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2. The Bulletproof Framework

The key requirements

I am often asked what I believe are the key requirements for becoming a successful trader. One thing that I would say is absolutely critical is the ability to manage the highs and lows – but especially the lows.

That ability might be termed ‘resilience’, ‘mental toughness’ or ‘stress-hardiness’, but for this book I am borrowing the term bulletproof from my hedge fund client we met in chapter 1.

“Success comes to the lowly and to the poorly talented, but the special characteristic of a great person is to triumph over the disasters and panics of human life.”

— Seneca

The four foundations of bulletproof trading

The ability to perform under stress and pressure, to cope with the highs and lows of performance in high-stakes environments, has been thoroughly researched over the years. Traders are now able to benefit from the findings – and practice – of the military, elite athletes, law enforcement and performing artists. All of which feed into this book.

When it comes to helping my trading clients develop their ability to manage the challenges and difficulties of trading, my work is influenced by many different areas of study. They can be grouped broadly under the headings of psychology, physiology, philosophy and the all-important fourth component, pragmatism. I believe that a multidisciplinary approach is required to maximise trading performance, and to become a bulletproof trader.

The Bulletproof Trader framework

1. Psychology

Trading psychology draws on a broad field of research and practice, including decision science, behavioural finance, performance psychology, cognitive psychology and more. In this book, you will see input from all of these areas. But I have focused much of the psychological framework on contextual behavioural science and the development of psychological flexibility.

Developing psychological flexibility is the goal of Acceptance Commitment Coaching, a derivative of Acceptance Commitment Therapy or ACT (pronounced as ‘act’ not A.C.T.) which was originally developed by University of Nevada psychologist Steven C. Hayes. ACT is third-wave cognitive psychology. It is distinct from other cognitive approaches, such as cognitive behavioural therapy, in that its fundamental goal is not to change or control unwanted thoughts, emotions or sensations, but rather to be aware of them, and accept them, while keeping a strong focus on action.

Rather than focusing on the specific content of your thoughts and emotions, ACT is more focused on the context you are in, and the function (helpfulness or workability) of your behaviour in a specific context – as well as how you are relating to your thoughts, emotions, sensations and urges.

ACT-based approaches have helped people improve their performance in sports, chess and in music, and at work,1 including alleviating stress and increasing resilience. ACT is a core part of my trading psychology model. I believe that the development of psychological flexibility has a very positive impact on traders’ ability to stay focused on their trading process. It helps them manage the thoughts, emotions, sensations and urges that can cause them to drift from their process.

Alongside a focus on the development of psychological flexibility, I have drawn on the research and practice of developing stress hardiness2 and mental toughness.3 Specifically, on these core factors:

 Commitment – having a sense of purpose for why you are doing what you are doing, and being disciplined and dedicated to taking action.

 Control – largely centred around a person’s locus of control, whether internal or external; whether people believe they can influence how they respond to events or not. Being able to identify what you can and can’t control is a key skill.

 Challenge – seeing change events as opportunities to grow, and being willing to work through challenges and difficulty.

 Confidence – feeling you can cope with difficulty and setbacks, and seeing and seizing opportunity.

2. Physiology

An important part of the bulletproof framework is the role that our physiology plays in our ability to perform under stress.

At the physiological level there are some key areas that traders can really benefit from, including:

 being able to recognise shifts in your physiology (e.g. breathing, heart rate) as indicators of a shift in your body’s physical state – stress response and energy levels in particular

 recognising the need to regulate the stress response when it is too high and potentially impacting your decision-making

 learning strategies to develop your physiological resilience to the stress response – increasing your stress capacity

 managing your stress vs recovery balance so that you can strengthen your physiology muscles, reduce fatigue and sustain high performance over time.

3. Philosophy

While writing this book I became increasingly interested in the philosophy and practices of Stoicism and its potential application to helping traders deal with the challenges they face in trading the markets.

Stoicism was founded in Greece by Zeno of Citium (Cyprus today) in the early third-century BC. Zeno was a merchant who lost everything in a shipwreck and turned to philosophy in order to rebuild his life, and later taught his messages in a stoa (covered walkway), where his school became known as the Stoa and from where Stoicism gets its name.

I first came across the benefits of applying Stoicism to my work with traders after reading Ryan Holiday’s The Obstacle is the Way,4 a book that took the 2,000-year-old Stoic principles and practices and set them into a modern-day text, aimed at helping people to “turn adversity into advantage”. This book has become a popular read for athletes and coaches, and for people operating in competitive or high-stakes environments.

