The State of Flow

(EDIT: This journal is primarily for my own benefit: where I find myself and what I think I need to do. But - yikes! I had to clean this post up. I need to read these things before I hit the publish button.)

Friday was a mixed day, I had a decent morning again, went negative over lunch and then started messing around with TI and sitting on current positions and any new ones just to see what would happen. SPY had a narrowing channel until about 2:30 - I don't think it can get much harder to trade than that.

Someone recently lent me a book to read entitled Delivering Happiness: A Path to Profits, Passion, and Purpose. It was written by the CEO of Zappos Tony Hsieh. Tony is the primary character in the book, but the story is about Zappos and how it came to be the company that it is. Great read.

Interestingly enough, I came across some trading tidbits (maybe I have trading too much on the brain). Tony mentions a 'state of flow' and talks about a book he read describing the phenomenon (page 205). I have been meaning to check it out, and took the afternoon following up.

The author Mr. Hsieh mentions is  Mihaly Csikszentmihalyi. I found this on another site referencing how Mr. Csikszentmihalyi describes the 'state of flow':

"IMAGINE THAT YOU ARE SKIING DOWN A SLOPE and your full attention is focused on the movements of your body, the position of the skis, the air whistling past your face, and the snow-shrouded trees running by. There is no room in your awareness for conflicts or contradictions; you know that a distracting thought or emotion might get you buried face down in the snow. The run is so perfect that you want it to last forever."


This is what I want the trading experience to be - for two reasons: 1) this type of experience is the best way to spend any activity, and 2) I believe that 'state of flow' trading is the most consistently profitable form of trading.

I wouldn't hesitate to say that there have been times that I have been in the zone while trading, (primarily marked by times of great focus, the fast passage of time - oh yeah - and profits ^^), but I can't seem to keep this up consistently, or when I want to, it just seems to happen at times. Personally, I am never sure if it is the market environment or something about me that makes the experience possible.

So I decided to do some snooping around.

I checked out Mr. C on Google and came across this video and several books on Amazon. Looking over the book reviews, it sounds like the books had more info than I need - all I want to know is whether or not it is possible to be consistent and if so, how to go about it. Evidently it is possible and there is quite a bit of information on the topic available for free. I came across a site listing the criteria and characteristics Mr. C has determined need to be present for 'flow':

"Over and over again, as people describe how it feels when they thoroughly enjoy themselves, they mention eight distinct dimensions of experience. These same aspects are reported by Hindu yogis and Japanese teenagers who race motorcycles, by American surgeons and basketball players, by Australian sailors and Navajo shepherds, by champion figure skaters and by chess masters. These are the characteristic dimensions of the flow experience:

1. Clear goals: an objective is distinctly defined; immediate feedback: one knows instantly how well one is doing.

2. The opportunities for acting decisively are relatively high, and they are matched by one's perceived ability to act. In other words, personal skills are well suited to given challenges.

3. Action and awareness merge; one-pointedness of mind.

4. Concentration on the task at hand; irrelevant stimuli disappear from consciousness, worries and concerns are temporarily suspended.

5. A sense of potential control.

6. Loss of self-consciousness, transcendence of ego boundaries, a sense of growth and of being part of some greater entity.

7. Altered sense of time, which usually seems to pass faster.

8. Experience becomes autotelic: If several of the previous conditions are present, what one does becomes autotelic, or worth doing for its own sake.

The Evolving Self - Mihaly Csikszentmihalyi, 178-179 "

All the items describe flow, but I think I can make a distinction between items that depend upon me and items that are inherent in the 'state of flow'.  According to Mr. C, I can facilitate a state of flow in trading by setting goals, working on my skill level, and concentration (items 1, 2, and 4).

Let's get started.

Goals

This seems like a given - PROFIT! But no, Mr. Douglas has shown a better path - CONSISTENCY!

My goal in trading is to be a consistent trader: planning the trade and trading the plan.

Skillz

It seems to me that there are two distinct skill sets to consider. One involving the technical side of trading and the other involving what Douglas refers to as the trader's mindset.

The first includes familiarity with the trading platform, rules of the market, and chart reading; collectively, all of this forms the basis for an edge. Given the nature of the markets, one's edge has to constantly be refined, but after the initial hurdle, I think it is safe to say that this skill set takes a back seat. (In terms of effort expended - for all of us convinced that we are smarter than everyone else who has ever tried this, the initial hurdle includes wasted time on indicators, the search for the Holy Grail, and giving up on indicators.)

Douglas elaborates on the second skill-set with '...adjusting your attitudes and beliefs about trading in such a way that you can trade without the slightest bit of fear, but at the same time keep a framework in place that does not allow you to become reckless' (page 15) and ' ...control(-ling) our perception and interpretation of market information, as well as our own behavior.' (page 32).

I have room for growth in both of these areas. (In fact, in the video I listed above, Mr. C suggests that most activities require 10 years worth of a skill-set in order to reach the degree of competency required for experiencing a state of flow. I am hoping this is not the case for trading, but it does bring the 'experience required' aspect back into perspective.)

Wikipedia sums up Mr. C.'s advice on achieving the 'flow state' with:

"To achieve a flow state, a balance must be struck between the challenge of the task and the skill of the performer. If the task is too easy or too difficult, flow cannot occur. Both skill level and challenge level must be matched and high; if skill and challenge are low and matched, then apathy results."

Wikipedia also presents a clever visual:

If the skill level required and the challenge are both low, we tend to feel apathy. Flow happens when both skill level and challenge level are high.

