The solution-focused session recognized that there were two Phils: one who was caring and wanted to do the right thing, and one who craved the high of feeling powerful and who neglected the basic responsibilities of his health, his trading, and his marriage. Rather than label one Phil as bad and the other as good, we set up a situation where the needs met by "bad Phil" could be met by doing the right things. If I had simply asked Phil to give up trading or limit himself to 100-share trades, he would have never complied. However, he was happy to relinquish his profits and to place limits on his account size if it was in the service of a heroic rescue of his wife and marriage. Phil didn't need cocaine if he could achieve a high from helping other addicts. He also didn't need outsized trading profits if he could reach his high by supporting Rhonda.
EXPLORING THE DUAL MIND
Let's return for a moment to the provocative work of Frederic Schiffer and its relevance for the psychology of trading. By covering the lens areas of the clear glasses, Dr. Schiffer in essence duplicated the work of Sperry and Gazzaniga, turning normal people into split-brain patients. Visually, he separated left-brain processing from the workings of the right brain. What he found during this procedure was remarkable.
The subjects for his study were his own therapy patients. Most came to him for problems of depression and anxiety. When Dr. Schiffer had them wear the glasses that covered all but the left side of their vision, they reported feeling anxious and depressed. If anything, they felt worse than usual. To the surprise of the clients, however, when they wore the other set of lenses, covering all but the right side of their visual field, they soon found themselves calming down and feeling better. This did not appear to be a placebo effect. Two control pairs of glasses, which blocked the upper and lower quarters of the visual field (therefore not splitting the brain's processing), produced no such results.
In my own work, I have duplicated Dr. Schififer's glasses, worn them myself, and used them with clients. The latter have provided the most objective tests because I do not initially tell clients what the glasses are for. My experience is that the glasses do not produce dramatic results for everyone, but they do induce shifts in mind states among individuals who come to counseling with mood and/or self-esteem complaints. Such people typically experience periods when they feel okay about themselves and other periods when they feel nervous, self-blaming, and not confident. These are situations in which vertical splits are most evident.
The glasses in themselves did not cure Dr. Schiffer's patients, and they did not create permanent changes among my clients. But they did dramatically demonstrate to the patients an important reality: Their problems were not in the world but were a function of how they were viewing the world. The self who was anxious and depressed coexisted with a self that did not feel that way. This by itself tended to be reassuring to people. They could see in their own experience that their negative views of themselves were a function of their perception, not absolute reality.
Although the glasses are a clever and useful tool, the key to self-development is finding a way to change one's lenses even when not wearing the glasses. Traders need techniques for shifting themselves from one mind to another if they are to trade with consistency and an absence of emotional interference.
THE MIND OF THE TRADER
The experience of Dr. Schiffer's clients offers important insights into the plight of the emotional trader who becomes lost in regret, fear, and overconfidence. Experienced traders typically place their trades after they have analyzed the market carefully and weighed their options. They are operating with Cutting's Mind #1 activated, scanning for patterns and relevant data. At that point, they are like the patients wearing the glasses covering all but the far right visual field.
Once the market makes a major move—a move that impacts the trader's position—a shift suddenly occurs. The trader now views the market in terms of self-relevance, evaluating the consequences of the market move for his or her account, esteem, or reputation. This is the equivalent of switching one pair of glasses for another, now covering all but the left corner of vision. Processing the market through the lenses of self-relevance, the trader is no longer "in the zone," fully attentive to market data and patterns. The odds are high that a trading decision will be made for reasons other than those that have been researched and tested.
People lose money in the markets because the person who places the trade very often is not the same person who manages and closes the trade. Quite literally, another self has taken over—another mind.
Earlier I questioned why it is so difficult for people to sustain New Year's resolutions, stick to a diet, or maintain an exercise regimen. The split-brain research and the work of doctors Schiffer and Goldberg offer an explanation. At the time people resolve to diet or exercise, they are sincere. They are completely focused on the health benefits of their actions and the many valid reasons for being healthy. Later, however, they become bored, fatigued, or depressed. They enter a different mind state, and their resolutions no longer carry the same force. The person who made the resolution is gone; the other, emotional self is too tired to exercise, too in need of gratification to forego the food. People make exceptions to their rules, and then they forget the rules altogether.
People cannot sustain purpose in their lives—and trading is certainly a purposeful act—because they are fundamentally divided beings.
In the early twentieth century, the Russian philosopher George Ivanovitch Gurdjieff anticipated the findings of cognitive neuroscience when he emphasized that people lack a unified self. The average person, Gurdjieff taught, consists of many "I's," each competing for attention and each relatively unaware of the others. As people move from situation to situation, various I's are activated, impelling their behavior. This occurs mechanically, without conscious awareness or participation. In an important sense, Gurdjieff taught, people are asleep; they are not fully conscious. Believing they are free, they are all too vulnerable to situations that trigger their I's and drive their behavior.
