The Psychology of Trading

by Brett N Steenbarger

  Dave, again, was off to the races. It was the strangest feeling. He was looking not just at me, but right through me. This time, however, I interrupted Dave right away. "Dave," I said gently, "you already told me that. You're saying the same things over and over again. I can see this is what happens when you study: The same thoughts and feelings keep coming up. We need to figure out what we re going to do to break that pattern."

  "I've already tried that," Dave cried out. "I can't break the pattern. I need something different."

  I could feel my anger rising. Dave and I were in a loop. Each time I suggested a strategy, he responded with a "Yes, but . . . " The more I conveyed the sense that he could overcome his anxiety, the more he seemed to immerse himself in that very state. Dimly, I was aware that Dave needed to be anxious. Emotionally, he seemed convinced that being under stress would keep him "sharp," would help him get through the material—even as he recognized that it was destroying his work. Shifting to a nonaroused state was too threatening. He equated nonarousal with nonmotivation: an absence of focus. He would never allow himself to slow down.

  I couldn't shake my anger, though. It had been there from the very start. The narcissism; the looking right through me; the strange, almost tape-recorded quality of his anxious thoughts; the yes-but response mode; All of it angered me. I could feel the tug of my anger, wanting to lash out, to "interpret" his resistance, and to end this silly dance. I knew, though, that this would be ineffective. Gradually, I found myself becoming as aroused as Dave. My heart was pounding. I shifted in my seat; I felt ready to pounce. But pounce how? Pounce on what?

  I didn't know what to do. Every fiber of my body felt primed for attack. Again, I shifted my position, trying to get comfortable in the large recliner chair in my office. I dared not attack Dave, frustrated though I was. But I couldn't just sit there, growing more agitated by the minute. The thought struck me: This is what Dave is going through—all pumped up and nowhere to go. I had absorbed Dave's state. I had become Dave.

  Without second thought, I left my seat and sat cross-legged on the floor beneath Dave, arms loosely at my side. "Let me think for a moment," I said to Dave, quietly. I closed my eyes and immediately felt calmed, but highly alert. It was as if sitting on the floor had shifted me out of agitation. Strangely, Dave remained quiet as well. The sight of his therapist sitting in an unusual position no doubt raised his curiosity, perhaps taking his attention from his internal worries.

  "I would really like to help you," I said to Dave, looking up from my seat on the floor. "But I can't. You're absolutely right. Your anxiety is different. Other students are worried about failure, and they get stressed out; but what you are going through is much greater than that. That's why nothing works for you. It's not an anxiety problem. It's an anger problem. You're angry; you really hate yourself. Look at what you tell yourself every single day: You'll never get through the material, you're going to fail, you'll never have a career in surgery. Such hateful messages! If this were a simple anxiety problem, I could help you in just a few days. But changing someone's basic feelings about himself is a much more involved job for counseling. There just isn't the time."

  Dave looked stunned, his eyes beginning to mist. He didn't say a word.

  "I wish I could help you," I said softly.

  Tears streamed down Dave's face. He no longer looked anxious. His face contorted with the effort of restraining a sob, he looked down at me. "Why do I hate myself?" he asked, obviously tormented by the thought.

  I didn't respond. The seemingly absurd thought crossed my mind that I was sitting in the "fighting form" posture described by Carlos Castaneda in his adventures with the sorcerer Don Juan. For the life of me, however, I could not recall the specifics of that posture.

  "You have to help me," Dave implored.

  My heart went out to him. This last request was not narcissism, and it wasn't even about the test. It was genuine despair. He was not asking for academic help. He wanted help in caring for himself.

  "Maybe we can try something," I began hesitantly. "It's a long shot, and it's pretty different. But if you're willing to give it a shot, I am, too."

  Dave's eyes widened just a bit as he nodded vigorously. His body was telling me "Yes!" Not "Yes, but." Just, "Yes."

