Developing good habits.
From the time we are of a school going age, our parents and all others around us have been telling us to develop some good habits. Be respectful to elders, be physically clean, eat properly, get plenty of sleep etc. etc. As we grew older, these changed to work hard, work smart, save money, be honest etc. as life changed to creating progress for oneself and alongside build values. When we mature into adults, more habits were sought to be instilled such as exercise regularly, avoid eating junk food too much, take up a hobby, create a work-life balance etc. and these were life enriching habits. We grew into each of these, did some, did not do many and became what we are today. Now all of us have children and dutifully, we are trying to do the same to them!
Why do we do this? What lies at the base of this? Author Thomas Curley has uncovered the underlying theme of habit formation and written extensively on it. Blogger and author James Clear too has an extensive work on Habits. They think that correct habit formation lies at the root of all success. Curley has a book entitled Rich Habits where he enumerates the habits and characteristics of successful people. That must have been fun, researching and writing that book!
Why am I talking about all this? Because, market is a place where our habits have the biggest reflection on how we fare! It decides whether we succeed or fail. Some people may wonder at that statement because they consider money, contacts, information, analytical skills, network etc. to be the most important factors in market success. But, as I have written many times, eventually everything ends up in the brain, where we process whatever information we have and come to a decision. So perhaps a small detour to understand the working of the brain may be in order here!
The brain functions thru what are known as synapses. These are electrical and chemical connections that brain cells establish and which enables communication. Synapses are the latticework of the brain. They are very much like branches on a tree. So the speed of communication really depends on how swiftly the brain cells connect by synapse. Multiple communications at the synapse reduces the gap between two or more brain cells and helps them to grow closer together. This makes the distance neuro-chemicals need to travel between brain cells, shorter.
Habit formation is actually a way of creating these multiple communications between select brain cells. As the habit forms, the communication becomes faster and faster, and the synapse is difficult to break! Also, with the time element progressively reducing, the action triggered by the habit become automatic and then unconscious.
Two things emerge out of this. If we develop good habits– ones that are gainful for us- then those become automatic and unconscious. Equally, bad habits too can get developed and these too become automatic and unconscious! Secondly, because the synapses are now connecting so rapidly and smoothly, it becomes impossible to break!
Now see where this impacts what we do in market. What are we told when we begin trading or investing? Choose good stocks. Buy at the correct price. Don’t chase. Sit on a winner. Exit a loser swiftly. Don’t average a loser. First loss is the best loss. Etc. These are all habits that you need to develop and experienced people give you this advice all the time. Just like when we were growing up. This time, it is for our well- being and success in the market.
Instead what do we do? We work on tips, have no idea of what we are buying or selling, have no clue about whether it is fairly priced or not, we chase down movers because we don’t want to be left out of a good thing, we book profits when we see a bit but we sit on losses as they continue to balloon out of the hope that they will somehow get sorted. This is really Bad Habits formation! We end up doing all the wrong things even after being told (many times!) the good things! Over time, these start to become habits. And once they are habits, they are very difficult to break!
So, what is needed here, first, is Unlearning. But we also need to know what we can replace them with. That’s easy. The difficult part is the unwinding of the “bad “ synaptic connections and the creation of “good” synaptic connections. This takes time. And effort. And learning. And Patience. And persistence. Notice that effort, patience, persistence and learning are also kind of habits too! At the innermost level, it is just a way of rebuilding the synaptic connections in an enabling sort of way.
A good way to begin this process is to enroll for learning. Everyone believes that he or she knows most of what is needed to know. But if that was so, why are you not succeeding? Obviously then, you don’t quite know what you think you know. A proper learning program will structure this subject in a correct manner, take you thru the process and ensure that you create new positive and enabling habits that can then set you on the path of consistency and success.
So, here is to habit formation, the right way. Education. That is the new oil and god for the years ahead. And the beauty of it is, it is never going to run out! At ChartAdvise we take education in the market very seriously and devote ourselves to it. Take a look at what we offer. I am sure you will find something (or many things!) that you will like.
Developing good habits.