So where does this put trading? What are the challenges and how do the skill-sets match up? Where am I on this visual?

The technical challenges are readily identified: trading platform and chart reading. Competency regarding the trading platform could be measured in terms of how many mistakes I make in order execution, how quickly I can find information, how quickly I can place orders, etc.

What about chart reading competency? If I can tell whether or not a price is going up or down I am competent.

(Tangent: 

As I began to write this, I became aware of how much of a struggle answering this question (chart reading competency) still is for me. The hypothesis: reading charts is relatively simple. Price going up, price coming down. The rebuttal: chart reading is not simple; some people (e.g., Scott) can look at a chart and see something that no one else sees. Something between the lines that takes years to develop and nurture.


Mr. Douglas and Scott himself insist the hypothesis is valid. Where does my rebuttal come from?

Well - after some internal processing, I believe it is because that in every other circumstance that comes to mind, I am used to having some control over the outcome. If things are not going the way that I expect: I can persuade, I can work better and harder, I can think faster, I can train more - and the situation will turn and go as I expect. The premise is that I can do something to change the outcome. Think about it for a bit - the idea that we control our own destinies is a central tenet of western culture. When things aren't going our way we buckle down and get busy. 

Fix or learn more about the environment - the default approach to all my other problems. (The more I think about it, the more I seem to recall Douglas saying something about this in his book.)

End tangent.)


Chart reading is simple.

I am doing ok on both fronts here, maybe not quite 'zone-esque' yet, but well on the way.

What about competency in adopting a trading mindset? This is measured in terms of how much emotional stress accompanies my trading. This comes and goes, there are moments when I have no stress, and then there are... well, those moments.

According to Mr. C.'s visual, I am probably in the 'Anxiety/Worry' category, the challenge is way beyond my skill level. Mr. C. suggests one of two things to facilitate flow: decrease the difficulty of the challenge, or improve one's skill-set. Let's looks at both of these.

What is the challenge? I believe it is important to state - with all the conviction and emphasis I can muster (to convince myself more than anything), that the challenge IS NOT THE MARKET. It is me, and I think it is two fold: overcoming my need to have control in trading and overcoming  my belief that I have some control in trading.

Pfft...

No way to decrease the challenge. It is what it is. I am what I am.

This leaves improving the skill-set. How? What can I bring to the table on each and every trade that will help to overcome my need to have control and my belief that I have some control?

Essentially, what I need to do is to supplant one set of ideas, namely that I need to have control over the market in order to make money and that I need more technical skill to make money, with another set of ideas: the market moves with or without me and I have enough technical skill to make money.

I can think of only two resources that have served to change my mind about something in the past: education and experience. When it comes to education and these two control ideas, I think I am about resourced out; I am aware of the false premise and the truth with respect to both. That leaves experience, which - believe it or not, is finally making its way thru my thick skull: sometimes I find myself slack-jawed in the middle of a trade, realizing that truly, anything can happen in the market (freakin' ninja/creeper candles). But experience faces a major time constraint - there are only so many hours of every week that the market is open. There is not much I can do except to commit to being present and participating in the market whenever it is open.

Douglas outlines an exercise - but basically it entails experience - and I think I have safely passed the 20 entry criteria - well, perhaps not in terms of fearless entries, but entering regardless of whether or not I felt fear/anxiety.

To be honest with myself, there is one portion of Douglas' exercise that I have found myself falling short on, and that is the portion that he labels 'self-discipline': '...a mental technique to redirect (as best we can) our focus of attention to the object of our goal or desire, when that goal or desire conflicts with some other component (belief) of our mental environment' (page 179). Basically - focusing, and re-focusing, and focusing again on the five fundamental truths and seven principals of consistency. I have practiced this in spurts and haven't been very consistent over the last week or two (relying more on convincing myself that I am just having fun - really, fun is what the 'state of flow' is all about). I think the problem starts when I don't give a concentrated effort to the focus, but assume a token effort will suffice 'because I just read them 5 minutes ago and pfft... I already know it all.' That is a mistake.

From here on out that is going to be what I work on the most  - concentrated efforts to focus my attention on those truths and principals. Practically this means monitoring for contradictory thoughts and stopping what I am doing until I believe them with some sense of conviction. Nothing new here - Douglas outlines the same plan on page 200. Heh.

I can think of one additional thing that may help, and that is the idea of visualization. I ran across some information regarding a Soviet era Olympic study that compared the performance of athletes maintaining a physical training regime and those that pursued a physical training regime and practiced visualization. The ones that practiced visualization out performed the others by a remarkable degree (and top performing athletes have been using it ever since).  I plan on being more conscientious about the positive affirmations and  learning some mental/physical relaxation techniques. On a side note, Mr. C. mentioned that people that practice meditation tend to experience a state of flow more often then people that don't.

Concentration

From what I have gathered, most of the problems with concentration have to do with one's environment. The trade practicing environment has to be free from distractions and potential distractions. A portion of this relies upon one's skills as well - well developed skill-sets allow for less effort expended on the technical aspects of the task and more effort channeled into the activity; but that was covered in the 'Skillz' section.

So - one distraction free environment coming right up.

In the past I have struggled with this when trading gets tough - I don't want to stop trading, but I don't want to think about how emotionally wrapped up I am either, so I find something to distract while continuing to trade: chatting, reading, surfing, other work. No more. From now on, if I find myself wanting to be distracted I will stop trading, be distracted, and only start trading again when I am ready to not be distracted again.

This turned out to be a lot longer than anything I had planned. Nothing new, but I think it was a healthy exercise.

Pro trading... here I come!

Trade well.