The Daily Trading Coach

by Brett N Steenbarger

  Imagination for the trader is the equivalent of a practice field for an athlete: a place to prepare for performance by creating simulated performance situations.

  You will be the trader you are capable of being in your imagery work and practice long before you consistently enact those ideals in your daily trading. There is no reason to take months or years to change behavior patterns when you can make every day an experience of concentrated learning. Much of successful self-coaching is the result of a creative and tenacious use of imagery and practice.

  COACHING CUE

  Use your imagery to imagine yourself as the kind of trader you aspire to be: the risk taker, the disciplined decision maker, the patient executioner of ideas, the canny trader who learns from losing trades. If you create a role and an image of yourself in that role, you enact scenarios that, over time, become part of you.

  RESOURCES

  The Become Your Own Trading Coach blog is the primary supplemental resource for this book. You can find links and additional posts on the topic of coaching processes at the home page on the blog for Chapter 4: http://becomeyourowntradingcoach.blogspot.com/2008/08/daily-trading-coach-chapter-four-links.html

  Much of the framework discussed in this chapter comes from research into helping processes in brief therapy. Standard reference works in this area include the chapter on “Brief Therapy” written by Dewan, Steenbarger, and Greenberg for the volume Textbook of Psychiatry (Fifth Edition, Volume 1), edited by Robert E. Hales, Stuart C. Yudofsky, and Glen O. Gabbard (American Psychiatric Publishing, 2008) and the chapter on “Brief Psychotherapies” by the same authors for the reference work Psychiatry (Third Edition), edited by Allan Tasman, Jerald Kay, Jeffrey A. Lieberman, Michael B. First, and Mario Maj (Wiley, 2008).

  An excellent framework for thinking about making the most of strengths is the Gallup research described in Now, Discover Your Strengths, written by Marcus Buckingham and Donald O. Clifton (The Free Press, 2001). See also the popular management text Good to Great, written by Jim Collins (Harper Business, 2001).

  A full description of solution-focused work can be found in my chapter “Solution-Focused Brief Therapy: Doing What Works” in The Art and Science of Brief Psychotherapies, edited by Mantosh J. Dewan, Brett N. Steenbarger, and Roger P. Greenberg (American Psychiatric Publishing, 2004).

  CHAPTER 5

  Breaking Old

  Patterns

  Psychodynamic Frameworks

  for Self-Coaching

  The strangest and most fantastic fact about negative emotions is that people actually worship them.

  —P.D. Ouspensky

  To this point, we’ve been exploring processes that are common to all change efforts and all performance coaching. Now we begin a look at individual frameworks for coaching, beginning with psychodynamic modalities. These frameworks are approaches that emphasize the continuity of past and present—how old patterns replay themselves in the present—and the ways in which current relationships can remake patterns born of prior, negative relationship experiences.

  The psychodynamic framework is more commonly connected to long-term psychoanalysis than to coaching, but I’ve found tremendous value in utilizing the medium of relationship experiences to help traders with their performance. This chapter will explain how psychodynamics are related to trading and how the dynamic framework can inform your own efforts at self-coaching.

  I personally draw most upon dynamic modalities when I’m working on trading problems that are part of larger life challenges—particularly when those challenges have been part of our life histories prior to trading. Many issues that impact trading—concerns over success/failure, self-confidence/self-doubt, security/insecurity—predate our trading efforts, but play themselves out in how we make financial decisions.

  The best way to describe psychodynamics is as a way of thinking, as well as a set of tools, to help ensure that people’s pasts don’t become their futures. And, in the context of this book, it all starts with a single insight: we have relationships with our markets, and those relationships repeat patterns that we’ve enacted in other relationships. Let’s take a look at how we break free of those patterns . . .

  LESSON 41: PSYCHODYNAMICS: ESCAPE THE GRAVITY OF PAST RELATIONSHIPS

  The psychodynamic approaches to change have evolved significantly from the psychoanalytic work of Sigmund Freud and the subsequent contributions of “neo-Freudians.” In the process of this evolution, psychodynamic thought has turned away from viewing instincts and sexuality as the primary basis for behavior and toward an interpersonal understanding of recurring conflicts and patterns. At the same time, psychodynamic psychology has also departed from the analytic couch and the presumption of therapy as a long-term process, emphasizing more active, shorter-term methods of change. Surprisingly, this evolution has largely taken place outside the public eye, contributing to a perception that analytic methods are outmoded and outdated. Nothing could be further from the truth.

  The core perspective of the psychodynamic model is that current problems are reenactments of conflicts and patterns from past relationships. The self is viewed as the result of years of internalization of relationship experiences. When we enjoy positive, affirming relationships, we internalize a positive self-image and concept. Negative, conflicted relationships are internalized as a negative and conflicted sense of self. This perspective touches on one of the themes from earlier in this book: relationships serve as mirrors by which we experience ourselves. We are the sum of our significant relationship experiences.