This human dilemma, anchored in the reality of multiple information-processing systems within the brain, wreaks havoc among those who hope to profit from the markets. As traders are tossed from state to state by news, hot tips, market movements, and life's distractions, they find it as difficult to sustain a trading plan as it is to stick to a diet. The absence of a unified I allows the little I's to run amok, executing trading decisions impulsively and creating situations in which even the easiest-to-read market patterns can be missed.
Perhaps you have had the experience of reviewing a losing trade and examining what went wrong. You look at the market data available at the time, ponder your trade, and think, "What in the world was I thinking of?"
Your reaction is more than 20-20 hindsight. You may indeed have had all the information you needed to make the right trade, but you couldn't access the information because you weren't attending to it. Your thinking, driven by the anxiety, boredom, or pride of the moment, was as colored as that of Schiffer's patients wearing the glasses blocked on the right. The "you" that is analyzing the trade is not the "you" that placed the trade.
And that is sobering.
It is also important because it suggests that you can perform endless research, learn every new indicator, and receive the best mentoring and still fall short of your trading goals. If you are asleep—if you are wandering from one mind state to another—you will not be able to consistently implement objectively sound strategies, even if they're handed to you. As P. D. Ouspensky observed in his book The Fourth Way, as long as you are asleep, your dreams may change, but you will always be stuck in your bed.
Understanding Schiffer's research also provides a deeper understanding of the Internal Observer. The Observer is the capital "I" in Gurdjieff's scheme—the part of you that stands apart from the various individual moods and states and maintains a constant perspective. The Internal Observer consists of your capacity to ask, "Which lenses am I wearing right now? How am I processing th
e world at this moment?"
Simply asking these questions introduces a powerful psychological force into one's trading. By taking your "emotional temperature"—recognizing how you are experiencing the world—you create a distinction between yourself as the temperature-taker and yourself as the hot or cold person. Asking about the lenses you are wearing creates a perspective that transcends the lenses.
SOLUTION-FOCUSED MONEY MANAGEMENT
Imagine a mutual fund run by several money managers. Some of these managers are relatively astute and quite attentive to market data and patterns. Others tend to take their eye off the market ball and consistently lose money. The overall performance of the fund, averaging the returns of these managers, is mediocre, as the losses of the poorly performing managers cancel out the gains of the astute ones.
What would you do if you were the chief executive officer (CEO) of this fund?
Easy, you say. You would identify the successful managers and place all of the money in their hands. You would either fire the unsuccessful ones or ensure that they couldn't make final decisions about the investment of funds.
Now imagine that, within yourself, there are actually several different traders, each of whom takes control of your account for a period of time each day. One or two of these traders are relatively astute; others are downright destructive. Your overall performance suffers as a result. As Chief Executive Observer of your own account, what should you do?
If your first inclination is to try to identify the bad traders within you so that you can eliminate them, you haven't learned the lesson from Phil's counseling. The starting point of the solution-focused approach was that Phil's destructive trading—like his cocaine use—was serving a purpose. In fact, it was serving a very positive purpose, albeit in a self-defeating way. The answer to his problem wasn't simply to stop trading or to severely limit the size of his trades. This would never have addressed his reason for trading destructively: his need to feel powerful. Phil and Rhonda found a solution only once that need could be fulfilled in another fashion.
Similarly, if you harbor multiple traders within you—some careful, some impulsive; some successful, some losing—your first task is to avoid labeling these traders and to take an Observing stance. You need to figure out why these lousy traders within you are trading! They evidently are not trading simply for the monetary reward; if that were the case, they would never overrule the successful traders within you. The chances are good that they are trading to achieve something other than a good return on equity: a sense of excitement, a feeling of self-esteem, or an imposed self-image.
You do not fail at trading because you are masochistic or because you love failure or feel you deserve defeat. Rather, you sabotage your trading because you have different facets to your personality, each with its own needs, each clamoring for access to the trading account. Your trading suffers because you are not always trading with the equity stake firmly in mind. In a strange way, a losing trade can be a success to that part of you that is, for example, looking for excitement—not profits—from the markets.
On the whole, I operate on a pretty even emotional keel. I am not prone to bouts of depression, anxiety, or anger—or at least not for any prolonged periods—and I have achieved enough success in various aspects of my life that I don't have to place undue pressure on my trading results. Nonetheless, I find myself prone to lapses in trading that differ from Phil's only in degree.
