• Consequences—The negative outcomes from our current defensive efforts.
One trader I met with had an intense need for emotional support. His parents had divorced at an early age and his mother quickly remarried, forcing him to cope with joining a blended family. He frequently felt abandoned by his mother, and he felt not good enough to merit his (distant) father’s involvement. His defense against these feelings was to take the role of overachiever, pushing himself to get the best grades at school, excel at athletics, and star in extracurricular activities. By doing more, he hoped to feel more worthy. As a result, however, he frequently drove himself to exhaustion and periods of hopelessness, as no amount of achievement could substitute for the parental love he missed. Unlike the trader from the prior example, he worked himself to the bone in trading, at times breaking down when his overachieving tendencies failed to bring results.
So this, as your own trading coach, is your psychodynamic challenge: figure out your core need. Most often, this will be something that you wanted in past relationships and could not consistently obtain. It might be autonomy, love, respect, or support. Once you identify that need, you want to review your valley experiences from your sine wave charts and clearly identify the feeling states that have been associated with the frustration of your core need. Maybe that feeling is depression and sadness, maybe it’s anxiety, and maybe it’s anger and frustration. This feeling, quite likely, will be the one that is repeated in your most difficult trading experiences.
The needs that are most unmet in our personal lives are the ones most likely to sabotage our trading.
Now reflect on how you try to make that feeling go away. That is your defensive pattern, your way of coping with the pain of needs going unmet. Most likely, this coping is what most immediately brings you difficulties in your trading, causing you to overtrade, stand aside during times of opportunity, etc. At these times, you’re making trading decisions, not to manage your capital, but to manage the distress from those core conflicts. Our worst trading occurs when we’re managing our feelings rather than our positions.
Your assignment is to draw upon your sine wave charts from the previous lesson to map your trading problems as sequences of needs, feelings, coping/defenses, and consequences. You should be able to draw an accurate flow chart that shows how feelings associated with frustrated needs lead you to take actions that bring present-day problems. This chart will capture the focus of your psychodynamic self-coaching efforts. By breaking this pattern and inserting new elements, we can become more intentional in our trading, more self-determined in our results.
COACHING CUE
Most traders, I find, don’t require long-term therapy. If traders are significantly troubled, they cannot sustain a trading career. Rather, they cope and function well, but periodically lapse into old patterns that interfere with their effectiveness. Many times, traders can identify their patterns by identifying their most frequent and costly departures from their trading plans and then noting the feelings and situations that accompanied these departures. By noting feelings from recent trading problems and then observing when you’ve felt those feelings in other areas of life, you can crystallize patterns that are most likely to impact future trading.
LESSON 43: CHALLENGE OUR DEFENSES
A cardinal idea within psychodynamic work is that the problems that motivate people to make change efforts are rarely the core conflicts that they are repeating across situations. Rather, it’s their defending against the pain of those conflicts that brings the unfortunate consequences and the recognition of the need for change. Our problems, from this vantage point, are the result of our rigid, outmoded coping. What worked for us at one time of life now works against us.
A good example from the markets is “revenge trading.” This occurs when we trade more aggressively following losses in an attempt to get our money back all at once. Pain and frustration from a loss lead to an angry defensive response, an effort to get rid of the hurt. At that point, the trading is not about opportunity; it’s a defense to keep the feelings of disappointment and loss at bay. Of course, this often leads to further losses and a fresh set of consequences.
The defense is there because, deep down, the trader doesn’t believe that she can tolerate the hurt or sadness of loss. Perhaps at one time of life such pain was indeed intolerable. Now, as a mature adult, the trader can handle normal losses, whether in business, markets, or love. It doesn’t feel that way, however, and the trader continues to handle losses in the old, childhood ways. By crystallizing the pattern, the trader builds a self-observing capacity and a clearer awareness of the consequences of perpetuating old cycles. It is this heightened awareness that eventually enables the trader to challenge defenses and respond to old threats in new ways.
Change in the psychodynamic mode means doing what doesn’t come naturally: refrain from the old ways of coping that keep unpleasant feelings at bay.
In your role as your own trading coach, you interrupt cyclical problems by becoming their observer, not the one caught inside the patterns. By observing, you stand outside the cycles; they no longer consume you. The sine wave and flow charts described earlier are useful tools in sustaining this self-awareness. Your goal is to recognize repetitive patterns before they have an opportunity to play themselves out to their unhappy conclusions.
One way of accomplishing this will form the basis for your next coaching task. You’ll typically observe a pattern beginning to emerge when an associated feeling state interrupts your trading. In the revenge-trading example above, that characteristic feeling might be frustration and tension. In other situations, the feeling may be one of loss or emptiness. As soon as you notice the characteristic feeling, you want to acknowledge it out loud, almost as if you are a play-by-play sports announcer. For instance, you might say aloud, “I just took a loss and now I’m feeling really frustrated. I’m feeling mad, and I want to get my money back. I want to find another trade, but that’s what’s hurt me in the past. I jump back into the market and it makes things worse.”
