The Psychology of Trading

by Brett N Steenbarger

  When Joan first entered the office, she looked haggard. She acknowledged that she had not been sleeping well, and she said that she had been binge eating and forcing herself to throw up the food. It became a vicious cycle: She would feel depressed, eat to make herself feel better, feel guilty for eating, throw the food up, then feel depressed about her out-of-control behavior. Recently, she said, she had been losing valuable study time staring into the mirror, evaluating her body.

  "So tell me what happens in front of the mirror," I suggested. "What are you thinking and feeling when you're standing there and looking at yourself?"

  "I feel disgusting," Joan replied. "I don't like the way I look."

  "Could you take me back to a specific time, recently, when you were standing in front of the mirror feeling disgusting?" I asked. "What were you thinking? What were you feeling? Try to put me in your shoes."

  This is perhaps the most common question I ask in therapy: "Could you give me an example?" Talking about specifics helps to bring people closer to their experiences, toward a heightened emotional and physical state. Conversely, when people are overwhelmed by emotion and in serious crisis, I will stay as far from specifics as possible, trying instead to help them understand their feelings conceptually. Knowing when people come to counseling with too much structure—hiding their experiences—and when they are flooded with experience and need structure is a crucial element of helping. It's back to that idea of comforting the afflicted and afflicting the comfortable.

  Joan looked away. "I don't know," she said. "I just don't like myself."

  This is more of that Freudian "resistance." It is too painful for Joan to reexperience her moments of self-loathing, so she avoids my inquiry. By talking in generalizations, rather than entering into the emotional specifics of her times in front of the mirror, she is protecting herself from anxiety. Resistance to change, as I mentioned earlier, appears to be a fundamental feature of human consciousness, not just a response to anxiety, as in Joan's case.

  It turns out that anxiety is an interesting phenomenon. Anxiety is generally thought of as a negative emotion, but it has its uses. The first therapist I ever had was Elizabeth Hoffmeister, a Jungian analyst in a small Kansas town. She was a sensitive, intuitive woman with a true gift for dream work. One day, after I had been rambling on in my ridiculously intellectualized way, Liz noted my avoidance and suggested that I embrace anxiety. We tend to be afraid of the unknown, she offered, but that is where our growth lies. We can't grow if we stay with the known, the routine, the familiar. It was from Liz that I developed the recognition that the path to growth lies in following your anxiety, in venturing into the unknown.

  This is why it is not especially helpful to spend countless hours in sessions interpreting and analyzing resistances. Such work only helps to further distance people such as Joan from their emotional experience. Many times, through gentle pressure, the resistances can be challenged, opening the door to the person's rich emotional world. Indeed, the mere act of pushing past a resistance can, by itself, dramatically alter an individual's state and provide access to memories and perceptions that had long been hidden.

  "Joan, please look at me," I requested. She immediately returned my gaze and I held it for a second. "Now, please close your eyes and use your imagination. You have come home from a long day at school. You haven't eaten all day, so you have had a large dinner. You feel a little full, and that reminds you of your weight. You get on the scale and look into the mirror. You've taken off your clothes. You're looking at your chest, your midsection, your hips, your thighs. What do you see?"

  Joan was visibly uncomfortable with the evocative imagery. "I hate how I look," she cried out. "I look fat and disgusting. I can't go out. I don't want anyone to see me like this. I don't even like wearing my clothes. They feel tight after I eat. I just want to disappear. I feel gross." Joan's face was filled with anguish. There was no question that she saw herself differently from everyone else. Her body repulsed her, and she longed to lose weight. Nevertheless, she sabotaged every effort to successfully manage her food intake. What grabbed my attention most, however, was that she was tensing her muscles and digging her fingers into her skin as she talked, as if to hurt herself. Her words were saying "upset" and "pain." Her body, however, bespoke "anger."

  Her pain truly tugged at me. I was tempted to try to reassure her, to tell her that she isn't disgusting; but I realized that this would be the wrong approach. It was what everyone else had been saying to her, and it certainly hadn't worked up to that point. She would have simply concluded that I could not possibly understand her and would have rejected any offer of support.

  I was also convinced that talking about food, calories, and weight was the wrong way to go. Monitoring her eating and her weight would simply set me up in an unwanted, controlling role, poisoning our work. What was needed was a translation, a way out of this endless cycle of depression and self-hatred, restriction of food, frustration, overeating and purging, and further depression and self-hate.

  Joan's problem, it seemed to me, wasn't so much an eating disorder as a self-image disruption manifesting itself through food and weight. Those tightened fingers, I suspected, held the key.

  "So how are you doing in school?" I asked brightly.

  Joan looked puzzled, slightly confused by the sudden change in topic and mood. "Okay, I guess," she said.

  "What rotation are you doing now?" Like Walt, all third-year medical students participate in clinical rotations, where they work in various specialty fields, such as surgery, family medicine, and psychiatry.

  "I'm doing OB," she said. "I really like it."

  "Great," I enthused. "Tell me something. If you had a patient in OB-GYN who was going through exactly what you're going through—she looked like you do, felt like you do, had the same problems with food and weight and self-esteem—what would you say to her? How would you treat her?"