  It was a start.

  CHANGING THE POSTURE OF MIND

  It was not the first time I had noticed a change in posture affecting my state of mind. One of my favorite personal exercises, when I feel myself getting discouraged or depressed with trading, is to play highly uplifting music at a greater than normal volume. It helps if I am wearing headphones, immersing myself in the sound, and if I am standing and moving around. Any normal sitting or reclining position will sustain the stream of internal thoughts and maintain the negative state. So I keep moving to the music, sometimes jogging while wearing the headset. It is difficult to sustain a discouraged state while simultaneously invoking emotional and physical arousal. It is the physical posture and movement, combined with the musical elements, that evoke the new perspective.

  A similar principle appears to be at work when one enters a meditative posture or a position associated with prayer. Having meditated for a while, I often find that my altered state begins shortly after I enter the cross-legged posture, sitting quietly, hands on my knees. Most unwanted emotional states—anger, depression—are associated with typical postures. You can observe them much as you can infer a cat's state from its physical cues: arched back, raised fur, and so on. Your body communicates even when you do not, capturing in gesture and posture a set of private experiences. It is not coincidence, as Lowen noted, that depressed people experience themselves to be no-bodies, whereas individuals of authentic self-esteem project themselves as some-bodies. Depression is a deflation of the body and its vitality.

  My repositioning myself on the floor is a message to Dave, albeit a nonverbal, nonconscious one. Dave's anxiety—his physical tension and accelerated, nonstop speech—is also a conveyed set of meanings. People's problem patterns are communications—often preverbal ones—to self and world. From the Woolworth man's insistence that he is a discount department store ("I am empty") and Mary's efforts to push others away ("I'm afraid of getting too close") to Jack's bad-boy antics ("I'm going to make you deal with me") and Sue's decision to leave school ("I won't be like my mother"), symptoms have meaning. Symptoms are communications to one part of the mind from an Other.

  Dave is caught in a loop of anxiety. Internal pressure to succeed generates fear, which triggers helplessness, which accelerates fear and further pressure. Transiently, he is capable of experiencing other states, but the loop keeps drawing him in. He is stuck on the radio dial of consciousness. In an important sense, he is not conscious. He is lost in his fear, unable to stand above it and select an alternative state. Indeed, he believes it to be necessary, equating a reduction in arousal with a loss of motivation. What is significant about Dave's presentation is not his anxiety, but his immersion in anxiety and the degree to which he clings to his distress. The communication, which I failed to read until well into the session, was unambiguous: "I need to stay vigilant!"

  How many traders act out Dave's very pattern, convinced that the very anger and stress they face will give them the edge in the markets? Is it any wonder that they resist change if they think that decreasing their emotional intensity will also diminish their drive for success? Only when confronted with the real possibility of never changing might they, like Dave, consider trying something different.

  I must say that I felt strangely energized by my posture, sitting on the floor at Dave's feet. The perspective was different, and the sensation of the floor beneath me was unique, heightening my alert state. Castaneda's "fighting form" posture was one of vigilance, sitting in a circle, protecting him from attackers. My own sense of wanting to pounce was transformed into just such a sense of vigilance and heightened awareness once I left the chair and sat on the floor. I no longer wanted to lash out at Dave. The energy was transf
ormed, manifesting itself as a state of profound readiness for action, not unlike the coiled tension of a runner poised at the starting line.

  I had felt this potential-energy-on-the-verge-of-becoming-kinetic before. Often, before major tests, public performances, or important events, I will experience a state of intense physical tension that I can only discharge through pacing. That was how I felt with Dave—not angry, but ready for action.

  "Okay, Dave," I said while standing up. "I'll need you to stand in front of me."

  Dave readily complied. He stood in the center of my office, facing me.

  "What we're going to do is very simple," I said. "Instead of you telling yourself certain things about the test, I will say them to you."

  Dave looked a bit puzzled.

