The Psychology of Trading

by Brett N Steenbarger

  Milton Erickson's surprising discovery, as captured by Jay Haley, was that even seemingly small interventions are able to move people meaningfully along the dial of consciousness, allowing them to experience themselves and their problems in very different ways. I recall one couple who entered counseling many years ago, on the verge of divorce. They engaged in frequent arguments, many times over trivial issues. Efforts to stop the arguments had been unsuccessful. Their problems were especially frustrating to them, given that their children were now out of the house and these should have been the start of their long-awaited golden years.

  In the spirit of Erickson, I prescribed two tasks: (1) the couple was to plan an extended vacation together. They had long foregone travel plans due to childcare responsibilities, and I indicated to them that this was the time to dust off those plans. The stipulation was that they were to plan the trip collaboratively and in detail, itemizing each step in the itinerary, selecting the most interesting places to stay, getting the best hotel and travel fares, and so on. I pointed out that they were unique people with distinct priorities and naturally would have different preferences for destinations, lodging, and so forth. This could be expected to lead to more arguments, not fewer. And that situation led to the second task. (2) Whenever they argued, they were not to try to terminate the disagreement. To the contrary, they were to argue as heartily as they could. They had to agree, however, to conduct all of their arguments in their walk-in clothes closet while standing on one foot. This was to be their arguing space and mode. Under no circumstances were they to argue outside the closet or while standing on both feet.

  They were a bit skeptical, but the couple complied. To their surprise, they enjoyed the process of buying travel books, fantasizing about trips, and making plans. Conversely, it only took two or three arguments in the closet for them to feel completely foolish. It is very difficult to muster resentment and to defend oneself while standing in a silly position in an absurd location. During their last argument, they broke down in complete laughter. They felt completely idiotic going into a closet, standing on one foot, and airing their differences.

  Although the Ericksonian technique seems a bit strange, it makes sound psychological sense. The couple thought they should be free from arguing because the kids were out of the house and they now were able to do what they wanted. The reverse, however, was true. They had spent so much of their time invested in the children that there was little for them to communicate about. They could not rid themselves of arguments because even poor communications between them were better than none.

  By substituting interactions aimed toward a common goal and creating an absurd context for the arguments, the couple gained a firsthand experience that they could enjoy each others company without resorting to disputes. Moreover, the changed context for the arguments—standing in the closet on one foot—allowed each member to experience their disagreements in a very different spot on the emotional dial. The arguments, in no small measure, were part of the programming on the common frequency of their dials. By shifting to a different station, the couple was able to access new programming.

  Context shifts are some of the simplest yet most powerful ways of moving to new spots on the mindscape. Most people occupy different states of mind, depending on the context they are in. With a spouse, a person might typically be in one frame of mind; at work, he or she can be in another. Where one stands on the dial is, in large part, an adaptation to the context one is in. By shifting contexts, people can gain control over their physical, emotional, and cognitive states.

  A trader with whom I corresponded electronically, Eric, reported to me a strange phenomenon. He maintained two trading stations, one at his home and one at his office. Because he had a full-time job not associated with the markets, he had developed mechanical trading systems that allowed him to enter near the previous day's close and to hold for defined periods of time. This allowed him to benefit from trading without having to follow the market tick by tick.

  To Eric's surprise, when he reviewed his account statements, he found that his trading performance at the office was much better than his performance from the home. This was completely unexpected because he was using the same systems and placing the same types of trades with the same stocks. When he carefully audited the trades, however, Eric found that he was most apt to deviate from his system at home, often anticipating signals rather than following them.

  I suggested to Eric that, perhaps, he felt distracted at home and that this was interfering with his discipline and performance. He replied to the contrary. When he was at home, his wife and children were working and at school during the trading day, leaving him relatively distraction free. If anything, his home performance should have been superior.

  Thoroughly befuddled, I asked Eric to phone me and walk me through his last two trades from the home station, recounting as much as he could: his entry strategies, the subsequent course of the stocks, how he felt while placing the trades, his thoughts and feelings as the trades progressed, and so on. Everything seemed perfectly normal until Eric mentioned that periodically he would get out of his chair and walk around the house while the trade was on.

  I asked Eric if he typically roamed his office after a trade was executed. He responded no. When I asked why, he laughed and said, "Oh, it's that damned chair at home. Gives me a backache. I have to get up and stretch or I'll feel all knotted up at the end of the day." At the office, as it happened, Eric had an orthopedic chair that was particularly comfortable.

  I inquired about other times in Eric's life when he had experienced backaches or similar debilitating conditions. He promptly mentioned a difficult time in his grade school years when he was laid up for several months due to a severe bicycling accident. His bike was sideswiped by a car pulling out of a driveway, sending Eric tumbling to the ground at high speed. He was in chronic pain and required multiple casts to set the broken bones. He was prevented from playing with friends and attending school, and he felt acutely lonely during that time.

