Sometimes counselors use such experiential exercises to heighten this emotional awareness. It is very surprising how shifts in the body's level of activity and arousal can spark overall changes in consciousness, which then fuel changes in moods and action patterns. One of my students, who suffered from long-term depression, recently took up a particularly active form of martial arts through classes with a master teacher. On her own, she constructed mental exercises where she visualized the people who had hurt her as she practiced her blows. With each strike and kick, she vividly imaged doing bodily harm to those people. The routines left her feeling empowered, channeling her frustration as anger and activity rather than as passivity and depression. Indeed, after a workout, she looked like a different person—alive, invigorated, not at all beaten down and victimized.
All of these techniques share one crucial element: They bypass people's usual mode of thinking and provide access to a new and different mode of experience. Without this shifting of the gears of consciousness, people would remain stuck in their usual frames of mind, endlessly repeating their same thoughts, feelings, and behaviors.
NOVELTY IN THERAPY: MAKING TRANSLATIONS
The idea that behavioral change is preceded by a shift in one's state of consciousness was the culmination of perhaps the most instructive exercise of my professional career. Hoping to better understand the dynamics of change in therapy, I conducted what I call a "clinical review of the literature." Most literature reviews are surveys of research, an attempt to capture the state of scientific understanding in a field. What I was trying to do was a bit different. I read every written work on therapy that I could find from the major authors of the past several decades. I especially focused on writings that contained transcripts of actual therapy sessions. These held the promise of describing what the therapists were actually doing, not what they said they were doing.
It was a far-reaching review, culminating in a lengthy journal article in 1992. I read works by analytically oriented writers such as Habib Davanloo, Lester Luborsky, Peter Sifneos, and Hans Strupp. I covered cognitive-behavioral works by David Barlow, Aaron Beck, Albert Ellis, and Joseph Wolpe. I threw myself into the strategic literature of Steve deShazer, Milton Erickson, and Jay Haley. All the while, I kept asking myself, "How does this work? How can theories and practices that seem so different produce similar and positive results?"
My sense was that if it were possible to isolate the elements that are responsible for emotional and behavioral change, traders—and other professionals—could be empowered to become their own therapists.
Two common elements leapt from the pages of these writings. First was what brief therapy writer Simon Budman called "novelty." All of the therapies were helping people see and experience things in new ways. They were introducing skills, promoting insights, providing original experiences. Many of the approaches had a distinctively creative element, opening the door to fresh ways of viewing oneself and one's world.
Second was what cognitive-behavioral therapist Donald Meichenbaum called the "translation" process in therapy. People typically enter counseling with a particular problem or issue on their minds. They are coming for help because the problem is interfering with their lives and they cannot address the concerns on their own. Therapists do not simply listen to the problem and then toss out answers. Rather, they translate the initial complaint into some other conceptual scheme and offer a way out from that perspective.
Consider a simple example: A trader comes to counseling indicating that he feels worthless. He lacks confidence in his trading and procrastinates putting on positions, waiting for every indicator to line up perfectly. Rarely does this occur, however, and he misses a number of moves as a result. This leaves him feeling frustrated and angry, which spills over to his personal life. Recently, his wife has had enough of his outbursts and has suggested couples counseling. The trader resists the idea of entering therapy with his wife. He already feels like a failure in one area of his life—trading; he doesn't want to feel like a loser in his marriage as well. Recently he has been feeling blue and can't muster the energy to keep up with his market research. Twice in the past week, he has missed golden opportunities to ride trending markets because of his lack of preparation. Now he feels like a complete loser.
What is troubling for this trader, adding to the immediate problems of poor trading and marital concerns, is his lack of understanding of why he is the way he is. He feels defective in some way. "I want to be more successful," he might say. "Why can't I be different?" The recognition that one is not in full control of one's thoughts, feelings, and actions can be acutely distressing.
Early in the counseling process, the therapist will offer an explanatory framework to the trader that makes sense of his troublesome experience. This translation, which takes the problem as described by the trader ("I'm such a loser") and puts it into a new perspective, occurs in every therapy. Indeed, the various therapies actually seem to be different explanatory frameworks.
So, for instance, a cognitive-behavioral therapist might say to the trader, "The problem is not that you are a loser. The problem is that you have learned patterns of thinking that tell you that you're no good." Or a psychoanalytic therapist might say, "Perhaps the problem is not that you're destined to lose, but that you have internalized a loser's mentality as a way of avoiding conflict with your hostile and competitive father."
These explanations may not be offered all at once and may not be offered in the first session. But every therapy seems to provide a novel framework for understanding human experience.