  Over the lifespan, we learn coping strategies (defenses) for dealing with the anxieties brought by relationship conflicts and their consequences. These defenses may be successful in warding off discomfort, but they tend to become outmoded in future relationships and life situations. When current situations trigger the feelings evoked by past relationship problems, our outmoded defenses lead us to behave in ways that bring unwanted outcomes. These patterns of feelings evoked from the past along with the defensive reactions and negative consequences constitute what Lester Luborsky calls core conflictual relationship themes. These themes repeat themselves in various ways, across various situations, causing us to behave in unwanted ways. The purpose of counseling and therapy, from this vantage point, is to free us from these cyclical maladaptive patterns.

  When we “overreact” to situations, the odds are good that we’re reacting to themes from our past as well as the current situations that trigger those themes.

  To use an example from The Psychology of Trading, I grew up in a very close family. My parents were both estranged from their parents and vowed to create a very different family environment for their children. They were so successful in that regard that I sometimes felt that the environment was too close. I sought privacy, taking long bicycle rides, walks, and even showers. Later, when I met my wife Margie and became part of a household with her three children, I found myself taking long showers and withdrawing from family life. This disrupted morning routines and led to a bit of tension in the household.

  For years I had lived alone and had never experienced the feeling of being too close to others. When I entered a new family situation, the old feelings from my formative experiences came back to me and I coped rigidly in my old way: by withdrawing and seeking privacy. What worked in childhood, however, failed dismally in the new family. By reenacting old defenses in new situations, I created a fresh set of problems.

  All of these defenses tend to happen automatically, outside of conscious awareness. Without some way of making these repetitive patterns conscious, we cannot change them. One goal of psychodynamic work is to make the unconscious conscious: to make us self-aware, so that we can find new endings to old conflicts. I was able to change my patterns within the family once I recognized that I no longer needed to cope in ways from my past: my present family wasn’t my former one, and I was no longer a child.

  The first goal of psychodynamic work is insight: recognition and understanding of one’
s patterns and awareness of their limitations. The key insight is simply: You had a reason for doing this in the past; you don’t have to do it any more.

  So how does this relate to trading? The risk and uncertainty of trading—the gains and losses, victories and defeats—have an uncanny way of triggering feelings from our past. A classic example is the trader who felt as though he never measured up to his parents’ standards and expectations. He brings his sense of inferiority to the markets, taking imprudent risks to prove that he truly is a success. Of course, no amount of winning in markets can fill the emotional void, leading him to take ever-greater risks, until he finally blows up—and confirms his worst fears. In such a situation, no tweaking of trading methods will solve the trader’s problem. Until he resolves the conflict at the heart of his dilemma, he will continually find himself acting out his personal dramas in his trading.

  Many trading problems are the result of acting out personal dramas in markets.

  The best way to identify situations in which past conflicts intrude into current trading is to consult the feelings evoked by your trading problems. If they are similar to feelings you’ve experienced in past career and relationship situations, there’s a good chance that they represent the leading edge of cyclical maladaptive patterns. For instance, if your frustration gets you into trouble in your trading and has also gotten you into trouble with friends and romantic partners, there’s a clear pattern that transcends markets. If trading leaves you with the same conflicted, hurt feelings that you’ve experienced in your past, that’s a sign that the past is refusing to stay in the past.

  As your own trading coach, you sometimes need to dig beneath the surface of problems to discover their origins. This discovery must be accomplished by reviewing your personal history and mapping that history against recent experience. In other words, you want to look not only at your current patterns, but past ones as well. It’s in the overlap that we can make greatest use of psychodynamic change methods.

  Your assignment is to take a sheet of paper and draw two sets of sine waves, each with at least four peaks and four troughs. For the first set of sine waves, you’ll mark the peaks with the “peak experiences” from your life: your most positive and fulfilling experiences. These experiences can be taken from any life sphere, from relationships to career. You’ll label the troughs with the most negative experiences of your life, again from any sphere. These experiences will be those filled with the most emotional pain and distress. By the time you’re finished, the first sine wave chart should be filled with the highlights and lowlights of your life.

  When you’re finished with the first set of sine waves, you’ll fill out the second set similarly, only you’ll limit your entries to trading-related incidents. Thus, you’ll mark the peaks of the sine waves with your most positive and fulfilling trading experiences and the valleys of the sine waves with your most painful and upsetting market-related experiences. Make sure that all of your entries from both sets of sine waves are described in sufficient detail that you can readily appreciate why each incident was a peak or valley experience.