If you cannot invoke this self-observation aloud—perhaps because you’re trading in a room with others—a psychological journal can accomplish the same function. The key is to describe in detail what you are thinking and feeling, what you are tempted to do to make the thoughts and feelings go away, and how this course of action has hurt you in the past. “I’m disgusted with myself and I want to just quit trading for the day,” would be one self-observation from a trader who rides a cycle of aggressive trading, losing money, guilt, withdrawal from markets, and renewed attempts at aggressive trading to make up for lost time and opportunity. You’re taking the role of psychologist, identifying what is going on instead of identifying with it.
When you describe a pattern of behavior, you’re no longer identified with it.
At this point, we’re not concerned with changing the pattern. Rather, we’re becoming more alert to its appearance and more aware of its manifestations and consequences. This can take days and even weeks of consistent effort as you sustain the stance of the self-observer. With this effort, it’s inevitable that, at times, you’ll interrupt the pattern entirely: you’ll avoid the revenge trade or the overaggressive trade. Before you do the right things, you’ll stop doing the wrong ones. This builds a sense of mastery and self-control: you’re starting to control the patterns instead of having them control you.
Talking aloud and writing in journals, by themselves, will not rid you of overlearned behavior patterns, but they do provide you with options. Just by doing something different—even in small degree, such as placing much smaller revenge trades—you achieve a measure of control.
One type of talking aloud to gain self-awareness is to actively remind yourself that what is going on in the present is not really the problem. The problem is what happened and hurt you in the past, not what you are reacting (overreacting) to in the present. For instance, you might be losing money on a position prior to hitting your stop-out level. You catch
yourself feeling fear and you’re tempted to bail out of the trade prematurely. In addition to talking this fear and temptation aloud, you would remind yourself, “The loss on this particular position is not the real issue. I’m reacting to my losses from last year (or the loss of my relationship). Abandoning my trade idea isn’t going to take away those old losses.”
(Notice, of course, how this example presumes that you’ve allocated a responsible size to your position and a reasonable stop-loss level. If not, it could be your poor trading and not any problems from your past that would be triggering—quite reasonably!—your fear and desire to exit.)
What you’re really emphasizing in this talking aloud is the message of, “The problem isn’t my trading; it’s something else.” That frees you up to deal with the “something else” and not act out the past in the present. It also frees you to simply deal with your trade as a trade and not as something more emotionally laden. You’ll know that you’ve made significant progress when you consistently catch your patterns as they unfold, maintaining the role of observer rather than passive participant.
COACHING CUE
I’ve mentioned in this book and in Enhancing Trader Performance how videotaping markets can sensitize traders to patterns of supply and demand, aiding them in trading decisions. I’ve had traders turn the tables and turn the video-recorder on themselves, so that they’re recording themselves as they trade. It’s a great tool for self-observation and recognizing your emotional and behavioral patterns. After you’ve seen a few of your recurring cycles on tape, you become more sensitive to their appearance during real-time trading.
LESSON 44: ONCE AGAIN, WITH FEELING: GET DISTANCE FROM YOUR PROBLEM PATTERNS
Two crucial transitions that occur in psychodynamic work are viewing your past patterns as alien to you and experiencing them as your own, personal obstacles. Once you’ve become skilled at recognizing your old ways and their disruption of your trading, you next step is to distance yourself from them. You will not gravitate toward ways of thinking, feeling, and acting if these patterns feel alien to you and if you view them as sources of pain.
A term commonly used in psychodynamic writing is ego alien. What that means is that some way of viewing the world, experiencing it, or acting within it has become foreign to one’s sense of self. When a person starts to repeat a pattern that has become ego alien, the resulting thoughts are:
“This is not the real me.”
“This is what I used to do; not what I want to be doing.”
“I’m reacting to the past, not to what’s happening now.”
Of course, no one consciously owns destructive behavior patterns. It is easy, however, to repeat them unthinkingly. When we make those patterns ego-alien, we’re not just thinking about them, we’re actively rejecting them.
It’s helpful in this regard to start thinking about the old me and the new me. The old me was afraid of failure and equated falling short with losing the love and approval of others. The new me realizes that the outcome of any single trade will not make me a better or worse human being. The old me became angry and frustrated when I couldn’t get my way, because I hated feeling out of control. The new me controls my trading through my planning and lets the market do what it will do. Notice how keeping a clear distinction between the old and new helps traders identify with positive, constructive patterns and maintain distance from old, automatic ones.
“Am I reacting to markets or to my feelings from the past?”—This is the question that follows from self-observation.
Another way to frame this distinction is to focus on “here’s what I do to make money; here’s what I do to lose money.” Whenever you entertain a certain thought or course of action, ask yourself, “Is this how I think/act when I make money, or is it how I think/act when I lose money?” Once again, by focusing on the likely outcomes of what you’re doing, you become the observer of your patterns and interrupt the automatic replaying of those patterns.