People fail to change—they stay in ruts—because they are locked into seeing themselves and their situations in a particular way. They are like Dr. Schiffer's patients, only they have forgotten that they are wearing lenses. People's emotional problems are the result of confusing their interpretations of the world—the lessons they have learned from the past—with the world itself. Once people become aware of the lenses they are wearing that distort their views of themselves, it becomes possible for them to change the prescription.
My translation with Walt was that he wasn't the problem in the relationship with Janie. Rather, the problem was his past mode of coping that was cropping up during their relationship. But notice that this translation didn't take hold until we could actually shift the emotional gears and experience the anger that he had so feared. Changing one's state of mind—experiencing oneself in new ways—greatly facilitates the process of changing those lenses.
The implications for trading are significant. After repetitive mistakes in the markets, traders become convinced that they are "bad traders," "unlucky," or just plain "losers." Instead of focusing on the trading, they now blame the trader. I have a near-foolproof way of determining when traders are ready to overcome their problems. The ones who are not yet poised for change view themselves as defective; they want me to fix them. The traders who are more likely to make rapid advances view their trading as the problem. They have made the separation between themselves and their problem patterns.
The translation that frequently opens the door to change is that problem patterns in trading are there for a reason. Like Walt—like myself lingering in the bathroom—people are reacting to the past as well as to the present. They are using old coping strategies to deal with new situations. And the strategies aren't working.
To repeat, if there is a recipe for success in changing yourself, it is this: Find out what you most fear and then place yourself in a controlled situation where you can directly experience that fear. Whether it is a fear of your own anger, a fear of heights, or a fear of pulling the trigger on a trade, the firsthand experience of seeing that you are stronger than your fear will begin a new surge of confidence. Nothing I could have said to Walt would have been as powerful as getting him angry and helping him see that nothing terrible happened as a result.
It sounds like a strange formula, but it works: Find what makes you most anxious as a trader; then gradually and steadily pursue
it. You, like Walt, will emerge from underneath the bed once you realize, in your own experience, that anxiety points the way to your further development. You expand yourself by facing the unknown; sticking with the familiar and comfortable is stasis.
The fears experienced by traders come in many flavors:
•One young man had been successful in trading, but he was having difficulty increasing his size. He defined drawdowns in dollar terms rather than in percentage terms and became panicked if he was down by a certain figure.
•A day trader working at a trading firm had made money on an intraday time frame but was reluctant to hold overnight, even in the face of favorable odds. He told himself that the quick ins and outs were his bread and butter, but he chastised himself for not pursuing the larger opportunities when they were there.
•A woman who was trading for a living was uncomfortable diversifying beyond her one or two favorite trading vehicles, even though she could see profit opportunities elsewhere. The idea of trading commodities other than the Standard & Poor's (S&P) and the Nasdaq frightened her, although her trading system could easily adapt to those other markets.
• A man who had recently made the leap into full-time trading now found himself unable to execute trades that he had researched before the open. He always managed to convince himself that the market was somehow behaving abnormally. By the time he waited for his feelings of comfort to return, however, the move had already commenced, and he lapsed into guilt and frustration over the move that he missed.
In each of these cases, the traders were afraid of a healthy change. Their fear is of the unknown, the unfamiliar. By gradually facing their fears—making themselves ride the chairlift even in the midst of their anxiety—they can learn first hand that what does not kill them does, indeed, make them stronger.
THE ROLE OF CONSOLIDATION IN CHANGE
My literature review convinced me that although novelty is necessary for change, it is not sufficient. For change to take root, there must be consolidation. A new pattern must be repeated many times over before it is truly internalized. Without consolidation, people are apt to relapse into their old ways. Most people think of counseling as a mechanism for discussing and addressing problems. The truth is that when a person participates in successful therapy, a greater amount of time and energy is spent at home rehearsing and cementing solutions than within sessons working on problems.
Unfortunately, all too many people cease their change efforts as soon as they see gains, figuring that they have solved their problems and need no further self-work. That is a bit like saying that once a plant has begun growing in a healthy way, it no longer requires water and fertilizer. For new patterns of living and trading to take root, there must be continuous efforts at change.
There is a conundrum here that explains why so few people are able to change their lives. It takes sustained efforts to cement changes, yet most people cannot sustain efforts without major changes. People can begin diets, exercise routines, or counseling programs; but they have a harder time maintaining these.
Again, I go back to George Ivanovitch Gurdjieff for a full appreciation of the dilemma. Human beings are too fragmentary to sustain change on their own. No sooner does one self—one I—make a resolution than another self, triggered by an externally driven state shift, enters the picture and acts on a new set of priorities. Gurdjieff made self-observation a pillar of his work, so that individuals could realize that they possessed a multiplicity of personalities. Without a "magnetic center"—a new self organized around the process of change—it is unlikely that even the best of intentions can come to fruition.