  I asked Eric if he would be willing to perform a simple experiment. He was to switch chairs, bringing the home chair to the office and the office chair to his home trading station. Eric again laughed and refused, saying that he needed the orthopedic chair at work because of the amount of time he spent at his desk. He offered, however, to purchase a similar chair for his home, saying it was high time for the change.

  Several weeks later Eric called me and reported that the experiment was successful. His home trading was going well. He was faithfully following his trading signals, he reported somewhat mystified; and he was making money. I explained to Eric that this made sense. When he was at home, feeling the twinge of his backaches, it activated highly emotional, painful, and destructive memories from his childhood accident. He was no longer trading from the couch, observing himself and the market from a neutral stance. Rather, he was immersed in a spot on the mindscape that was anything but neutral. A simple change of context—where and how he sat—was sufficient to move him on the dial of consciousness, creating a difference in his trading outcomes.

  CHANGING BEHAVIOR BY CHANGING CONTEXTS

  Find the context that supports a problem pattern and then alter that context. This is a simple formula utilized by therapists in the Ericksonian tradition. It is amazing that even lifelong, highly ingrained patterns can be altered with the right shifts of context.

  A few months after I had begun my work at the medical center in Syracuse, New York, a director of a health professions program called me with a problem. There had been several complaints of racial tension within the entering class. Specifically, during exercises that required teamwork, white students avoided being paired with black students. The clear implication was that the black students were less qualified and capable than their white peers and would only drag the group down if included.

  This exclusionary dynamic also played itself out socially within the class. White students and black students sat in their own groups and ra
rely interacted. Each felt that the other group was given unfair advantages; resentments were running high. In an effort to reduce the tensions, the director asked me to, please, give a talk to the class about racism. She wanted me to encourage the groups to work together.

  As you have no doubt surmised to this point, I am profoundly skeptical of the ability of such talks to promote meaningful and lasting attitude and behavior change. A course lecture, with me talking and the students sitting and passively absorbing, would do nothing to help them experience each other in new ways. Indeed, they would be experiencing the world in their accustomed ways, for they would be operating in their normal, routine student contexts.

  I agreed to do the talk, but with a key modification. The director had to agree to let me test the group on the content of the lecture and to make the test count as a significant portion of the semester course grade. She readily agreed.

  Before I began the lecture to the class, I reviewed the two changed ground rules: (1) they would be tested on the lecture material at the end of the presentation, and (2) their test grade would count as a full examination grade toward their final semester average. Then I casually added, "Oh, yes. I forgot. We're changing the rules for the grading, too. The lowest grade achieved by any student will be the grade that everyone gets." When the class groaned, I quickly added, "But you're allowed to help each other and share answers. We'll make it a group test. It won't be considered cheating if you compare your answers."

  The lecture proceeded routinely, and the students dutifully took their notes. At the end of the lecture, I announced that they had 20 minutes to review the information before taking the test.

  For a few moments, no one moved. They didn't know how to study as a group. This was a wholly new context for testing.

  Then, almost at once, the students shifted their seats and frantically began to check answers. The white students sat with the black students, and vice versa. No one was willing to be the one with the lowest score who dragged down the entire group. At the end of the exercise, everyone achieved a score of 100 percent. They had succeeded as a group, through cooperation. Everyone had served as a resource for everyone else; no one had dragged down the class.

  As I left, I suggested that this could be a valuable way of studying in the future because everyone seemed to do quite well. Toward the end of the semester, the program director contacted me and happily reported that this, indeed, was what had happened. To consolidate the initial changes, she added several group exercises to the curriculum, in which everyone would receive the lowest grade achieved by any single student. Once the two groups of students began talking and collaborating, a few friendships formed, and new patterns of class interaction emerged. Even the students who had been most resentful were cooperating with those they had excluded, now that self-interest and group concern were aligned.

  TRAUMA AND THE RADIO DIAL

  Most of the techniques I have illustrated thus far take a person at one point on his or her radio dial and shift that person to another spot, while introducing a new pattern of behavior. Sometimes the dial shifts occur spontaneously; other times, they are induced through well-timed interventions.

  Suppose, however, it is possible not only to shift within the dial of consciousness but to actually expand the dial. What if people could increase the sensitivities and the ranges of their receivers so that they could access different stations and even program new ones? This, I believe, is a most exciting horizon for applied psychology and for trading psychology particularly. People can cultivate new patterns by programming them onto distinctive spots on their dials and then tuning into those frequencies whenever they choose.

  Such programming of new frequencies does, in fact, occur but often in a negative fashion. One of my favorite questions for psychiatry residents and psychology interns in my brief therapy course is: "What is the quickest, most efficient method for producing human change?" The beginning therapists are typically stumped, sometimes venturing guesses about various approaches to therapy about which they have read.