  "I'm just going to say to you the things you've been saying to yourself, okay? And I'd like you to tell me how you feel."

  Dave seemed ready to try anything.

  Slowly, I circled Dave, keeping my eyes directly on his all the time. At times I moved close, too close to him, violating his physical space. My pacing never stopped as I moved around him, repeating his own phrases in a gradual crescendo: "Look at how much material there is for the boards. You're never going to cover it all. You're so far behind, you'll never catch up. You're gonna fail this test big time, and then what are you going to do? There's no way you'll ever make it into a surgery program, and there's nothing else you want to do. Can you imagine what you're going to tell your parents? And are you doing anything about it? No! You just keep freaking out and falling further behind . . . "

  My tone had risen to a near shout. The pacing, the eye contact, and the loud, accusatory tone brought to mind a drill sergeant, breaking down his recruits so that he could build them up. As my litany continued, I could see Dave growing red in the face. He seemed none too pleased at finding himself in the role of military recruit. He didn't say a word, but his muscles were tensing. His face grew taut.

  I picked up the pace and hammered away. "No one else is going through this," I exclaimed. "They're busy studying, and you're just freaking out. You can't even postpone the test because then you'll just have longer to think about it and get totally anxious. Even if you did start studying, it wouldn't matter. You're so far behind you'll never catch up. There's too much material. You'll never get through it all . . . "

  Dave looked ready to explode. He was glaring at me, his face red, his fingers clenched in a half-fist. It seemed to me that he would be able to contain himself no more.

  "AND WHAT DO YOU HAVE TO SAY ABOUT THAT?" I yelled.

  "FUCK YOU!" Dave screamed, his hands held above his head, his body shaking. He seemed ready to strike at any moment, thoroughly immersed in anger toward his tormentor.

  So much for developing rapport in the first session!

  I grabbed Dave by the shoulders. The room seemed alive with energy, both of us vitalized by the physical discharge. "Good for you," I said, looking him deeply into the eyes. "Good for you. You do like yourself after all. You were able to get angry. You were able to say, 'Fuck you!' to those negative thoughts.

  Dave caught on immediately. He nodded in recognition of this unexpected development.

  "Do you think that you can say 'Fuck you!' to your negative thoughts at home, the way you just did here? All you have to do," I suggested, "is imagine that I'm standing over you, saying those angry things to you. Close your eyes, and get an image of me hovering over you, telling you how far behind you are. Then really let it out. I don't care if you wake up the whole neighborhood. Tell that voice in your head, "Fuck you! I'm not going to let you make me hate myself."

  Thus was born an innovation in counseling: Fuck You Therapy. Not as dignified, perhaps, as psychoanalysis or structural family therapy, but it worked. Dave couldn't get relaxed, but he could get angry. And when he was angry, he was standing up for himself instead of attacking himself. He felt empowered, not paralyzed. Anger kept him aroused and motivated, but it did not leave him vulnerable. For him, the physical postures and expressions of anger were much more potent than meditation. Anger allowed him to stay vigilant, and he needed to be vigilant for this test.

  After several days of venting his anger, Dave was able to successfully sit for the exam. He is currently working in the field of his choice, as a neurosurgeon.

  That, however, was not the truly dramatic trance-formation. After all, Dave had been passing tests throughout his education. I was confident he could pass this one. At the end of our session, once we had processed the profane outburst, Dave spontaneously turned to me and called our session to a halt. "Well, I'm taking too much of your time," he stated apologetically, noticing that the clock had gone well beyond the traditional therapeutic hour.

  I wheeled around to face him. He seemed genuinely contrite at having run over his allotted time. "Besides," he smiled, "I've gotta start studying."

  Not a shred of narcissism. The trance-formation was complete: from "See me now" to "I'm sorry for taking your time." Dave seemed at that moment as sensitive and understanding as any medical student. He even smiled when he mentioned studying! Multiple states. Multiple personalities. Multiple information-processing streams. Multiple minds. Through a little profanity and a shift in posture, Dave had found a new spot on the dial.