The landmark National Institute of Mental Health collaborative study on depression described by Irene Elkin and colleagues studied a large number of patients receiving psychotherapy and medication for their problem. Participants received approximately 12 therapy visits. Despite efforts to utilize standard, effective treatments, researchers found relapse rates among the study participants approaching 75 percent. The 12-session treatments were enough to initiate change but not enough to cement it.
This phenomenon of relapse says something about succeeding in the markets. Any techniques that you use in trading—whether for money management, self-control, or pattern recognition—require frequent repetition before they will become an ongoing part of your repertoire. You internalize changes by repeating them, without variation, time after time after time. Your goal is to make the new behavior so habitual that you will feel strange to not act in that way.
My clinical review of the literature suggested to me that it didn't matter whether a particular therapy was behavioral, cognitive, or psychoanalytic. Change always occurred in a particular sequence. And if we can follow this sequence intensively, changes can be made in far less time than is generally required by normal talk therapy.
Examine this sequence and how it might apply to trading. Suppose you attend a Linda Raschke or Mark Cook seminar and learn a new trading technique. Or perhaps you read Jon Markman's Online Investing or Yale and Jeff Hirsch's Stock Trader's Almanac and discover seasonal patterns that might apply to your investments. Such sources assist you in adding new elements to your trading. But how can you make these elements yours, part of your normal, natural trading repertoire?
The first step in the change sequence is introducing the new trading methods while you are in a nonordinary state of mind: highly relaxed and focused, physically pumped up, emotionally aroused, and so on. As you saw with Walt, it is at those times of heightened experiencing that you will be best able to process information in novel ways. Anchoring your new pattern of trading to a distinctive state will also allow you to more readily enact the pattern any time you access its accompanying state.
Thus, if you want to use signals from a mechanical trading system to filter trading decisions you are currently making from price and volatility patterns, you might conduct a historical review, trade by trade, that illustrates how this filter would have affected your past trading. Keeping yourself in a highly focused and relaxed state, you would process how the trades would have gone without the filter and how they would have proceeded using the filter. Each time, you would play-act using the filter, as if you were actually putting on the trades.
The second step in changing your trading is rehearsing the new pattern repeatedly in a variety of actual trading situations. These could be paper-trading exercises or actual trading sessions. Three things are important: that you are (1) using the new method on fresh data in real time; (2) sustaining the same, distinctive state of mind that you first used in learning the method; and (3) employing the method with consistency, trade after trade. By enacting the patterns again and again—and especially by seeing, first hand, the results of the new change—you speed the process of internalization.
I am convinced that consolidation is greatly accelerated in trading through exemplar-based education. Later, I will explore that topic in detail, especially as it relates to implicit learning. Exemplar-based education is learning through examples rather than through direct, didactic instruction. Instead of reading about trading or listening to a lecture on trading, you look at examples of actual markets and the ways those might have been traded.
Seeing actual patterns time and again—and gaining a firsthand feel for their variations—appears to be essential in skill acquisition. Just as medical students need to see many patients and many variations of particular diseases before they become proficient at diagnosis, traders benefit from experiencing a variety of markets and trading setups.
When I first visited Victor Niederhoffer in his trading room, I was impressed by several large volumes on one of his desks. These were journals containing intraday entries for the markets going back a number of years. I was even more impressed by the number of statistical analyses he and his assistants ran during a trading session. They were constantly adjusting to the market, searching for tradable patterns.
Later, when I became involved as a guest instructor in Linda Raschke's trading
chatroom, I noticed that she made a regular practice of posting charts after each day's session. These charts illustrated principles that had guided the previous day's trading. Carl Swenlin, the founder of the comprehensive Decision Point web site (www.decisionpoint.com), recently told me that this was also the idea behind his organization of "chartbooks" on the site. By organizing the stocks in the chartbooks according to relative strength and allowing people to click through many charts in a short time, he made it easier for traders to process large quantities of data. This, in turn, facilitated the detection of common themes and patterns in the market.
As you will see in the last chapter, these practices of repeated research, examinations of patterns, inspections of charts, and the like serve the psychological function of consolidation. They immerse the trader in market patterns in a way that simple instruction could never accomplish. Just as neural networks require many, many examples to develop their predictive connections, a trader's own neural networks seem to require a large library of examples to detect and to act on patterns. It is the intensity and repetition of exposure that appears to be facilitative of learning, whether it is learning new trading methods or new behavioral patterns.
Expecting that one could change simply by trying something a few times—or by attending a one-hour weekly session with a therapist—is as unrealistic as expecting to learn how to play good tennis with only an occasional lesson of instruction. Without repetition, the heart of consolidation, new patterns are unlikely to become self-sustaining.
The Psychology of Trading Page 21