Applying Lessons From a Navy Seal To Trading

I recently listened to a Tim Ferriss podcast where he interviews Navy Seal Jocko Willink.  I’ve listened to this interview in its entirety five times and I plan to listen to it several more times.  To say that it has impacted and inspired me on so many levels would be an understatement.   There are a few parts of the podcast in particular that I wanted to write about here on the blog because I think they apply directly to things that traders will confront and I think they might be beneficial for some readers.   I would highly suggest the entire video but let me start by focusing on this point in the video where Willink discusses what he calls “detachment” from about the 58 minute mark through about the 1 hour and 4 minute mark.  Please stop and listen to this now:

What is jumping out at me during this portion of the interview?  First, Willink talks about a moment early in his career as a Seal where he’s training and for the first time he detached himself, identified the problem, called out the solution to his team, and “clicked” in terms of becoming a leader.  As a follow-up to this he tells another story about a soldier that was injured who came to watch training with him one day from a point of view where they could easily see the action unfold as they were removed from being directly in the trenches.  What does the other soldier say as they are watching the training?  Despite the explosions and the smoke and the bad guys in the hills and the chaos that was surely being felt down where the training was taking place, the solider says to Willink

“It’s so easy when you’re not in it.”

Willink goes on to share with this soldier that this, his ability to detach and execute, was how it was for him live as a Seal.  He says a light went off for that soldier at that very moment….he understood very clearly then why Willink was elite and why he was a leader of men in arguably the most stressful and intense situation a person can be in.

There is a saying that I think is true in trading which is that “trading is simple but it is not easy”.  I think this is very similar to what Willink is discussing here with regard to the story he shared and the concept of detachment.  Let me try to make some comparisons to trading.

On the blog here and literally hundreds of times on my stream I’ve talked about the importance of the IB breaks in various markets and how I use them for trading execution and/or context.  If you are not familiar with that terminology or others I will reference in this post, refer to this page.  This morning on Twitter I shared some statistics from a basic strategy in Crude Oil where a trader takes a position in the direction of the IB breakout and holds it until the close.  Could we make the strategy more nuanced/complex….of course.  I’m trying to show a very simple approach and the data attached to it.  Last week here were the stats on this strategy:

  • Max Adverse Excursion:  132 ticks
  • Max Favorable Excursion:  435 ticks
  • Profit/Loss Monday – Friday:  +$2.34 per contract
  • Days profitable:  5 of 5

So I think it is obvious that watching the high and the low of the first hour of RTH and then taking a position in the direction of whatever side breaks first and simply holding it to the close is a very, very simple strategy.  Is it easy to execute?  No, it isn’t.  That’s true despite the fact that there is nothing at all to think about the way I’ve presented the execution here.  In reality though as a trader you have lots of time over the course of a trading day where you can allow things to throw you off your game and to wreak havoc on your execution.  In Willink’s story he’s talking about bad guys on the hills, smoke, explosions, etc that might throw soldiers off of their plan.  The penalties of doing this in warfare are severe to say the least.  In trading you could have people on Twitter going on about whatever and you allow this to distract you, Canadian wildfire stories that are making you second guess your statistical work and edge, perhaps you didn’t sleep well the night before and have low energy on the desk…..  I could offer countless examples and I’m certain if you’ve traded for any length of time you know exactly what I’m talking about.  Ultimately I’m saying that it is often not easy to detach yourself from the noise and execute properly and this leads to errors for the trader:  not taking a planned trade, interfering with trade management, chasing, and outside influence dictating actions.  The consequences are losses, mental debits, maybe blowing up an account, perhaps completely failing if you do this enough times.  So this is an example, in my opinion, of trading being simple but not necessarily easy.

Let me offer another example with Soybeans which was something I tweeted about last week.  Here is a picture of the RTH session in Soybeans from last Friday 5/6 and a basic stat sheet I use for uncovering common market behavior to aid my execution:

da beans

stat sheet

Let’s walk through the stats and compare to the RTH session on Friday:

  • First stat shows that the most common time for the High OR the Low of the day in Soybeans to be set is in the first hour of trade.  Did that happen Friday?  Yes.  The lows were established on the opening bar (these bars are 15 minutes each).
  • Second stat shows that the most common time of day for the total range of the session to be set is in the last hour of trade.  Did that happen Friday?  Yes.  The last bar is also where the high of the day occurs and thus where the total range for the session has been put in.
  • Third stat shows that on a 60 day trailing basis 71.8% of the time we open inside the previous days range we test the previous days poc in the same session.  Did that happen Friday?  Yes.  That happened right off the open.
  • Fourth stat shows that most of the time only 1 side of the IB, either the IB high or the Low is broken.  On a 60 day trailing basis only one side or the other has broken 72.88% of the time.  Did that happen Friday?  Yes.  Only the IB high was broken.