  CONCLUSION

  Ask the average trader about the psychology of trading, and you are apt to hear some variation on the theme of "You need to eliminate emotion from your trading." As the case of Dave reveals, and as I have shown repeatedly in these pages, this is a very limited formulation. Eliminating Dave's loops of anxiety and negative thinking was critical, but it could not be accomplished by simply ridding him of emotion. Rather, invoking different, more powerful emotional patterns allowed him to shift engrained ones. And physical posture and movement were important components of that shift.

  Traders operate under a distinct psychological handicap: Their work naturally provides them with limited physical activity. Sitting in front of a screen, monitoring quotes while staying relatively still, invokes a very limited range of physical and cognitive states. This is conducive to the maintenance of routines, including self-defeating ones. Odd as it may sound, one of the first pieces of advice I would give to a trader on a cold streak is to process market information in a radically different way. Instead of thinking about the market, talk the trades out loud. Instead of sitting by the screen, pace the office. Instead of continuously following the market, break away from the screen and perform some vigorous exercise. Each shift may be sufficient to help the trader process market action in a new fashion and to act on it differently. If at first you can't succeed, therapist Jay Haley once remarked, try again—then do something different.

  I have encountered many Daves on financial bulletin boards and in chatrooms. They are so absorbed in their anxieties that they cannot properly assess their investments. Every step they contemplate seems fraught with risk: If they buy or hold, they might lose money; if they don't buy or hold, they could lose an opportunity. They beg for advice, but they cannot follow any that is given because any action promises failure. Their response to the world is "Yes, but . . . " and their resulting paralysis yields a harvest of guilt and self-blame.

  Dave was able to successfully sit for his exam because of two important shifts. First, he was able to understand that what he had been experiencing as anxiety was actually self-directed anger. The thoughts "There is too much material; I can't get through it all" and "I'll never be able to go to a good residency if I don't do well on the test" amounted to self-accusations. He could appreciate that these were hostile, damaging communications once I framed them as statements in an interpersonal conversation. When I talked his thoughts to him, making their angry component more obvious, his natural response was to defend himself. The "Fuck you" outburst, combined with his change in posture and facial expression, told me that he had mobilized his self-esteem and moved beyond anxiety.

  Second, Dave was able to shift his anger from me toward his proble
m pattern. Initially, his outburst was directed toward me; I was his tormentor. I quickly praised his profanity, however, and—while he was in his aroused state, with his esteem mobilized—I proposed that he could become angry at his negative thoughts. The "Fuck you" outbursts were now a therapeutic tool he could use to confront his anxiety. If he could stay angry at the negative thoughts, he would sustain a mode incompatible with self-anger. He had been telling himself that he needed to be aroused and vigilant in order to pass the test. This kept him from accepting any relaxation technique. By giving him a way to stay vigilant while defending himself, I was able to help him stay in a constructive mode during his studying and test taking.

  Many traders feel a similar need for vigilance. Day traders and short-term traders of leveraged instruments, such as futures and options, in particular, sometimes harbor an unspoken belief that they need to be on the edge in order to have an edge. Many will even turn to drugs in the mistaken belief that this will sharpen their edge. Unfortunately, the increase in their arousal makes trading an emotional roller coaster in which their dominant experience is a loss of control. I recently spoke to a day trader who recounted the number of smashed computer monitors at his firm. Underlying the tension of trading among his peers was the same anger experienced by Dave. Venting it toward themselves or acting it out against their computers simply reinforced their frustration level.

  Dave's counseling suggests an alternative with powerful implications for traders: Instead of directing anger at oneself or one's environment, it is possible to become angry at one's own problem patterns. Indeed, becoming angry at these patterns is a powerful step toward separating oneself from them and maintaining the stance of the Observer.