example of that, Hugh as a trader. As someone who’s like, “You know what? I’m going to make this work. It’s going to work. I’m going to do it.” You’re not taking no for an answer. If I look across, the traders that I know, the ones who are making it today, they all have that mindset.
You can see the same mindset in the Market Wizards books. These traders who had really bad times, really horrible losses but they were able to bounce back from that and that’s resiliency. I think that a lot of traders can learn from those stories and see traders like you who’ve been working and working, working and finally break through the other side. It’s really inspiring.
If you’re starting out and you’re having a difficult time, another thing that you can do is read the Biographies of traders. Just go through the stories in the Market Wizards and The New Market Wizards books and see how these guys were able to do the exact same thing. It could help you out knowing that, look not everyone but just about everyone goes through these times.
Hugh: Yeah, that’s really useful. There’s a lot of great YouTube videos also. I’ve been watching some stuff by Tom Bilyeu about his interviews. He has a lot of guests who say the same thing. Guys didn’t even have a car and now they’re famous. When you see those stories, you’re like “Okay, maybe I’m not so bad right now.”
Walter: Yeah. I’m not here to tell a sob story but I was living on my sister’s couch. I was literally had no job, nothing going for me and I was living on my sister’s couch. I was like, “Dude, this is crazy. I’ve got to make this stuff work.” And so now, it’s like ten years ago, there’s no way you could tell me that, “Oh, you’re going to live on a beach, like a little private beach where you live that your kids could play on. You look outside the window, you’ll see whales. You’ll live in this place where you can go surfing every day at this beautiful beach.”
I’m amazed that I went from living from my sister’s couch to living the life that I have now. I’m not private helicoptering around the place or anything but I’ve got a really good life. It’s really because I stuck with it and not because I got lucky or I knew somebody or anything like that.
Simply because I stuck with it and if you stick with it as a trader, compound your gains, keep working on your mindset, become really resilient, it can work. It’s a really proven process.
This formula works and everyone just wants that freedom, I believe. Most traders out there listening to this, you just want the freedom and all you really have to do is to get the system right. Get your risk right. Work on our resiliency, work on your mindset and just compound the crap out of that sucker, you know what I mean? That’s what it comes down to.
Hugh: That’s awesome. Thanks, Walter.
Walter: Thanks, Hugh.