This is why I tweeted out on Friday that “it doesn’t get much cleaner on the stat front than Friday”.  Basically all the “normal” things that happen in Soybeans happened.  While that is all well and good I will tell you as a trader I know this kind of data and much more for ALL of the markets I trade.  I know this stuff cold and I’ve sat through thousands of trade sequences leaning on it.  I can also tell you that there have been so many times where, by the time that bell has rung and the session is over, I haven’t captured any of it.  In fact far worse than simply not taking the trades there have been many times where I found myself taking trades that were a direct contradiction to the data I have.  The session is over and I look back on the day and these stats and I think… did I screw this up.  How is it even possible when I know all this data?  It is all so clear what I should have been doing!!!  I’d be willing to bet that most traders reading this have had this experience or are going through it currently.  We simply could not detach ourselves from whatever else was going on and execute properly and according to plan.  We know what to do…that part is simple….its the doing it that isn’t often easy.

Willink also talks in this interview about one of his guiding principles in life which I find very powerful.  It is the idea that:

“Discipline Equals Freedom”

I thought for a long time after hearing him discuss this and about how this applies to a trader…because I think it is absolutely true that as traders when we are disciplined with our execution and our process that is when we enjoy the most freedom.  When I say “enjoy that freedom” I mean both inside and outside of trading.  I know personally when I was constantly committing the errors I described above, not taking planned trades/micromanaging trades or if I half-assed my preparation, etc. that I was never less free as a trader,  that I was a slave to my own mistakes.  I didn’t feel free at all.  It is brutal to go through that as a trader. Worse still is that when we are stuck in that sort of routine it often leaks over into our personal lives as well after we get off the desk.  Even though it might seem on the surface that we are enjoying the freedom to do whatever we want at any given moment instead of following a trade plan, the fact is that leads to little or no freedom at all.  We develop bad habits and often become a slave to them despite probably telling ourselves “I won’t do that again”.  Simply saying it, we find, isn’t enough.

So the question becomes….how do we stay disciplined?  How can we detach?  I think one way, and I’d love to hear other ideas in the comments section from readers, is to create good habit loops.  Readers will recall from this post that one of my favorite books that had a positive impact on my trading is The Power of Habit by Charles Duhigg.  I think we can apply many of the lessons in this book to help us get to this point of detachment, discipline in our execution as traders, and ultimately more freedom.  How?

One of the things Duhigg discusses in this book is how habits get formed in the first place.  Basically when we first try to perform a new task our brains are exerting a great deal of effort to process new information.  Once we understand a certain task our behavior becomes automatic.  I touched on this when writing my process post where I talked about playing chords on a guitar.  At first it is hard to play basic chords for most of us, we have to think about where to put our hands to form each chord and physically it hurts your fingers.  Over time performing that same action becomes automatic and something I tried to describe as “unthought thought” and the pain goes away because the movement and finger placement has become common…a habit.  Duhigg says in the book “This process in which the brain converts a sequence of actions into an automatic routine is known as “chunking,” and it’s at the root of how habits form”.

Enter the Habit Loop.  The book describes exactly what a habit loop consists of.  There are essentially three elements that Duhigg describes:

  1. A Cue that tells your brain to go into automatic mode and which habit to use is the first step.
  2. Then you go through a Routine which Duhigg says can be physical, mental, or emotional.
  3. Last, there is a Reward, which helps your brain figure out of this particular loop is worth remembering in the future.

Over time the loop will become more and more automatic.  Duhigg says “the cue and the reward become intertwined until a powerful sense of anticipation and craving emerges.”

Part of the reason I think that this concept of the Habit Loop and implementing it as traders is so critical is because it helps enable that detachment that Willink is talking about.  It helps create that vantage point that he and the other soldier had when observing training where suddenly everything looked so easy.  So how do we break bad habits and create good new habits in our trading and elsewhere? Duhigg gives us several suggestions on how to go about doing this using running as an example:

If you want to start running each morning, it’s essential that you choose a simple cue (like always lacing up your sneakers before breakfast or leaving your running clothes next to your bed) and a clear reward (such as a midday treat, a sense of accomplishment from recording your miles, or the endorphin rush you get from a jog).

Then Duhigg warns us that a cue and a reward alone have been shown in many studies not to be enough to make a new habit last.  This is critical for traders because most of us have gone through the experience where we build up all of this mental capital (and monetary capital) following our process for weeks or months only to then deviate from the process on one big trade and give all of those profits back or worse.  He continues:

Only when your brain starts expecting the reward – craving the endorphins or sense of accomplishment – will it become automatic to lace up your jogging shoes each morning.  The cue, in addition to triggering a routine, must also trigger a craving for the reward to come.

