Profit in 2011= Self efficacy beliefs (80%)+procedural memory (15%)+method (5%)
The most important determinant of your success is your self efficacy beliefs. After that is ability to develop procedural memory. The least important thing is method, scans, software, tactics and so on.
If you have self efficacy you will find a method. If you don't have it, even the most profitable method will not work for you and you will keep finding faults with methods.
Self efficacy beliefs is the biggest determinant of your trading success. This is true of life as well.
Your self efficacy beliefs determine your success in any domain. Unless you work on that you will find many inhibitors and will be constantly dissatisfied with any method, guides, videos, or instructions, or site.
Albert Bandura first wrote about self efficacy in 1977. His research on self efficacy is considered most influential in developing social learning theories. Anyone who has taken a course in educational psychology would be very familiar with Albert Bandura's work. He defines perceived self-efficacy as people's beliefs about their capabilities to produce designated levels of performance that exercise influence over events that affect their lives. Self-efficacy beliefs determine how people feel, think, motivate themselves and behave. He postulates that self efficacy beliefs determine whether or not a certain behavior or performance will be attempted, the amount of effort an individual will contribute to the behavior and how long the behavior will be sustained when obstacles are encountered. So self efficacy becomes very critical in learning complex skills like trading.
Self-efficacy beliefs also help determine how much effort people will expend on an activity, how long they will persevere when confronting obstacles, and how resilient they will be in the face of adverse situations. The higher the sense of efficacy, the greater the effort, persistence, and resilience.
Profitable trading involves all these challenges. You need to put in lot of effort to understand and internalize key concepts like equity selection, entries, exits, risk, risk/reward and then put it all together. In the process you will have several setbacks and false starts. If you have enhanced self efficacy beliefs you will persist in face of such adversities. If you have high sense of self efficacy beliefs then you will spend time mastering trading software, and mastering trading setups and make them work. Absent that you will abandon your effort at first hint of failure.
People with a strong sense of self efficacy beliefs approach difficult tasks as challenges to be mastered rather than as threats to be avoided. They have greater intrinsic motivation. That helps them to engage for long periods in activities and helps them overcome repeated obstacles.
People with high self efficacy beliefs set themselves challenging goals and maintain strong commitment to them, and heighten and sustain their efforts in the face of failure. People with high self efficacy beliefs quickly recover their sense of efficacy after failures or setbacks, and attribute failure to insufficient effort or deficient knowledge and skills that are acquirable rather than external circumstances.
Your self-efficacy beliefs also influence your thought patterns and emotional reactions. This is critical in trading. You should not be overly excited by profit on single trade and same way not get depressed by loss on single trade. At the end of the day trading is probability game. High self-efficacy helps create feelings of serenity in approaching difficult tasks and activities and activities where outcome is uncertain.
If you have low self-efficacy beliefs then often you believe that things are tougher than they really are. As a result this belief that fosters anxiety, stress, depression, loss of discipline, over trading and a feeling of being lost. You are unable to solve your own trading problem.
Psychologists believe that self-efficacy beliefs influence the level of accomplishment that one ultimately achieves.Self-beliefs can also create the type of self-fulfilling prophecy in which one accomplishes what one believes one can accomplish. This further enhances self efficacy beliefs. This leads to higher performance this in turn leads to higher effort and higher accomplishment which in turn further enhances self efficacy. In trading terms if you make 75% profit two years in a row, then you aim higher and if you achieve those targets then your self efficacy beliefs get enhanced. Your self efficacy beliefs will determine your level of perseverance.
If psychologists have found self efficacy beliefs are so critical to success then the next logical question is How to enhance your self efficacy beliefs..
Self efficacy is built through four processes:
- Mastery experience
- Role modelling
- verbal persuasion
- psychological cues.
These four are in order of importance. Most critical way to build self efficacy is through a mastery experience.
Mastery experience is basically a successful experience of mastering a task. Mastery experiences happen when the learner has reached the point where they understand the content knowledge enough to perform a task on their own or masters the task. It happens if the learner goes in to sufficient depth on material he is trying to learn. It happens as a result of immersion in a particular field or task. It happens with plenty of prior exposure to the content. At some stage the learners are able to interpret the results of their actions and use those results to develop their own capability to engage in future actions or tasks. Then the learner become auto learners. They are able to participate in tasks on a first hand basis with little or no assistance from outside influences. When you experience a intense mastery experience you get a feedback on your own capabilities. Long and sustained efforts are required for mastery experience.
Self efficacy beliefs are critical not only in academic situation but in any task like sports. Self efficacy beliefs are task specific. So a person might have high perceived self efficacy beliefs in one subject but have less self efficacy in other field. Self efficacy builds over a period of time and more mastery experience you have, you become better at a task and learning other tasks.
Mastery experience is the main source of self efficacy. All other things are secondary. In training or coaching situation one can structure the situation in such a way that the trainee experiences a mastery experience. This is the fundamental principle used in training commandos and marines. In simulated and controlled situation they are put in situations where intense learning happens in a very short period of time. That creates a mastery experience. That forever enhances the trainees perceived self efficacy belief. Some years ago Discovery Channel had a 6 part series called Navy Seals Buds Class 234 , if you watch that , it is excellent example of creating mastery experience in a simulated environment. If you work for a successful start up at early stage, you will have a mastery experience. That is why you will find many successful entrepreneurs become serial entrepreneurs.
Many people go through a lifetime without having a intense mastery experience in any field and so have low self efficacy belief.
If you want to enhance your trading skills and improve your profits in 2011 then you must have a strategy to enhance your self efficacy beliefs. That should be part of your 2011 trading plan.
Over the years I have written extensively on self efficacy beliefs and their importance in trading and how to enhance them. If you search this site or the members site you will find several posts on the topic.
If you need help researching this topic further or looking for books , videos on this topic, shoot me an email and I can guide you in right direction.