In my own trading, I maintain a dedicated online brokerage account where the commissions are minimal. I use this account to practice trading new ideas and patterns with 200-share trades on the exchange-traded funds. The small trade size ensures that even if I make mistakes with my new ideas, I will not take a major financial hit. More important, however, the frequent small trades get me into the habit of observing new patterns, employing new methods, and acting upon them in real time. No amount of retrospective chart review can substitute for real-time consolidation. Only after trading the pattern many times, successfully, with the small trades will I consider devoting a larger share of my capital to the new method. By then, however, the method has become part of me.
When I first developed my composite "Power" indicator, combining several elements of my trading into a single statistic (price direction, velocity, acceleration, volatility, and so on), I was uncomfortable trading the new variable. Researching its past performance was helpful in convincing me that it had potential, but this did not give me the confidence to actually put my money on the line. That confidence came for me, as for Walt, when my expectations were disconfirmed in a real-life situation. On more than a few occasions, I expected the market to move in a particular direction based on my prior work. The models using the Power measure, however, made a completely opposite prediction. In each of these cases, my old trading methods turned out to be wrong, and the new work was supported.
This splash of cold water in the face, showing me how my earlier work was inferior to this new research, did more to build my confidence in trading the research than any historical testing. I really thought I had the market pegged, and then saw that I was wrong and that the new models nailed the move. Eventually I got to the point where I refused to put on a trade unless the Power models supported my position. It was the emotional experience of having my trading expectations dashed—and particularly the repeated violation of those expectations—that cemented my new trading style.
Yet another vivid example of consolidating an emotional trading pattern occurred when I took to heart the advice of Victor Niederhoffer and began holding more of my positions overnight. Up to that point, for purposes of risk management, I had closed my positions by the end of the day, not wanting to get hurt by overnight developments or unfavorable premarket news. Niederhoffer pointed out, however, that most of the long-term rise in the markets can be attributed to an upside overnight bias. Failing to hold a good position overnight is actually a highly risky strategy, in that it foregoes a significant opportunity for profit.
Fascinated, I replicated Victor's work by studying the S&P futures from April 1994 through April 2002. I looked at the total points gained attributable to the overnight action (yesterday's close to today's open) and the total points attributable to the daily session (today's open to today's close). Overall, during the period of my study, the S&P had gained a total of approximately 327 points. Of those, about 311 could be attributed to overnight gains! In other words, during the trading day, there was no overall directional bias.
Performing the research gave me the confidence to begin holding small positions overnight. In further research, I found that an unusually large number of the sizable overnight declines occurred during corrective market periods. That meant that if my trend readings from the Power measure were positive, the odds of a painful adverse overnight move were reduced. (Positive New York Stock Exchange [NYSE] TICK readings during the latter hours of the trading session were also useful in weeding out many nasty overnight declines.) Each time I decided to hold overnight, I reviewed the research after having placed myself in a focused, relaxed state. Again and again, I sought to create a conditioning: associating the calm focus with the overnight, "risky" trade. I knew I had become successful when I began feeling uncomfortable closing a position out early. By then, the overnight hold in the face of favorable momentum became automatic—a new part of the trading arsenal.
WALT'S CONSOLIDATION
In Walt's therapy, the consolidation occurred in a unique way. We created a dialogue between Walt and his body. I suggested to Walt that he really had two selves: (1) the person he thought of as Walt, complete with his usual thoughts and feelings; and (2) his body, which had no verbal ability but could speak the language of gesture and action ("body language"). It was the conversation from Walt's body that enabled me to make use of the sentence-completion work, and it was the shift in his bodily state that opened the door to his history and unacknowledged anger.
I suggested to Walt that he carry out a dialogue with his body at random intervals during the day. That meant attending to his state of tension, energy, and posture to decipher the meaning of his body's communications. We modeled this within our sessions each time that I saw Walt's body lapsing into either passivity or rigid tension. I reflected both these states back to him, referring to them as communications from his body that indicated he was feeling threatened by feelings of fear and anger. At those times, I reassured him that no harm would come as a result of experiencing these feelings, reminding him of his initial experience with the sentence completions. Once he became adept at reading his body's language during our sessions, we were ready to consolidate the efforts through homework.
The homework was straightforward. At random intervals during the day, he was to stop what he was doing and as soon as practical enter into a focused state where he could observe the feelings, actions, and tensions of his body. At those times, he was encouraged to make a key translation: When he felt passive or tense, he was to assume that some unmet need or perceived threat was present. Passivity and tension were his body's ways of informing him about anger and fear. Once he made this translation and identified the source of his feelings, he was to make an effort to give these feelings direct, verbal voice. In other words, Walt would use the information from his body to alter the way in which he dealt with situations.
Note the message: Your symptoms—passivity and rigidity—are not pathological. Your symptoms are forms of information from an alternate self.