In trading for example using the Crude Oil trade set-up above the cue is simple….you take a trade in the direction of the IB breakout when it happens.  That is our cue to act.  The reward identification is also simple….if you’ve studied market behavior you know if you take enough of these trades you are going to make some money on balance.  This means there is also an expectation embedded into this process.  There are other rewards as traders but let’s be real….that’s the main reason we are all doing this, to make money (most of us, anyway).  This craving to become consistent and make money is going to be present during such a habit loop for traders so that when the cue happens every fiber in your being is screaming at you that you must take the trade and follow your plan.  Then there is one final thing Duhigg suggests to make the new habit last:

For a habit to stay changed, people must believe that change is possible.  And most often, that belief only emerges with the help of a group.

I’m sure most people have heard of the saying “no man is an island”….it applies here in my opinion.  There are very few traders who go this path completely alone.  If you are struggling with the things I’m talking about in this post, with detaching yourself and having discipline to do what you need to do, consider being part of a group to solidify the new habits you want to form.  The group could simply be one or two other like-minded traders using similar routines and habit loops but the point is you want to be around people that help enable you to believe that you can change as this will create a situation where the habit loops you are trying to implement become permanent.  Good trading groups should help demand accountability for all involved.  The type of accountability that we might find easy to brush aside if we are going things alone.

Let’s bring this full circle back to Willink.  Earlier in this post I did a quick summary of him describing training on the oil rig:

First, Willink talks about a moment early in his career as a Seal where he’s training and for the first time he detached himself, identified the problem, called out the solution to his team, and “clicked” in terms of becoming a leader.

Does it seem clearer now that this was the early formation of a Habit Loop that he would carry with him forever?  There is a cue, there was a routine, and there is a reward.  There is also a deep craving attached to the process.  For Willink he always wanted to be a warrior and a leader and once he found himself in that role it was his desire to be elite and to protect his men and accomplish the mission.  Further, he is part of a group that encourages him to follow this loop and they are going to hold him accountable.  In this case, being accountable and following the process it is literally a matter of life and death.

Can we challenge ourselves to act the same way as traders?  Will we do what it takes?

I hope that you have found this post helpful in some way.  Good luck in your trading.

  • FF

About Fat F1nger

Full time futures trader.
This entry was posted in Homework, Process and tagged , . Bookmark the permalink.

11 Responses to Applying Lessons From a Navy Seal To Trading

  1. Dan Maltby says:

    Cool stuff. I’m going to apply some of this to coaching my 13aa baseball team.

  2. Amazing stuff yet again, I hope you keep posting frequently. As always I keep learning about myself even more with your help, couldn’t have come at a better time. Been observing the IB trade stats and trying to trade off them and with the grains it couldn’t get any more text book than that!!The only enemy at times is myself but its all part of the learning curve!

    • Fat F1nger says:

      Hey Brian, good to hear from you and even better to hear you are making some progress with the trading. As for being our own worst enemy…was my experience for years and seems to be the case for many/most? traders as well. Soybean trade has picked up big time last two months or so…lets hope it lasts.

  3. Excellent writing.Thought provoking.

  4. Emanuel Wynne says:

    Optimization, optimization, optimization –

    Great post. Most people could be taught about 90% of what you do. It’s the last 10% that becomes tricky.

    A technique that may be useful for breaking the habit loop –

    Cognitive behavioral techniques are good but one thing I’ve been using lately is to write SPECIFIC trading habits that lost me money on a whiteboard in my office (e.g., # trades within 5 minutes of each other, # of times I failed to journal periodically during the day, # of times I didn’t take profits at target, etc.) and then walk up and TALLY them after the mistake is made.

    I find this particularly effective at cutting down all those “little habits” that may not seem like they affect your P&L, but cumulatively affect your expectancy.

    Literally seeing a scoreboard of all those little mistakes has made me super aware of when I’m about to fall victim to them.

    Many ways to skin a cat, but I hope that helps some people focused on optimization and adds to the discussion here.

  5. Mel says:

    I still love you Ben;-)

    I think I’ll title my next show “1001 Household Hints”. Some (very) small suggestions…

    1. Wads of Excel white combined with Excel strong. A deeper, mintier profile than Trident.
    2. Nice writeup, but…Navy Seal? Although personally irrreligious (although the study of which doesn’t hurt)…detachment features as a major principle of every major religion since, I dunno…Zoroaster. There’s somwthing to be said for that…detachment, I mean.
    3. MORE…more half drunk, shit eating grins. More little dude bacon heads. And I want a pair of those horizontal striped trou’. I’d wear a pink jacket over them. And cat pics. Throw those in too.

    Talk to you.

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