  Joan answered immediately, smiling at the recognition of where I was heading. "I would try to help her not be so hard on herself. I'd hold her hand and tell her that she could be a wonderful person no matter how much she weighs." Joan's tone of voice had softened. She sounded compassionate.

  "Really?" I did a mock double take. "That's what you'd say if she looked and felt like you? You wouldn't tell her that she is disgusting, that she is gross, and that she shouldn't go out in public?"

  Joan laughed out loud. "No, I wouldn't say that."

  "Why not?" I asked. "It would be true, wouldn't it? Why would you lie to your patient? Why would you say that she can be wonderful when in fact she's not?"

  "It would be mean!" Joan exclaimed, as if stating the obvious. "You can't do that. It would make the problem worse. It wouldn't be right to judge her just because of her looks. It would be shallow."

  "Are you shallow?" I asked.

  "No, I don't think I am," Joan said firmly. "I think I'm good with my patients."

  "I have a feeling you're right," I said. "You would try to see your patient for whom she is, not just for her looks or her weight. You would be kind to her, you'd take her hand, and you'd reassure her."

  Joan nodded.

  "So why is it mean and unprofessional to treat a patient harshly but okay to treat yourself that way? Why are you automatically less deserving than any patient walking in the door?"

  For a moment, Joan's face went blank, her eyes filled with puzzlement. A tear started to form in her eye. "I don't know," she said very softly.

  REPAIRING MULTIPLICITY

  My goal was to call Joan's attention to her multiplicity—her wildly different frequencies on the radio dial. There is the sensitive, caring, Professional Joan, who is competent and supportive. Then there is Angry Joan with the clenched hands, gouging herself emotionally for every perceived shortcoming. When dealing with others, Joan can access her caring feelings: Professional Joan is much too concerned with being a successful student to say anything hurtful to a patient! But when dealing with herself, looking in the mirror,
Professional Joan is submerged. In her place is Angry Joan, a vindictive, destructive person beset by her internal demons.

  It was fascinating to see the transformation in my office. When speaking of herself, Joan was anguished, her voice and face tense, her posture rigid in the chair. Although her words spoke the language of depression, her face and body spewed rage and contempt whenever she spoke of her appearance, her weight, or her ambivalence toward food. When asked about her clinical work, however, her voice immediately became more matter-of-fact, direct, and smooth. Her posture eased, and she spoke with assurance. As with Mary and Walt, it truly was as if a different Joan had entered the room. But she seemed unaware of any of it. The transitions between Angry Joan and Professional Joan were seamless.

  In the face of such duality, it became crystal clear that Joan's problem was not her eating or even her self-loathing. Her problem was her vertical split: the fragmentation of her being, her inability to access that part of her that was capable of reaching out and holding a hand. When she was immersed in her punitive self, she could not recruit her caring capacities. That prevented her from treating herself as she would treat a patient, a best friend, or a loved family member. If she could gain access to her professional, helping self when she dealt with eating and body image, she would have a powerful counterbalance to her angry, frustrated self. She wouldn't need to turn to food for gratification if she could cultivate the kind of relationship with herself that she enjoyed with her patients.

  So it is with many traders. In other facets of their lives, they can process information rapidly and effectively, making constructive decisions and successfully navigating risk. In their trading, however, they find themselves repeating destructive patterns. Even when they are aware of these patterns, they cannot seem to control or to change them. They are locked on the radio dial, unable to find the knob.

  TRIGGERS

  Before exploring how Joan was able to bridge her divergent selves, take a look at the role of triggers in the shifts that occur among these selves. Triggers, it turns out, are the great saboteurs of trading.

  Recall Chapter 8 and Alice's experience with the sexual assault. A number of triggers, some quite subtle, were sufficient to return her to the thoughts, feelings, and impulses associated with the traumatic event. When I experienced my automobile accident, many triggers set off my subsequent anxiety: sitting in the passenger's seat, making a righthand turn, seeing cars approaching from the left, and so on.

  Although consciousness is generally conservative, keeping people locked into their normal frames of mind, powerful emotional events that are associated with particular cues can cause radical shifts. These cues become triggers for modes of processing that are quite different from the norms. Indeed, many clients in therapy—and many traders—recognize that their behaviors don't fit their usual personalities and are quite upset about that. They recognize that they have lost a measure of control over their lives.

  One of Joan's triggers was simply the feeling of fullness following her dinner. She was quite busy during the day and did not have time for a complete lunch. As a result, she was hungry by the time she got home. She ate a good meal and at some point felt the sensations of fullness. This full feeling made her cognizant of her body and evoked the feelings she had experienced following bingeing episodes. Worse still, the fullness was associated with sensations she had experienced when she had gained weight. On the heels of these associations, Joan immediately became self-conscious and felt fat. The trigger of fullness became a switch that activated her negative sense of herself.