  The answer, I reveal, is trauma. Trauma is the most effective, efficient, powerful mechanism for change. Through trauma, a single, powerful, emotional episode can produce lifelong changes in how people feel about themselves and the world. Trauma is the exception to the rule regarding consolidation. A single life event, if sufficiently powerful, is enough to reprogram the radio dial. The signal produced by such an event is so strong that it splatters onto the other frequencies, blotting out their signals. In a very real and frightening sense, the traumatized person is left with a radio dial stuck on a single frequency.

  Joseph LeDoux, in his book The Emotional Brain, offered insights that can help in understanding the neurophysiology of trauma. Most of people's perceptions are mediated through their higher cognitive functions, associated with the outer, cerebral cortex. Indeed, many of the mind's thinking, reasoning functions can be traced to the cerebral cortex. Episodes that arouse strong anxiety, however, bypass the cortex and are processed in lower, more primitive structures, such as the amygdala. The amygdala is closely linked to motor functions and to the production of stress-related hormones. When traumatic events bypass the normal, rational awareness and elicit processing from the amygdala, a powerful imprinting occurs. Later events that are similar to the initial trauma can trigger the same amygdala responses, creating the flashbacks and extreme anxieties associated with post-traumatic stress disorder (PTSD).

  Consider a simple example. I have always enjoyed driving and, in the past, have thought nothing of driving 15 hours at a stretch during vacations. Many years ago, however, I was a passenger in a car that was part of a carpool between Syracuse and my home at that time, Ithaca, New York. The driver took a righthand turn onto a state highway and pulled directly in front of an oncoming car. I was sitting in the front seat, where, unfortunately, the seatbelt was not working. When the other car hit ours, I was thrown through the back windshield head first, and our car was flipped upside down on its hood. My first memory after the impact was looking out the window and seeing blood dripping onto the ground from my scalp. A paramedic talked to me and explained that the "jaws of life" was being used to extract me from the vehicle. Carefully, they loaded me onto a stretcher and into an ambulance, concerned that I had sustained spinal injuries.

  The doctors were amazed that the cut on my scalp and one on my wrist were my only injuries. I received a few stitches at the emergency room, and I was as good as new. For months afterward, however, I could not sit in the passenger seat of a car—even if the car was not moving. But I could drive my own car. As a passenger, however, I found myself continually scanning for oncoming traffic, especially looking to my left—the direction from which we were hit. Only after gradual, repeated efforts to sit in a car's passenger seat was I able to ride as a passenger without debilitating fear. Many years later, while riding in a friend's car, we took a turn onto a busy road and I immediately found myself frozen with fear, in the midst of a seeming panic attack. Only afterward did I realize that the turn was very similar to the one I had experienced in Ithaca, with an upward slope to the road and a store to the right. Although years had passed since the accident, the emotional impact was as fresh as if the trauma had occurred that very week.

  Traumatic events can program such radically new spots on the dial of consciousness that people suffering from PTSD often feel that they are literally losing their minds. One woman I met with in counseling, Alice, was sexually assaulted and threatened with death. As the man leaned over her, knife in hand, she was convinced that she was going to die. She was powerless to stop the rape and could only close her eyes and blot out the pain in order to cope.

  More than a year after the assault, Alice was seeking counseling because of problems in her relationship with her boyfriend, Jim. Often, when Jim attempted to initiate sexual contact, she found herself flashing back to the rape. On more than one occasion, she found herself pushing him away and screaming, even though she had welcomed the intimac
y only a few moments before. Jim, of course, was bewildered by this behavior and felt that he had to walk on eggshells in any sexual encounter with Alice. Gradually, the distance between them widened, as the problems in their sexual life crept into other facets of their relationship, attenuating all physical expressions of affection.

  Alice could not understand why she was reacting in such an extreme manner. The rape happened a long time ago, she told herself. She felt that she should "get over it." Yet, it continued to intrude in the most unexpected and disruptive ways. Just before their first session with me, Jim had made plans to stay home from work to be with Alice on her birthday. When he showed up at her house with surprise gifts, she became angry that he had sprung this on her without notice. Jim, taken aback at her reaction, became teary eyed, making Alice feel horrible for having hurt the man who so obviously cared for her. "Why am I doing this to him?" she asked in our first meeting.

  Prior to the rape, Alice had been comfortable with sexual intimacy and was known to most people as a cheerful, carefree individual. By her account, and those who knew her well, the rape changed her personality. What was clear was that a variety of situations were sufficient to trigger Alice's reexperience of the rape. These included obvious triggers, such as physical touch, but also included seemingly innocuous situations, such as surprise. Any situation in which Alice felt out of control potentially served as a trigger, eliciting a complex set of responses, including anxiety, anger, and self-loathing.