Most of the problems that people bring to therapy and that traders bring to markets are metacommunications—useful, informative communications—from a hidden self, even when they seem to make no sense, as in the case of the Woolworth man.
Walt and I hit on an interesting technique to become aware of these metacommunications. As part of his work as a student, Walt carried an electronic personal organizer. His unit kept the time and had a function for an alarm. Prior to the start of each day, Janie would set Walt's alarm for a random time between 8 A.M. and 6 P.M. When the alarm went off—at a time that Walt never knew in advance—he could carry out the exercise. If he was in class at that time or otherwise occupied, he would simply observe his body and wait until later to process the information.
Our approach was borrowed from Gurdjieff's "stop" technique. This was a method where the master would shout "Stop!" during the middle of interactions with students and require them to freeze in their positions. At those times, caught in awkward postures, participants could observe themselves in fresh ways. The alarm from Walt's organizer served such a "stop" function, but it also made Janie an active part of the consolidation. Gurdjieff realized that people are all asleep, bouncing from one "I" to another with no real aim, no authentic consciousness. The alarm was literally set to awaken Walt from his slumbers, to rouse him from falling back into old patterns.
After about a month of this daily work, Walt no longer required the alarm. The awareness of his body became part of his daily routine. He had developed a "magnetic center."
Walt's stop exercise is very much related to the notion of "taking your emotional temperature" during trading. It is a means for interrupting negative patterns and cueing the activation of new, positive ones. People's enemy is the sleep described by Gurdjieff: the tendency to lose awareness of themselves and to fall into old patterns unthinkingly. It was only half in jest that a trader friend recently advised me to connect my biofeedback machine to my trading station so that I could n
ot access data—or trading screens—unless I were in the proper state of mind and body. Having to stay focused in trading to access the screen is very similar to having to stay calm for my son on the open chairlift. The new experience is invaluable in cementing a new pattern.
As it happens, simply having the numeric output of my biofeedback unit on a continuous basis serves much of the same function. I cannot lose sight of my mind's functioning and my body's state because it is always in front of me on a display. From this perspective, each trading session is also an exercise session for the mind, a part of the consolidation process that cements good habits. I am truly trading from the couch when the ups and downs of my couch indicator—the biofeedback—become a formal part of my trading system.
CONCLUSION
So often, clients ask me how they can become motivated to complete their work, lose weight, change their patterns, and so on. My answer is that motivated acts are fragile. If you have to motivate yourself to do something, it really isn't a part of you. Lasting changes become automatic, like brushing your teeth in the morning or driving your car while carrying on a conversation. If you create a desired state and enter it with sufficient frequency, always in the same manner, it will crystallize and become part of you. Once consolidation has occurred, the mindscape—and the trading arsenal—are changed forever.
Observe and interrupt old patterns, switch emotional gears, enact new patterns, and repeat these in as concentrated a way as possible: This, my literature review taught me, is what change is all about. The solutions in counseling and in trading begin as patterns people fear, then become patterns they enact with effort, and finally become automatic. The movement from tacit to explicit, transforming Walt's folded arms into directed exercises, is a hallmark of all personal change.
Chapter Eight
Buried Alive!
Nothing is more common, or more fleeting, than the great dreams of sleeping people.
Body language is one important form of communication from our nonverbal minds, but there are others as well. And these can provide important information about us and about our trading. Images, fantasies, artistic works, and dreams are but a few of the ways we communicate in a language of feeling. Therapists learn to become sensitive to these communications, for they often convey important clues as to people's repetitive patterns. Mary's dream, for example, crystallized her conflict between needs for attention and fears of exploitation. Even as her conscious mind attempted to reject the dream, her emotions and her bodily communications betrayed its importance.
In this chapter, we will explore more of these nonverbal communications and their relevance to the process of self-change. We will see that subtle markers, from our tone of voice to the rate of our eyeblinks, contain important information about our emotional states. We shall also see that fantasies are constructed realities that express some of our most basic human needs and motivations. By becoming attuned to the messages of our minds and bodies, we can ensure a firmer grounding in reality, much to the benefit of our happiness—and our trading.
THE ART OF TIMING IN THERAPY AND TRADING
Timing is central to both therapy and trading. The best trading idea can lead to ruin if implemented at the wrong time. Similarly, valuable insights in therapy are lost if they are introduced when a client is not ready to hear them. Successful therapists and traders are much like good comedians. They know how to time their interventions.
Beginning traders and therapists focus so much on what they are doing that they give little consideration to timing. As a result, a great deal of what they do seems ham-handed. This is particularly true of traders who rely on formulaic trading methods ("Sell when the 12-period RSI is overbought") and of neophyte therapists who import their lines from textbooks. There is a stilted quality to what they do, one that often ignores the context of the particular situation.
