While ready through this book, I couldnât help but think about how the principles discussed here relate to trading. As you read through our notes, look at them through that lens, then apply whatâs practical and abandon the rest.
Atomic Habits by James Clear
More than 50 percent of your day is automatic. Itâs formed from habits. These habits have been developed through repeated actions over the course of your life, some serve you, and some work against you.
How do you break them? How do you form them? How do you transform your life for long-term success?
Minor Adjustments lead to Massive Transformation.
Each action creates a path that leads to another action. Good behavior begets good behavior.
Compounding behaviors is the core idea of atomic habits.
Atomic habits are small 1% improvements in behavior that, over time, compound into full-blown behavior change and positive habits.
To make the most of the incremental increases, you need to adjust how you think about behavior change. There are three types of habits.
Outcome driven
Process driven
Identity driven
Outcome-Driven habits:
Outcomes are synonymous with goals. They represent the end. When you focus on the end goal you tend to do whatever is necessary to achieve that goal. But those behaviors you are forming might not be the most beneficial, or sustainable.
If you adapt your actions to serve a finite purpose, your actions become finite.
Reminds me of another book called The Infinite Game.
For example, you may decide you want to have a six-pack. You decide that doing crunches will lead to that outcome. You do 100 crunches a day until you have a six-pack. Now that you have the abs you want, 100 crunches start to seem like a burden, and you lose motivation to do them because they are not connected with the goal.
Process-Based Habits
Processes are synonymous with systems. Within every long-term goal is a system of behaviors that link up to reach the desired outcome. Focusing on a systemic level pushes you to form habits that continually lead to successful results, thereby becoming more inherent, continual, and positive in the long-term.
When you focus on systemic level changes, youâll make small positive adjustments in action rather than performing one big action.
Identity-Based Habits
Identity is synonymous with how you live and who you are. When you approach habits this way, you focus on forming behaviors that match the characteristics of the type of person you want to be.
This direction is closely aligned with systems, in that the systems required to reach your chosen identity are informed by the characteristics of that identity.
You determined that someone who is a successful trader must have healthy habits and specific knowledge. Therefore, you desire to become someone with healthy habits and specific knowledge. You decide that performing what it takes to acquire those things, over time (reading, sleeping, exercising, eating healthy, observing,) leads to overall success in your trading, but also forms habits of living a more balanced life.
When you work through the process of your chosen identity, you stop being someone waiting to achieve a certain goal and start living as someone capable of achieving your goals.
Outcome-driven habits help you win the game. Process-driven habits teach you how to play the game. Identity-driven habits help you decide which game to play. So work in reverse. Start with your desired identity to find the right habits that lead to the right result.
How do Habits Form:
Four Stages:
Cue â stimulus, smell, sound, event, interaction.
Craving â The brain recognizes opportunities for change.
Response â Take certain actions to achieve desired results.
Reward â Satisfied craving and changed physical or emotional state.
Every time you experience the same cue, the brain will be triggered to desire that pleasure again. You will be prompted to perform the same action, thereby creating a habit.
If you remove any one of the stages, the habit will fail to form.
You can use this info to form or break habits by altering the various stages to your advantage.
Four Laws of Habit Formation:
Make the Cue Obvious
First, note that you need to create cues so you are aware of them.
Tip: Make a habit scorecard to list all current habits. Ending habits by disrupting the four stages can serve as a cue for another habit. When you list your habits you can see which habit precedes them and which follows. By listing cues and rewards in this way, you will see what current behaviors may be suitable to cue new desired behaviors.
Step 1: Implementation intention.
Make an advance plan for a new behavior by assigning a specific time and place for it.
If your notes show a gap in activities between 12:30 and 1:30 pm you might find an opportunity to schedule a new behavior.
 Formula = When X occurs, I will do Y.
Step 2: Habit Stacking
Rather than reading at a certain time, maybe you say, âI will read when I am done exercising.â
The first habit becomes a cue for the second, and by attaching a new habit to a fully formed habit it makes the cue obvious.
Be as specific as possible with your cue, but make sure they are realistic. âWhen I am doing working out for 30 min I will read at my desk for 20 min.â
Step 3: Craving: Make it Attractive:
The rewards must be attractive.
90% of dopamine production is dedicated to wanting.
The anticipation of something outweighs the pleasure of receiving that thing.
Heightened rewards
 If you donât feel like reading after working out, maybe you allow yourself 20 minutes of video games after reading.
After X [current habit] I will do Y [new habit]. After I do Y, I get to do Z [craved habit].
Note: Use âgetting to readâ instead of âhaving to read.â Change perspective.
Step 4: Make it Easy:
You will only follow through on behaviors long-term that are easy to perform and require little effort.
This doesnât mean doing easy things, it means making it easy for you to keep showing up. By simply showing up, you maintain your desired identity, which gives you confidence in making progress.
Make behaviors Easier by breaking them into small chunks.
Habit tracking can also make behaviors more rewarding. Create visual representations of your progress. When you can visually see your accomplishments, youâll be motivated to continue acting.
Breaking Bad Habits
Invert creating habits.
Cue- make it invisible
Craving â Make it unattractive
Response âMake it difficult
Reward â Make it unsatisfying
Continue to Show up:
Boredom is inevitable, therefore, there will be a point at which your excitement and motivation for a new behavior wane. When this happens, itâs easy to abandon good behavior that is still working to find behaviors that are novel and exciting.
Goldilocks Rule:
The brain loves when a challenge is just right. The challenge canât be too difficult or too easy. It needs to be âjust manageable.â
Building on Momentum:
You could lose motivation if your habit becomes stale. Once you real a goal, perpetually continue to get 1% improvements to keep behaviors novel and progress continuously.
Habit formation is not a one-time occurrence. Your brain is constantly scanning your environment for cues and ways to automate behavior.
Reflect on your habits and progress. Look for areas that promote growth. The more small adjustments in behavior you make, the more likely you will end up on the path of your choosing.