072 – Become a better trader by NOT trading

Let me tell you a story.

It’s a tale of two lumberjacks.

These two lumberjacks were the finest in the land but they were always arguing about who was the best.

One day they decided they had to settle this once and for all with the ultimate competition- whoever chopped the most wood from sunrise to sunset would the greatest of them all.

So the day of the competition comes around and at sun rise they both start chopping wood.

For the first few hours they both keep the same pace.

But then after about two hours the second lumberjack stops.

He takes a break for about 20 minutes and then starts chopping again.

This cycle continues for the rest of the day.

Chop for two hours.

Break 20 minutes.

The first lumberjack sees this and thinks to himself that he must have this in the bag.

All he has to do is keep chopping right through the day and surely he would beat the 2^nd lumberjack who was stopping for a break every few hours.

Anyway, as the sun starts setting they stop to count the chopped wood to see who the winner is.

And to almost everyone’s surprise, the 2^nd lumberjack wins.

In astonishment, the first lumberjack says to the 2^nd:

“How is this possible?

I’ve been chopping non-stop all day while you’ve been taking breaks every few hours but you’ve chopped more wood than me.”

How is this even possible?”

The second lumberjack looks him straight in the eye and says…

… “I was taking a break every few hours so that I could sharpen my axe”.

Now I’m sure a lot of us have heard this story before or a version of it, but what does this mean for us especially as traders?

Are we the type of trader that just keeps chopping non-stop, or do we take a break to “sharpen our axe”?

Now on the surface this may appear to just mean that we need to take a break when we’re tired, or maybe to be smarter about how we approach a task, but there is actually a little bit more to it than that.

To really understand the potential power of an approach like this we need to look at how the brain, or mind, works.

Dr Brett Steenbarger, who was a guest of the show in episode 25, is a trader, author and trading coach and through his work in trading psychology has a much better understanding of the process than me, so I’m going to let him explain what’s happening here and how as traders we can leverage this to become even better.

I’m going to play you little bit of audio from episode 25, and we’re going to drop into the conversation just as we start talking about creativity.

While you’re listening to Brett have a think about how you can leverage what he is saying for your own situation.

Let’s have a listen to what Dr Brett has to say.

Andrew: I’ve also noticed that, and I’m sure others have as well, I often come up with ideas when I’m not even thinking about a specific task or problem. What’s happening there and can that be harnessed somehow?

Brett: Another great point that you’re making and that is well documented in the psychological research on creativity. The way I think about it is that the successfully creative person spends a lot of time thinking about things, analysing things.

Looking at different patterns and relationships – looking into the different markets, what the markets are doing and all of that is a process of analysis, getting inside of something. It’s almost like looking at the world through a microscope and seeing detail.

The creative insight, however, comes after that intensive immersion in data and observations.

It’s often when people step back as you say that they end up taking what they’ve analysed and actually synthesizing it, putting it together into a new picture.

And this is why so many of our insights will come at seemingly random times when we’re taking a walk, or taking a shower because we are subconsciously synthesizing what we have been analysing.

We are taking the pieces of the puzzle that we have looked at through the microscope and now, we’re looking through a telescope and we’re seeing a bigger picture.

If there isn’t that intensive immersion and observations, there’s nothing to synthesize. But also, if we keep our nose in the microscope so to speak, we never zoom out and get that bigger picture.

Creativity is a kind of 1-2 process of analysing, seeing the pieces and then stepping back and seeing a new bigger picture.

Andrew: So, it sounds like also that there’s a lifestyle impact on creativity, you mentioned that it can come to you when you’re walking or when you’re relaxing. What other things can we do to improve creativity through our lifestyle choices?

Brett: Well, it’s interesting that you tie lifestyle choices to creativity.

I think there’s a merit to that observation.

The synthesis part, seeing the bigger picture really requires an open mind and if you are constantly watching price action, or if you are working, working, working from one task to another task to another task to another task, you never really have the kind of calm focus that seems to be helpful for generating that creative synthesis.

That’s why I think it’s often during relatively unstructured free time that we come up with our insights. If we don’t have that relatively unstructured free time, we clutter our minds and we never get to that point of assembling a larger picture.

So, there are techniques such as meditation that help put us into a calm, focused state of mind where we’re more likely to assemble the pieces of the puzzle.

Andrew: That’s interesting. I never really considered the importance of the synthesis step there, so, that’s great to highlight that.

Brett: I think what happens is traders work hard but they don’t work smart.

They do the analysing, they’re looking at charts, they’re looking at data.

They get their nose right in the screen, they have their ears right in the conversations and they’re never stepping back and seeing a bigger picture or pattern.

As a result, they never see the world in new and different ways because they never achieved that creative synthesis.

So it’s really interesting to hear Brett explain that creativity is a two-step process.

Firstly, there’s the intensive immersion and analysis.

Looking at everything in minute detail and absorbing as much as possible.

The second step though is critically important, and sometimes overlooked, and that is to step back, look at the bigger picture.

Take time to synthesise all the parts.

As Brett said there at the end ‘Traders often get right into analyzing the minute details but never step back to see the bigger picture…and as a result, they never see the world in new and different ways because they never achieved that creative synthesis.’

Now I’m sure I don’t have to sell you on the benefits of being able to see the markets in new and different ways, but by taking time out to do so, you can literally become a better trader by NOT trading.

Interesting, isn’t it?

I think as traders we can really use this kind of behaviour or process to our advantage, and it’s something that I’ve been making a conscious effort to leverage in my own trading and in other aspects of life as well.

I think anyone can benefit from having this understanding.

In fact, I did a presentation for the Melbourne Quant Traders group late last year and this was one of the points I highlighted because I think it’s something that everyone can benefit from so I hope you found some value in me sharing it with you today too.

Now I have another podcast episode due to be released in just a few days time and I’m really excited to be sharing this one with you, because it’s someone I’ve been trying to get on the podcast since 2015.

That’s right, it’s taken us more than a year to get our act together and finally record a podcast episode so I’m really excited to be sharing that with you at the end of this week, so look out for that one.

And that’s it for this week’s trading thought.

Enjoy the rest of your week and please remember to take a break – it could make you a better trader.

Cheers,

Andrew