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Is willpower essential

Delve into the role of willpower in trading and learn how a written trading plan can help you improve your performance.

Reading time: 6 minutes

Trading level: Beginner


Source: Shutterstock

Is relying on willpower the best way to make enduring life changes? Let’s say you want to get that promotion at work, become an exceptional trader, lose 5 kilos, or learn how to run a marathon. Can inspiration and willpower alone help you achieve those goals?

Often inspiration can act as a trigger, but willpower is required to keep running towards your goals. Unfortunately, research suggests that humans have a limited supply of willpower, and it can become depleted just like a muscle that is over-used. This also accounts for why you tend to have less willpower as you progress through your day, because you’ve been progressively using up your limited supply.

Researchers Haan and Veldhuizen state: “Higher-level mental processes such as self-control draw upon a limited pool of mental resources that can be exhausted.” Psychologists call this concept – ego depletion. Ego depletion is the state of reduced willpower caused by prior exertion of self-control.

Of course, there is a large incentive for developing your willpower. A study by Hoffer and Gildings suggests: “Individuals with more willpower are more likely to have high school and college degrees, higher earnings, better jobs, lower crime and poverty rates, and are less likely to be obese”. Interestingly, there is evidence that if you’ve been able to train your willpower in one arena in life, this extra capacity for willpower will translate to other areas of your life. Hoffer and Gildings go on to say: “after administering a willpower-draining task, athletes persisted for significantly longer—exhibited less willpower depletion—on an unsolvable puzzle than non-athletes.”

But what if you’re not an athlete, or a superior performer in a non-trading part of your life? Does this doom you to failure in the markets? Are you destined to never achieve high performance as a trader?

The Good News

Well, here’s the good news. According to Scott Adams, anything that requires a lot of willpower isn’t sustainable. He states: “In my experience, the best way to avoid using up your willpower is to stay away from situations in which your only options are pleasure or deprivation. Given those choices, pleasure usually wins.” This supports the importance of managing your environment as a trader to ensure that you maximise your chances of doing what it takes to excel in the markets.

Plus, even in the face of recovery from addiction, it seems that strategies are more important than willpower. The research suggests: “People with addiction seem not to be short on willpower; rather, recovery is dependent on developing strategies to preserve willpower by controlling the environment.”

So, how can you harness the power of this research to assist in becoming a more proficient trader?

4 Actions You Can Take:

1. Remember the Importance of Purpose
In his book The Motivation Myth, Jeff Haden emphasises the importance of harnessing the power of visualising your ideal future self. He states that you only need to ask yourself one question about the task you’re currently contemplating: “Will this help me reach my goal?” Then, as you assess that possibility, say to yourself “If not, I won’t do it.”

That’s why most successful people appear so decisive. They know what they truly want and make every decision in alignment with their future self. The field of ‘future self’ psychology helps to explain how to achieve goals truly meaningful to you and avoid procrastination. If you’re looking to become a consistent, successful trader in the future, realistically imagine every detail about how this future self would behave. Then, allow this image to guide your current actions.

2. Pre-plan how you react to obstacles
According to Gabrielle Oettingen, Professor of Psychology at NYU, “the more positively people fantasize about their desired futures, the less effort they invest and the less successful they are in realising these futures. However, when fantasies about a desired future are complemented with a clear sense of reality, people find the direction and energy needed to realise their fantasies.” 

The more positively university graduates fantasised about success two years in the future, the fewer job applications they sent out and the fewer jobs they were offered and the less they earned. Those who start on a weight-loss campaign and picture themselves gaining a physique to rival a super model… end up regaining the weight they lose, and not losing as much in the first place. Elderly individuals who dream of a full recovery after hip surgery can walk the fewest steps after their operation.

Outstanding trading comes from within, tempered with an effective dose of realistic thinking. It involves pre-planning how you’ll react to obstacles that stand between you and your ultimate success. One technique developed by Gabrielle Oettingen is ‘mental contrasting’. She developed the scientifically proven tool called WOOP. This stands for: Wish Outcome Obstacle Plan. Using this tool, you pre-visualise the things that could stop you from reaching your goal. Then, you create a plan in advance to overcome these obstacles.

It’s where an ‘if’ ‘then’ plan can really come to the fore. ‘If’ this scenario happens, ‘then’ you’ll do this action. For example, ‘if’ you experience five losses in the markets in a row, ‘then’ you’ll check in with your mentor to see if there’s a problem. This is not negative thinking. It’s factoring the obstacles you’re likely to face into your visualisation and planning around them.

As a trader, we plan for every contingency. We plan for the worst. We set stops. We are pragmatic. Exceptional traders know their worst-case scenario and they know when they need to step aside from the markets.

It's nice to know that prudent trading behaviour is directly in line with the latest research about high performance, isn’t it?

3. Create a Success environment
The importance of developing a success environment is often under-estimated. A success environment is your ideal physical surroundings that can help you thrive as a trader. Many traders prefer limited distractions, a quiet environment, and one that allows them to concentrate on the task at hand.

Consider the type of environments where you work best. What assists you perform at a high level for an extended period of time? Do everything you can to set up your trading desk in a way that enhances your performance.

Jeff Haden, The Motivation Myth author suggests “Every time you have to decide not to do something you would like to do – simply rework your environment so you can eliminate your ability to be impulsive.” If the notifications on your phone continually distract you, then silence them. If your pet bird’s screeching interferes with your thought processes, banish the bird to another room while you’re trading. Anything you can do to improve your own focus will assist. A focused fool can accomplish more than a distracted genius.

4. Stick to a Checklist
Many traders think they can remember their entire trading plan, and that they don’t require a written checklist. In fact, the research suggests that checklists can improve performance in almost every complex endeavour.

The medical field has benefited especially from the recognition that checklists can improve patient outcomes. One revealing piece of research states: “Safety checklists have been shown to impact positively on patient morbidity and mortality following surgery.”

Commit your trading plan to paper. Cover every conceivable contingency. Following a written trading plan will help improve your performance as your working memory will not be as taxed when under trading pressure. You’ll be more likely to follow pre-meditated procedures and this can alleviate feelings of stress when you’re in the heat of the moment. It’s more likely to help you go the distance in the markets.

All of this can take some time and effort. However, if you can stay in the arena longer, and mitigate the damaging effects of stress, you’re more likely to have positive outcomes. Rely on systems and not willpower. Develop strategies and routines to help you become disciplined and focused.

Louise Bedford is a full-time private trader and author of The Secret of Writing Options, The Secret of Candlestick Charting, Charting Secrets, Trading Secrets and Let The Trade Wins Flow.

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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