Because much of my trading is quantitatively driven, based on exploring historical patterns to see where I have an edge, there are many periods of time during which I am out of the markets entirely. Although the markets are not perfectly efficient, they are largely so. Just as nickels don't lie on the sidewalk all day without being picked up, opportunities in the market do not persist for long without someone grabbing them, especially once they are publicized. These opportunities are quickly exploited by well-financed players who can monitor multiple markets with sophisticated data analysis. The real discipline in trading, for me, is not in placing entries and exits but in staying out of the market unless and until I have a demonstrable edge. This means that much of the day, I am watching the markets carefully—and putting on no trades.
Much of the time, I can live with that discipline and use the time to build my research and to attend to the needs of my large database. At times, however, my Type A personality kicks in and begins to feel that the time I spend in front of the screen without placing trades is wasted. I should be accomplishing something! I should be trading! It is at such moments that I am most apt to forego my thorough analysis or to trade a marginal pattern. I trade at those junctures not because the trade is so well crafted as to guarantee a profit, but because it feeds my flagging sense of achievement. I have learned that if I cannot explicitly state—and write down—a sound logical basis for my trade, then I am probably in the trade for psycho-logical reasons and should get out of the market.
But I will only be able to find an enduring solution for my bouts of trading laxity if I can meet my needs for achievement in other ways during those quiet market periods. Just as Phil met his needs for competence by helping others with addictions rather than by continuing his cocaine use, I can gratify my Type A subpersonality by engaging in something challenging and achievement oriented in addition to my trading. It is difficult to trade frequently while writing a book (and I have thus curtailed my trading for the past several months), but I do not find it surprising that my trading has gone well during my writing. When the markets are dull, I simply plan my strategy and return to my manuscript, stealing occasional glances at the screen to monitor the action. With my achievement needs nicely gratified by the writing, I can wait patiently for very good setups. My need for results doesn't interfere with my need for profits.
A TRADE FROM THE COUCH
The first psychological step toward trading success, as I emphasized earlier, is keeping a journal of all your trades and the state of mind you were in when placing the trade, the thoughts going through your head at the time, your feelings, and so on. Before long, you'll identify the states of mind that are your good traders and those that are the bad ones. You will know which lenses work for you and which don't. And, most important of all, you will cultivate the habit of being an Observer.
Your journal, however, can be helpful in another respect: It can assist you in identifying the reasons why you are trading.
If you can identify your subpersonalities, much as I recognized my own Type A self, you can then use your trading journal to ask yourself, "Which of my internal traders placed this trade? Did I place this trade because the odds were truly tilted my way, or did I place it to compensate for a prior loss or to demonstrate my prowess to my trading buddies?"
Through the journal, you can recognize that you, like Dr. Schiffer's patients and like me, harbor a number of selves within you—each there for a good reason and each more than happy to take the trading reins. This is why trading coaches, such as Alexander Elder, in his book Trading for a Living advise traders to keep a diary of all trades. Such a record allows traders to discern patterns of success and failure so that their past need not be their future.
At the risk of beating a dead horse, I cannot emphasize this strongly enough: The problem is not that traders have problems but that traders become identified with their problems and thus are unable to gain access to those parts of themselves that can accurately process market information.
You do not want to eradicate your problems. You want to use them as signals that help you shift your lenses and activate the best within you.
I recently began feeling so confident about my trading that I briefly entertained the notion of increasing my position size. Quickly, another voice kicked in: Don't go there.
That night, I forced myself to double my preopening homework. I filtered out all but the safest and clearest trading signals and then kept my position size constant. By the early afternoon, I had cleared twelve points on the Standard & Poor's (S&P) futures for a tid
y gain. Best of all, "I" felt that I had control over the "I's."
That is trading from the couch.
SHIFTING SELVES IN TRADING
The idea that you can change yourself psychologically by gaining access to alternative minds and selves sounds radical, but it fits very well with the dynamics of change that were demonstrated with Sue and Ken, in Chapters 1 and 2, respectively. When you process a message in a novel state, you are literally accessing another mind. Moreover, when you engage your Internal Observer, you are filtering your problem patterns through a different processing system. The recognition that you are many-in-one opens the door to understanding both how you can sometimes behave so irrationally and how you can accelerate changes in those behaviors.
In his book Trading in the Zone (John Wiley, 2001), Ari Kiev summarizes his experience in providing psychological assistance to some of the world's most successful traders. His book describes helpful methods for maximizing trading performance, with a special emphasis on the cultivation of focus and discipline. One of his case studies, that of Kurt, nicely captures the solution-focused mindset of the brief therapist. Kurt was overtrading, trying to make opportunities where none were present. He would experience "seller's remorse"—he castigated himself for a poor trade. This then emotionally colored his subsequent trading decisions. Dr. Kiev observed that Kurt was trading simply to keep his seller's remorse at bay. By holding onto losing positions or by quickly entering new ones, he didn't have to think about what was going wrong. This temporarily made him feel better, but it wreaked havoc with Kurt's bottom line.
The Psychology of Trading Page 12