As we saw earlier in discussing the costs of patterns, focusing on the consequences of destructive patterns from the past not only keeps those patterns alien, but also heightens your motivation to not repeat them. If you recall a recent incident of losing money or opportunity as the result of falling into old habits, it is a great way to avoid making the same mistake again, particularly if that recollection highlights the monetary cost and emotional pain of the incident. In The Psychology of Trading, I emphasize the importance of treating old, negative patterns as an enemy. If you view something as an enemy, it’s difficult to embrace it and it becomes easier to sustain efforts at changing it.
Most people are uncomfortable with the emotion of hate. We’ve been taught that it’s not right to hate; that we should be nice to others. Hate, however, has its uses. Hate implies total rejection—a complete pushing away from the self. When we hate our past patterns, we are so attuned to their destructive consequences that we will move heaven and earth to not repeat them. The addict who has seen the destructive consequences of substance abuse learns to hate drugs; the person who has gone through a painful marriage and divorce to a narcissistic partner is so disgusted with the experience that she’ll never make that same mistake again. There is no question in my mind that I would not have found my life partner had I not had prior, unsatisfying relationships. I so hated the way I felt in bad relationships that I was absolutely determined to find something better.
When we hate how our old patterns have hurt us, we find a source of positive motivation: the drive for a better life.
There’s an old saw in Alcoholics Anonymous that alcohol abusers have to hit bottom before they sustain efforts at sobriety. Before serious consequences have accumulated, it’s all too easy to deny and minimize problems, putting them out of mind. When you hit bottom the consequences have gotten to the point where they cannot be ignored; they have inflicted too much pain and damage. At that point, people give up entirely, or they reach the point of hating what their habit has done to their lives. “I can’t go back there again,” is the feeling of many people who have reached that point of hate and disgust. At that point, the old ways are held at arm’s length; there is no identification with them.
A great application of this idea (and worthwhile homework exercise) is to focus on one enemy that you want to conquer over the next month of trading. Your choice should be a pattern of thinking, feeling, and acting that has noticeably hurt your trading in the past several months, and it should be a pattern that you’ve observed in others areas of your life. This is especially powerful if, with your sine wave charts, you’ve observed damaging consequences of the pattern not only in trading but also in those other life areas. You can then call to mind all the pain that this pattern has caused you over the years and the prices you’ve paid for repeating the pattern. You declare that pattern your enemy and then you purposefully look for opportunities to confront this enemy in each day’s trading.
Notice that this is different from simply observing a pattern as it’s happening. Instead, you’re actively anticipating the pattern and even looking forward to its appearance so that you have the opportunity to reject it. The trader’s frame of mind becomes, “I’m not the problem; it’s this old pattern that’s the problem.” Once you frame outmoded ways of thinking and acting as leftovers from the past that no longer work for you, you’ve taken a giant step toward freeing yourself from those patterns.
It will take sustained effort to tackle your enemy, but it can be tremendously fun and empowering as well. Each time you notice your old ways of losing money and refuse to engage in them, you’ve won a victory against your enemy—and struck a blow for your own sense of confidence and mastery. If you are highly competitive and achievement-oriented, ask yourself if you want to win your freedom of will or lose it to the repetition of your past. The competitive soul does not want to lose and will fight an enemy to the death. A powerful aid to change is to use your competitive drive to defeat the enemies of your happiness: your internal demons.
C
OACHING CUE
One of the first enemies to tackle in self-coaching is procrastination. We procrastinate when we know we need to change, but cannot summon and sustain a sense of urgency. In that situation, procrastination itself becomes the pattern we must battle, as it robs us of the power to change our lives. Often, procrastination is itself a defense—a way of avoiding anxieties associated with anticipated changes. By starting with small, nonthreatening changes that we undertake every single day, we do battle with procrastination and build a sense of control and mastery over change processes. Big goals and radical changes often meet with procrastination. If you focus on intermediate goals that can be pursued regularly, you rob change of its threat value.
LESSON 45: MAKE THE MOST OUT OF YOUR COACHING RELATIONSHIP
One of the cardinal principles of psychodynamic work is that change often occurs in the context of relationships. When you are your own trading coach, one of your challenges is to surround yourself with the right kind of relationships: ones that support your goals and mirror to you the person and trader you’re capable of being.
Consider two coaching scenarios in which I’m working with a trader at a trading firm. In both situations, the trader has lost more money than planned by exceeding position and loss limits. An entire week’s profit is wiped out by the single day’s loss. In the first scenario, I chide the trader:
“How could you be so careless? You just ruined your week. Do you realize what will happen if you continue to do this? This is not a good time to be on the street looking for a firm hiring new traders.”
In the second scenario, I adopt a different tone:
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