In an article discussing Stoicism in the NFL, Holiday states: “Stoicism as a philosophy is really about the mental game. It’s not a set of ethics or principles. It’s a collection of spiritual exercises designed to help people through the difficulty of life.”5

For many people, the word ‘stoic’ suggests being unemotional in the face of adversity. This is a modern and inaccurate misinterpretation. The Stoics were not in favour of being emotionless, but they certainly were in favour of finding ways to manage and reduce the impact of unhelpful emotions.

Stoicism, at its core, is a robust and highly practical action-orientated philosophy that aims to help people develop the skills to manage the struggles of life. It encourages you to focus your thoughts and actions on that which you can control. If you cannot control something, you have to accept it. The key is to take responsibility for how you respond – and to express your best self in every moment.

This is essential, and very powerful, for traders.

4. Pragmatism

Alongside the science it is important that the strategies in this book actually work with real traders in real trading environments. Research is important and interesting but the real-world trading floor is the true testing ground of effectiveness.

All of the techniques and strategies in this book have been used successfully with my own clients – thousands of traders and fund managers – and the wider trading, investing and banking performance communities, such as sales and research.

Their feedback has been invaluable in shaping the content. Where possible I have shared it, as well as providing example case studies to show this real-world application.

Getting the most from this book

This book has been written to be a practical resource rather than a scientific text. There are numerous exercises and activities throughout. Completing them will help maximise the impact of the book on your trading performance.

I know that this is not always easy. The key is to start by perhaps focusing on one or two areas where you would really like to benefit. Initially, you can commit to taking action in just those areas. That will make a significant difference to you and your trading, and will make further changes easier.

You can read and learn as much about running mechanics and training theory as you like, but to get better at running you actually have to do some running.

Action is at the core of performance.

“That’s why the philosophers warn us not to be satisfied with mere learning, but to add practice and then training. For, as time passes, we forget what we learned and end up doing the opposite and hold opinions the opposite of what we should.”

— Epictetus

Stay open-minded and maintain a sense of curiosity; adopt an ‘experimental’ mindset when it comes to applying the strategies and techniques here. I have been involved in the field of performance enhancement for many years and I see it as very much about self-experimentation.

You get a hunch about something that might help you improve your trading. You test it, adapt it, refine it – or bin it if doesn’t work, and try something different.

A future bulletproof trader: you

You will already be bulletproof to some extent, thanks to a combination of life and trading experiences. Much of what you are already doing may well be very helpful. This book does not aim to replace that. But even in areas where things are going well, I would encourage you to read with an eye to opportunities to try new approaches.

What got you here may not get you there.

Imagine for a moment a future trading you: even more resilient and capable of handling the challenges and demands that you face in trading the markets. What would be different? What would you notice? What action would you be taking? How would you be feeling? What thoughts would you have?

Where are the opportunities for you to develop, to become a mentally stronger, more robust, composed and resilient trader than you currently are?

Training your mind to adapt to any circumstance

It took me a long time to finalise and organise the content of this book, and just as perfectionism is a dangerous trait in trading it can be equally debilitating in writing. But my intention is not to tell you what to do, but rather to help you to develop a framework: the skills and practices – mental, emotional and physical – that are most relevant and powerful for your trading.

That is what will truly help you meet the challenges and demands of trading the markets as they arise.

“In this way you must understand how laughable it is to say, ‘Tell me what to do!’ What advice could I possibly give? No, a far better request is, ‘Train my mind to adapt to any circumstance’… In this way if circumstances take you off script you won’t be desperate for a new prompting.”

— Epictetus

Each trader is like each moment in the market: unique. And what works for one person may not work for another. As you read through the book, I encourage you to keep reflecting on the question:

 ‘Could this be helpful for me in my own trading? And if so, when and how can I apply it?’

1 The Mindful and Effective Employee: An Acceptance and Commitment Therapy Training Manual For Improving Well-Being and Performance; Frank Bond, Paul Flaxman, Fredrik Livheim, New Harbinger, 2013.

2 The Hardy Executive: Health Under Stress; Burr Ridge, IL. Maddi, S. and Kobasa, S, Irwin Publishing, 1984.

3 Developing Mental Toughness: Coaching Strategies To Improve Performance, Resilience and Wellbeing; Doug Strycharczyk, Peter Clough, Kogan Page, 2015.

4 The Obstacle is the Way, Ryan Holiday, Profile Books, 2014.

5 www.si.com/nfl/2015/12/08/ryan-holiday-nfl-stoicism-book-pete-carroll-bill-belichick