This week, I interviewed one of Australia’s best-selling authors on the stock market. Louise Bedford is the author of several books on trading – ‘Trading Secrets’, ‘Charting Secrets’, ‘The Secret of Candlestick Charting’, and ‘The Secret of Writing Options’.
My conversation with her on trading strategies was quite revealing, as we were able to discuss a topic that is slightly divergent from the usual topics in the world of finance, but still important to anyone involved in the trading business: the psychology of trading.
I have often wondered about how we approach trading in a calculated way, but there is room for a more nuanced approach by understanding the human mind. Harnessing the secrets of the human psyche can be an incredibly practical strategy to help you save time and make successful trades.
Shifting the Mind into the Trading Game
Before I go further into our conversation, I feel it is important to introduce you to Louise and what makes her experience important to talk about. Louise is a trained psychologist and financial trader. She’s been in the trading business for about 32 years.
Her five bestselling books have been well-received by the trading community. She runs a podcast on Trading Game, where she helps people to learn how to make money by trading in the Australian stock market. She does not stop there, though, as she has been running a mentor program for 22 years. Louise has achieved all of this and more as a woman.
That’s what struck me as an amazing achievement because when I see myself, also a woman, working in the field of medicine, I realize that I have had to make a lot of mental shifts while trying to learn to make it work in finance. This is a tough call, especially if you come from a different professional background.
Dealing with Imposter Syndrome
As a physician trading in stocks, I’ve had the familiar feeling of the imposter syndrome, where I felt that I was not really as qualified as my peers in finance to make a good trade, let alone advising others.
Louise was quick to explain why this can actually be a valuable trait, especially for a newcomer into the field. She likened the imposter syndrome to the conflicting voices of an angel and a devil on each shoulder; the Angel tells you that “you can do it”, while the other voice questions your right to say that you know what you are doing.
Interestingly, she explains that this phenomenon is related to the Dunning–Kruger effect in which someone incompetent thinks they have more knowledge than their managers who are more qualified than themselves, while a competent person may think that they do not know what they ought to know.
This is an important trait. While it may seem counterintuitive, feeling that way encourages you to learn new things in your line of profession. It also helps you to avoid being overconfident. In fact, the imposter syndrome is a true symbol of a growth mindset that gives you a better idea of what you need to do and what new capabilities you need to incorporate within yourself.
It is natural to feel nervous in such situations. I agree with Louise’s assessment that this is a healthier attitude overall both for a beginner and an experienced professional.
A Magic Word for Setting up Your Mind towards Growth
These days, we all enjoy easy access to all kinds of information thanks to the internet, meaning that anyone can start financial trading, regardless of their background. I do realize that some people can struggle with learning due to learning barriers. They might find it hard to get into trading as they may have a lot going on in their lives – like those who are juggling work and family, or young, inexperienced people who are very uncertain of their choices.
My conversation with Louise enlightened me on the research of Carol Dweck (who is an amazing researcher on fixed and growth mindsets). Louise and I talked about the word Yet, which helps you get into a growth mindset.
For example, when you tell yourself, “I am not a finance expert. [with a full stop],” you are unlikely to research finance in the future, and so it’s unlikely to become a part of you later on.
But when you say “I am not a finance expert yet,” you give yourself the room to learn, actively seeking out new concepts and ideas, and eventually growing your abilities.
A Checklist for Success
Another important skill set for finance that comes from medicine, by the way, is the use of checklists. Research in medicine has shown that medical professionals who use checklists have better health outcomes for their patients than those who do not. It’s the same in psychology which Louise is more familiar with.
She explained that younger inexperienced psychologists who employ cognitive-behavioral therapy (CBT) to treat their patients have been shown to get better results than their older colleagues because they are so nervous that they use checklists. Personally, I think it is great that you don’t need to memorize everything as a beginner and a checklist will help a trader to do better.
The Men vs. Women Debate
I have always felt that men have dominated the field of fiancé, and women are seemingly at a disadvantage due to socio-cultural reasons. The men versus women debate is always a big one in terms of which gender is more successful in the world of finance.
This one was an interesting part of our conversation. Louise was quick to point to her trading surveys. She mentioned that the best traders in terms of results are women and more fascinatingly, her surveys replicate the findings of credible researchers like Barber and Odean. Louise attributed these higher returns to women being methodical in their approach towards trading.
The bottom line on this debate is that women are just as capable of working in finance as men and that their success has nothing to do with their gender, so to speak. Instead, their accomplishments in trading are based on their skill set, the ability to allow themselves to learn from a mentor, and of course, determination to work hard and succeed. I, like Louise, therefore, find it very confusing there are more male CEOs in the FTSE 100 list of companies than females.
The Decision Fatigue
Trading is a very intense process. Sometimes, it is easy for those involved in trading to feel fatigued. This happens especially when you have to make a lot of quick decisions on when to make a stock trade, in the hope of making immediate gains. Louise has some good tips on how to overcome this problem. In her view, Decision fatigue comes down to two things: timeframes and a sense of identity.
Timeframes are the periods in between your trading sessions. You should keep a short time frame only if trading is your primary means of earning a living since you have more time to sit on your computer and think about your trading opportunities. If you have any other profession or role – a physician in my case – you should increase your timeframe to weekly trades and take the pressure off yourself.
Your sense of identity is tied to your perceptions about yourself and the motivations behind your actions. Louise believes our actions are tied a lot to who we think we are. If we realize what our role is to the people around us, then we can take appropriate actions to fulfill that role.
She emphasized that one can have multiple roles at the same time, such as being a physician, a mother, and a trader at the same time. And I wholeheartedly agree on this one. You just need to maintain an internal consistency for each role that is in line with your personal values. You can be a weekly trader instead of a day trader if it allows you to keep and preserve your primary role and identity.
Final thoughts
Today, we can see many women, young and not so young, breaking the barriers and willing to learn stock market trading just as well as men. Since female traders are naturally more vigilant and selective, they make for even better and more successful traders than their male counterparts.
It is great to see that there are people like Louise to help others get into the stock market and succeed in financial trading. She inspires me to continue on my quest to educate others on stock investing.
I feel that with the right mindset, trading is anyone’s game, regardless of your gender or professional background. It all comes down to being humble, optimistic, methodical, and self-focused.
Looking for more great content about investing, personal finance, and more? Keep tuning into the Stocks4Docs Podcast.
Louise Bedford is a best-selling author of five books on the stock market. She is a behavioral finance expert and has degrees in Psychology and Business. She’s been running the 6-month repeat-for-free www.tradinggame.com.au Mentor Program since the year 2000, and she’s also the founder of www.talkingtrading.com.au, a free weekly trading podcast.
Known as ‘the corporate executive who lost the use of her arms and achieved financial freedom by trading with a pen in her mouth’ – she will inspire you to achieve your trading best.
When she’s not hanging out with her traders, she is spending time with her two children and husband, lifting weights at the gym, and enjoying yoga.