Fixed and Growth Mindsets in Trading (Key points/cheat sheet)

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Here are the key points from our video ‘Fixed and Growth Mindsets in Trading (Trader Psychology)’ that you can use as a reference guide or ‘cheat sheet’. The video is available on our YouTube channel and at the bottom of this article.

  • A study was done on 400 fifth grade students in the US by Dr. Dweck and her colleagues with the aim of finding out the effect of praise on performance and motivation.
  • In one of the experiments the students were given a moderately difficult task to perform but something they should have been able to achieve without too much strain. At the end, one group were praised for their effort and another was praised for their intelligence.
  • Dr. Dweck points out that praise for intelligence produces a short burst of pride in the individual, followed by a long string of negative consequences.
  • When the study moved on to more complex tasks the consequences weren’t great so the students were asked what they felt went wrong. The group praised for their effort explained it was because they hadn’t put enough effort in or not used the correct process, whereas the group praised on intelligence claimed they just weren’t intelligent enough.
  • This kind of praise of intelligence can affect motivation to pursue challenging tasks. When students were given a choice to complete the tasks they were good at or to move on to more complex tasks that would challenge them, the group praised for effort were happy to move on to learn and grow. The group praised for intelligence wanted to stick where they were, doing something they knew they were good at. Rather than having an opportunity to improve, they wanted the opportunity to document their intelligence and ‘show off’.
  • These two groups represented two types of mindset: the growth mindset and the fixed mindset.
  • Dr. Carol Dweck: “Growth mindset people believe that their most basic abilities can be developed through dedication and hard work — brains and talent are just the starting point. This view creates a love of learning and a resilience that is essential for great accomplishment. Virtually all great people have had these qualities.”
  • “Fixed Mindset people believe their basic qualities, like their intelligence or talent, are simply fixed traits. They spend their time documenting their intelligence or talent instead of developing them. They also believe that talent alone creates success — without effort. They’re wrong.”
  • The way to build talent is to challenge yourself through repeating something again and again in a deliberate practice state that challenges you and forces you to focus intently on the process (as we know from the work of psychologists like Anders Ericsson).
  • We can all have particular things that we prefer to learn, but if we want to stay in our comfort zone that will only get us so far in our development.
  • One of the ways this shows in trading is when traders don’t want to learn new concepts, if they are too tricky, or will take some work to understand them, and they would rather stick with the ones they see as straight forward and enjoy the feeling of perfectly executing something.
  • An example is using a static position size instead of a dynamic position size. It’s easy to open a position based on it being 1% of the account at risk every time or even just always 1 contract and a 20 pip stop loss, to make it even easier. Because to make the percentage at risk and the stop loss size different each time takes work, it may feel tricky to understand and the trader can’t excel at it immediately. This may mean there is a chance for failure — but this is how you learn.
  • Some traders will say that something is overly complicated, which may lead them to claiming that particular concept is incorrect. This once again comes down to the fixed mindset; the need to stick to things you can do well, to document how good you are rather than taking on the more challenging task, which will help you learn and improve.
  • When trading, if you see someone else doing something well, compared to the stage you are at yourself, you may think that the person is just very talented. When actually it just all comes down to effort. You need to start thinking “maybe I’m just not putting in enough effort” or “maybe I’m just approaching this in the wrong way”.
  • Most people have been brought up with the fixed mindset approach, like at school when you are put in groups based on your intelligence levels. But we can all develop a growth mindset approach.
  • Something to be wary of is the false growth mindset approach — when you say you have growth mindset when you don’t really, or don’t really understand.
  • Nobody has a growth mindset in everything all the time but there can be things that trigger our fixed mindset. We need to work out what our triggers are and instead of saying things like “I’m rubbish with trend lines” you would say “Trend lines are a challenge right now” and keep learning and improving.
  • We need to realise that we don’t have barriers in the places we think we do and if we want to progress with trading or anything else, we need to realise that part of this involves challenging ourselves, accepting failure and putting in the effort to grow.
  • You’re not limited by your current skill-set or what you think you’ve been born with.

To learn more about our method of trading, sign up for our FREE Inner Circle, so you can get access to our exclusive 4-part video mini-series and learn the foundations of our approach. Click here to register.

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