  The real work comes in when you compare the peaks across the two sets of waves and the valleys. You’re looking for common themes that link your life experience with your trading experience. Many of these commonalities will be at an emotional level. Here are some common ones to look out for:• Themes of adequacy and inadequacy.

  • Themes of rebellion against rules and discipline.

  • Themes of boredom and risk taking.

  • Themes of achievement/hopefulness and failure/discouragement.

  • Themes of recognition and rejection.

  • Themes of contentment/acceptance and anger/frustration.

  • Themes of safety and danger.

  If the markets are making you feel the way you’ve felt during some of your life’s valley experiences, consider the possibility that you’ve been caught in a web of repetitive conflict and coping. Recognizing that web and keeping it firmly in mind is half the battle of changing it. As your own trading coach, you want to be mindful in your trading, not unconsciously repeating your past. It is much more difficult to fall into old, destructive patterns when you’re clear on what those patterns are.

  COACHING CUE

  So often, we’re fighting the last psychological battle. Identify the most recent conflicted relationship experience in your life and the thoughts, feelings, and behaviors evoked by that relationship. Then take a look at your most recent trading difficulties to see if similar thoughts, feelings, and behaviors are involved. Many times, it’s not just early childhood relationships that color our current behavior, but the most recent sets of conflicts. Identifying how you resolved those problems in the relationship (or are taking steps to resolve them if they are current) can be very helpful in minimizing their spillover into trading.

  LESSON 42: CRYSTALLIZE OUR REPETITIVE PATTERNS

  In the previous lesson, we used sine wave charts to identify peak and valley experiences from our life histories and from our trading. Once we have the sense that there are, indeed, commonalities, the next step is to crystallize these patterns so that we clearly understand why they exist and how they repeat themselves.

  First, however, let’s address the question of what it means if you cannot find common themes across the peaks and valleys of your charted experience. One possibility is that you need to draw more peaks and valleys on each chart before the themes will become salient. Another is that you are looking at the events logically, not psychologically. Examine the peaks and valleys for similarities of motivation and emotion, not surface detail. Many times the common elements will jump out when we think of the patterns as emotional recurrences.

  Sometimes, though, there truly aren’t links between our trading problems and our prior life’s challenges. The trading problems may simply reflect shifting markets, a lack of skills and experience, or situational factors related to present-day distractions. If these are the most important sources of current trading difficulties, the psychodynamic approach will be less relevant to your change efforts. Rather, you may need to structure your learning process, as described in the Enhancing Trader Performance book, or you might need to adopt a framework that is more present-centered, such as the self-coaching approaches described in chapters 6 and 7.

  Not all trading problems have an emotional genesis. Sometimes we just need to hone our trading skills.

  In my experience, the most fertile area to seek for similarities between trading problems and prior life conflicts is in significant relationships: those with parents and romantic partners. Conflicts with parents and lovers are usually among the most emotionally powerful, and are the ones we are most likely to defend against—and thus reenact—in our trading. Once we crystallize those patterns, we can become quite adept at recognizing their reappearance. That is the first step toward short-circuiting them and providing them with a new ending.

  One trader I worked with had numerous relationships with girlfriends over the years, but he never committed to any of them. Indeed, he often kept one relationship on the side in case his primary one ever fell through. He had lost a sibling when he was young; his parents, devastated by the loss, tried to forge on by not dwelling on the tragedy. Our trader learned to defend against loss by never getting too involved with another person. This defense kept him from reexperiencing the pain of the childhood event, but it also kept him from having a fulfilling emotional life.

  So what do you think his trading problem was? Although he described himself as being passionately interested in trading, he in fact spent surprisingly little time at it. He undertraded markets—in other words ignored trading signals, traded with almost ludicrously small size—and he was easily distracted by communications in chat rooms and reading web sites. While he justified the latter as “preparation” for his trading, he never actually got around to trading seriously. Just as he avoided commitment and loss in relationships, he dabbled at the edges of markets, never achieving anyt
hing close to his potential.

  To crystallize this pattern, a good place to begin is with our underlying need. The trader in the example above has an overwhelming need for safety and consequently takes the path in relationships and trading that seems safest. The feeling that he is guarding against is the pain of loss: the vulnerability of investing oneself and losing that emotional investment. The trader was close to his sibling; he never truly recovered from the fallout of the loss. The way that he defends against that feeling is by keeping commitments at bay. He avoids becoming too involved with his relationships and trading so that he can never experience a loss as painful as that from his childhood. This leaves him with a host of negative consequences. Most of all, he feels empty, not truly fulfilled in love or career.

  Most repetitive patterns can be broken down into this schematic of:• Need—What we are missing, what we crave.

  • Feeling State—Distress associated with not having that need met.

  • Defense—What we do to cope and avoid the painful feeling state.

  • Repetitions—How we replay defenses in current situations.