A recent trading correspondent described his bread-and-butter trades as "volatility breakouts." When the market consolidated after a rise or a decline, he would place an order just above or below the consolidation range, hoping to take advantage of a breakout. He was whipsawed frequently, but he managed to catch some nice trending moves. Overall, the relatively low batting average (due to the whipsaws) made his system a difficult one to follow. When he described his trades, I was struck by the degree to which he ignored the surrounding action in the market. Many times, the consolidation range he was trading for an upside breakout was evident on a Standard & Poor's (S&P) chart, while the charts of other indexes were clearly not in consolidation modes. This often led to failed breakouts. Because he mechanically took his trades without looking at the larger picture, he could not benefit from that information.
New therapists invariably give away their neophyte status by mimicking phrases they have read in textbooks or heard from others. I recall supervising one particularly mechanical therapist. The client indicated that he was so angry toward his wife that he could strike her. The therapist, taken a bit aback by the man's vehemence, stumbled and could only think to ask, "So how does that make you feel?" As you might expect, the man was quite in touch with his anger and let the therapist know about it in no uncertain terms.
Good timing requires a feel for one's work that can only come with repeated exposure. Yet timing is not a mystical, intuitive gift. It can be acquired, usually by modeling someone who is accomplished.
Timing was an important element in the counseling with Mary and with Walt. Recall that when Mary was uncomfortable recounting her dream, I added to her discomfort by actually giving her the impression that I had a "personal" interest in her. Similarly, during the sentence-completion exercise with Walt, I raised the tone of my voice, quickened my pace, and called attention to his clenched fists. Many counseling interventions are of this sort, where the therapist times an intervention to alter the client's level of emotional experiencing. In both cases, with Mary and Walt, the heightened arousal allowed them to access memories that had been tucked away. Those memories were critical in understanding their present-day patterns.
Other counseling interventions do not seek to induce state-of-mind shifts but piggyback on changes that are naturally occurring. For example, a counselor may wait to point out a destructive pattern until the client is emotionally in touch with the consequences of that pattern. At such moments, the motivation to change is apt to be greatest, allowing the counselor to ride the emotional trend.
Some of the most promising opportunities for intervention in counseling occur during relatively subtle state shifts. These are manifested in the client's metacommunications: changes in their rate of speaking, emotional tone, body posture, and facial expression. Such metacommunications are known in the professional literature as markers because they signify a transition point from one cognitive and emotional state to another. Markers are important cues for traders as well.
Suppose a woman begins a counseling meeting by recounting several stressful things that happened during the past week. Her tone of voice and body posture are similar when describing each event, as she speaks quietly and nervously and sits on the edge of her chair. At the end of her recital, however, she mentions that she had a visit from a friend she hadn't heard from in years. With this new topic, her voice brightens, and she speaks louder and sits further back in her chair.
As a therapist, you might then ask the woman if she tried out the homework exercise suggested at the last visit. She immediately replies in the affirmative and says that the exercise was helpful. You notice, however, that when she talks about the exercise, she moves forward in her seat and lowers her voice, returning to the very same posture that she was in while she recounted the week's stresses. These markers are telling you two things: (1) that there is something stressful about the homework and the therapy; and (2) that whatever is stressful about these is probably the same thing that the client is wrestling with in other areas of her life. By attending to the markers and exploring the stressful aspects of the homework—perhaps even having the client perform the h
omework on the spot—the uncomfortable state can be heightened, opening the door for change.
Recently, I talked with a trader who was having severe and frequent arguments with his wife. I brought them together for a session and observed their interactions. Invariably, he would become impatient with her when she wanted his attention. He displayed this by adopting a curt, rejecting tone of voice, accompanied by an intense facial expression. His wife found this intolerable and would try even harder to win his attention. This came across in a demanding fashion and led to his efforts to push away even harder.
The situation was bewildering because the trader seemed to genuinely love his wife and certainly did not want to lose the marriage. It was clear to me, however, that their relationship was on the ropes.
At the end of the session, as we were readying to leave, I casually asked the young man how his trading was going. Immediately, to my surprise, his face returned to its intense expression, and he responded abruptly that things were fine. Fortunately, I had my wits about me and did not react negatively to his tone, as his wife had been doing. Instead, I attended to the marker—his physical and emotional change—and purposely adopted a softer, slower mode of speech. Looking him in the eye, speaking so that his wife could not hear, I said, "It's a pretty demanding market, isn't it? I've been trading for a while, and I still sometimes feel like I can't live up to the demands."
Almost immediately his face dropped, his eyes became teary, and he described a major loss that he had taken on a margined position. He explained, with his wife present, that he had hoped that he could make a lot of money in the market in a short time and, thereby, relieve her of the need to work while she had their first child. Instead, he lost the money and made it inevitable that she would have to work full time. He had not spoken to her of the loss and, indeed, subconsciously, dreaded her asking about his trading. To keep her at bay, he adopted his rejecting demeanor—the same attitude he enacted toward me at the end of our session.
The Psychology of Trading Page 22