Understanding These 3 Simple Motivational Theories Can Help Your Trading Immensely!
Motivation is a huge factor in anything we do. Positive outcomes of our efforts usually reinforce our motivation to continue doing what we do. Negative outcomes however, can sometimes take the drive out of us.
During a bad drawdown phase, how many of you have ever felt like the markets are against you? Or maybe you’re not a consistently profitable trader yet, and the market just keeps taking money out of your account, have you thought about giving up?
I can understand those feelings, I’ve been down that path before, many times! Even now during drawdowns, I sometimes feel de-motivated after getting slapped around by the market.
BUT it’s important not to become a victim to things which happen to us or around us. Take control. Let’s instead strive to be objective when it comes to the things we experience. There is no “The market is out to get me” or “I’m not fated to be a trader”.
Usually our de-motivation comes from our mis-interpretation of our circumstances.
Here are a few things which I uncovered in my research which affect our motivation.
Knowing these can help us understand motivation, and our misconceptions, thereby leading us to becoming more objective as traders.
Equity Theory
This is the belief that an input will result in a fair output. When we don’t get what we deem to be a fair output, then we feel injustice has been done to us.
However, this is really not the case.
While this may hold true in certain pay per hour type of work or in mathematical equations, but it doesn’t always apply in life. Not at the olympics, all the athletes put in a tremendous amount of time and sacrifice to train to be their best, but that doesn’t mean they will definitely get an Olympic medal.
It also certainly doesn’t apply in trading. Just because you have a solid plan for the trade, you risked exactly 2% of your account, you gave the trade space to breathe with a stoploss at the perfect level, you waited for the perfect entry setup, the perfect entry trigger, correlated markets are doing exactly what you would like to see to reinforce your trade. But your trade could still lose you money.
There is no fair output in trading… in the short run. However, in the long run, there is a fair output!
If you continue putting in effort to plan every trade, take the best setups, entering at the right time, risking the right amount each time, after a few months, it is very likely that you would have experienced more profitable weeks than losing ones.
So keep a long term perspective when you seek a fair output from the effort you have put into trading.
Expectancy Theory
There are actually three relationships in this theory, please refer to the diagram above. We were brought up to believe that effort results in performance, and performance results in rewards. When the chain of events breaks down at any point, we begin to feel de-motivated.
Assume you put in a huge effort, 12 hours of analysis and trade planning, however, that did not result in catching any winning trades, thus producing a negative monetary result that week. All that effort, and not only did you not yield a profit, you even sustained a loss!
Would you feel de-motivated?
If you said yes, don’t be. It’s understandable to feel demotivated.
But manage your expectations. For example, it’s not realistic to expect to make 20% every single day.
Also, tweak your perspectives a little and think about things in the long run.
This is just one week, it’s more than likely just part of the numbers.
Look ahead to giving your best for the week ahead!
Self-Efficacy Theory
In order to be motivated, a person must believe in his or her abilities to perform a task.
This is an immensely important key to being and staying motivated as a trader.
YOU NEED TO BELIEVE THAT YOU CAN DO IT.
Doubt is a double edged sword, it keeps your mind open and cautious. But it can also make you fear and make emotional decisions.
If you get negatively affected by the previous two incorrect perspectives to motivation, it is likely to take a toll on your self-confidence and in turn, your motivation.
So traders, do manage your expectations, keep a long term perspective of the results and keep faith in yourself!
Don’t be a victim of circumstance, rise above it, learn from it, take the opportunity that comes with it.
You CAN be a profitable trader!