  Problematic trading is often triggered in very similar ways. The trader who finds himself or herself placing orders impulsively is like the traumatized individual, reacting to stimuli in exaggerated ways. Some of the most common triggers for shifts in trading are those associated with distinctive emotional states. Consider the plights of the following traders:

  •Trader A experienced a harrowing downturn in the crash of 1987, wiping out a significant portion of her equity. Now, when the market moves against her, she finds herself overcome with anxiety, unable to sustain even a normal drawdown. This leads her to bail out of positions at the least opportune time, generating feelings of failure and shame.

  •Trader B was unpopular as a child because he was overweight and not athletic. Later in life, he was also unpopular with members of the opposite sex. He spent much of his adolescent and young adult life feeling bored and rejected. Now, as a trader, he finds it difficult to tolerate dull, flat markets where there is little volatility. He chronically overtrades these markets, undergoing one whipsaw after another, until he throws in the towel—and misses the eventual trending move.

  •Trader C experienced the thrill of a major market coup early in his career, riding a high momentum stock to a massive gain, adding to his position along the way. Now, whenever he experiences a healthy gain on a position, he finds himself reliving his thrill and impulsively adding to his position. This makes him vulnerable to the inevitable reversals in his positions, which occur when he is maximally leveraged.

  • Trader D finds that she responds to heightened market volatility with anxiety, even though the move may be in her forecasted direction. If she is not onboard the move when it begins, her anxiety is channeled toward self-recrimination over having "missed the move." This paralyzes her from making a high-percentage entry in the new trend and leaves her internalizing a potentially winning situation as a setback.

  In these and so many other cases, the swings of the market act as triggers for mind shifts among traders. This fits nicely with the biofeedback research of Lo and Repin, who found that even experienced traders show heightened arousal in response to trend and volatility changes in the markets. Like Joan, these traders may go through much of the day functioning at a high level, feeling good about their work. Once the trigger is activated, however, another self takes over, leading them to process information about themselves—and about the markets—quite differently.

  A great deal of seemingly irrational trading behavior is a subconscious attempt to avoid these destructive triggers. Restricting her eating was Joan's way of avoiding the trigger of feeling overly full. Tensing my muscles until they hurt while I am a passenger in a car was my way of steeling myself against an anticipated accident. Selling winners far too early is a defense against the anxiety of a drawdown; impulsively entering positions protects against those self-recriminations if an opportunity is lost. Tacitly, people know their triggers and fear them. Like Joan, traders will take extreme actions—even those that hurt their profit/loss statements—to avoid the triggers. For the bored trader sitting in the middle of a flat market, even the arousal of getting whipsawed feels preferable to the deadening sense of feeling powerless, like a loser.

  How can traders overcome these triggers and their associated patterns? Perhaps they can replace them with alternate triggers: ones that elicit positive action patterns. What if they can create triggers for their solution patterns, so that they could cue these on demand?

  JOAN'S LULLABY THERAPY

  That was my strategy with Joan.

  "I have an exercise I'd like for us to try," I explained to Joan. "It's going to sound crazy, and you'll probably feel weird doing it." Joan glanced at me nervously.

  "I want you to begin your psychiatry clerkship early," I stated. "I want you to begin working with your own patient in psychiatry. Can you do that?"

  Joan seemed completely befuddled. This made her all the more attentive.

  "Listen very carefully. I want you to sit back and close your eyes. Breathe very deeply and slowly. Get yourself very relaxed. Now I want you to form an image in your mind of your new patient. Her name is Joan. She grew up in an achievement-oriented family, in which she received praise for doing well, in school and in sports. When she didn't do well and didn't receive the same praise, it hurt. So she got it into her head that she has to be perfect. She has to be a perfect student; she has to look perfect; she has to have a perfect body. B
ut, of course, she's not perfect, so it's a trap. Whenever she falls short of perfection, she feels bad about herself. She's become very conditional in her feelings about herself. If she's not perfect, she's no good. Try to hone in on that image of your patient, Joan. She is hurting on the inside, wanting praise and acceptance. She is trying so hard to look just right, to act just right to get that praise. Can you see her in your mind?"

  Joan was clearly uncomfortable. It seemed as though she were making an effort to not cry. "Yes," she said, her voice cracking just a bit.

  "What does she look like?"

  "She's little. She's a little girl. She's in her bed."

  "What is she doing in bed?"

  Joan smiled slightly. "She's doing what I used to do. She's holding a bear and listening to a song. A lullaby. It's the song my mom used to play when I got upset. She'd hold me and rock me, like I was a baby."

  "Good. Now let's add to that picture. Try to get an image in your mind of grown-up Joan the medical student, the doctor-to-be. Imagine how she looks with her white coat on, the stethoscope hanging from her neck. She's walking from patient to patient on her rounds, stopping to talk with each one, helping them feel a little better. Can you play a little movie in your head, sort of like a tape you play on your VCR, and see her working with people in the hospital?"

  "Yes, I can." Joan's tone was a little brighter.

  "Now keep your eyes closed. We're going to hit the pause button on that VCR and blend the images. Joan the medical student, the doctor-to-be, is going to walk into the room of Joan the patient, Joan the little girl with the bear who tries so hard to be perfect. Can you see that in your mind? Can you see Joan the doctor coming over to the bed of hurting Joan? You're walking in the door, you see her on the bed in front of you, bear in hand . . . What do you see happening?"