This is important because the energy and optimism generated by happiness and personal fulfillment are what sustain the trader’s learning curve. They fuel concentration, and they help traders make the extra efforts that result in superior internalization of patterns. The trader who sustains high well-being is more apt to have the confidence to aggressively pursue good trades and lay off marginal ones. The trader with a positive emotional experience is less apt to make impulsive trades out of frustration and more likely to have the resilience needed to weather losing periods. In short, feeling good is a huge part of performing well, because we function best cognitively under conditions of emotional wellness.
Emotional well-being fuels cognitive efficiency. We think best when we feel good.
As your own trading coach, a constructive step you can take is to track your emotional experience over time. A simple adjective checklist filled out at the end of each trading day can provide you with a sense for whether you are in the emotional zone or swimming against emotional currents. One such simple checklist is shown in Figure 3.1.
FIGURE 3.1 Brief Emotional Checklist
It is not necessary that you feel great after every single trading day. That is unrealistic. Rather, what’s important is the balance, over time, of positive and negative emotional experience. If you’re feeling badly at the end of trading days more often than you’re feeling good, that’s a clear indication that either you’re not trading well—that markets have shifted in ways that you have not adapted to—and/or that you’re not doing a sufficiently good job of advancing your learning curve with clear, achievable goals.
When you take your emotional temperature at the end of each trading day, you also can become a better observer of the specific trading behaviors that aid and damage your mood. I learned to limit my losses on trades when I realized fully—in my own experience—that outsized losses were not only reducing my annual returns, but also ruining my love for and interest in trading. I also learned to focus on trading strengths when I realized that these brought me a deep sense of accomplishment over time. The idea of trading without emotion is hogwash: as long as we care about our performance, our feelings will be engaged when we put our capital at risk and pursue our goals. That emotional engagement can work to our favor if, through our self-coaching, we sustain a positive emotional state, bringing out the best in us.
COACHING CUE
Be particularly careful to track your well-being around times of great life transition: giving birth to a child, buying a new home, moving, undergoing a separation in a relationship, experiencing a death in the family, going through a major illness, etc. Many, many times these times of transition are also times of stress and diminished well-being. Even seemingly happy events, such as giving birth, can lead to enhanced performance pressures and diminished sleep! Adverse changes in financial status are particularly challenging in this regard. Consider reducing trading risk until these situations are placed into perspective and adequately addressed.
LESSON 22: BUILD YOUR HAPPINESS
Two of the essential components of psychological well-being are joy and contentment. It is important to have positive feelings about what we’re doing, but it’s also important to enjoy a degree of contentment with our lives. Together, joy and contentment yield an ongoing sense of happiness.
As the Aristotle quote at the beginning of this chapter indicates, happiness lies at the center of life. When the Greek philosophers referred to happiness, they did not simply mean a positive, sunny mood. Instead, happiness was intimately tied to fulfillment: the sense of actualizing one’s potentials and being the person you are capable of becoming. A happy person in this sense can go through periods of sadness and loss, anxiety and frustration. Indeed, it is difficult to imagine a goal-directed life that does not encounter such obstacles. What contributes to the happiness, however, is the deep sense of being on the right path in life: the sense that you are doing what you’re meant to be doing.
In that context, the opposite of Aristotle’s happiness is not sadness, but rather a certain kind of emotional dis-ease: a vague but pervasive existential guilt that you’re letting life’s opportunities slip by; that you’re settling for less than you rightfully should. Much is written about the negative emotional experiences of anger, anxiety, and depression, but little about this kind of gnawing guilt. It is not so dramatic as a panic reaction or an anger outburst, but it can be equally damaging in its haunting corrosiveness. Day after day, week after week, month after month, to feel like you’re selling yourself short in your career, your romantic relationships, and your personal development: it’s difficult to imagine a durable confidence and self-esteem built on such a foundation.
Conversely, there is a special glow of satisfaction when you’re immersed in a truly fulfilling activity. As a psychologist, those moments when everything comes together and I’m able to make a meaningful difference in someone’s life—those are affirmations that carry me through many sessions of slow, gradual, difficult work. Similarly, to prepare a challenging trade idea, execute it with a plan, and then see it make money yields a kind of happiness that cannot be achieved by the same profits from a dumb luck trade. Pride, not as in overweening arrogance, but as an inner sense of conviction about the rightness of one’s choices, is an important manifestation of Aristotle’s happiness.
Sadly, participation in the markets does not bring this fulfillment to many traders. Yes, they feel pleasure when they make money and pain when they lose it. But they lack the deep, inner sense of satisfaction and joy possible only to those who are pursuing a calling. The reason for this is that they are hoping that profits will bring happiness, when in fact the relationship works in exactly the reverse order. We profit from our life’s endeavors when we pursue our happiness. Just as sexual conquests cannot provide the happiness of a fulfilling emotional relationship and winning a lottery cannot yield the depth of experience possible to one who builds a business, profits on trades do not provide the primary emotional fuel for a trading career. They are the happy results, not the causes of happiness.
Unfortunately, many traders pursue markets in ways that cannot lead to fulfillment. They pursue profits like a pick-up artist goes after sex. Sometimes they score, sometimes they don’t. There is nothing cumulative in their efforts, however: they no more build a career than the barfly builds meaningful relationships. Many times, traders recognize that gnawing existential guilt: they realize that hours upon hours in front of a screen are contributing little or no economic value, but also yielding no ongoing sense of meaning and satisfaction. It’s not that they’re necessarily anxious, depressed, or frustrated. They are just empty.
We can recognize the happy trader because he is immersed in the process of trading and finds fulfillment from this process even when markets are not open. I track the traffic to the TraderFeed blog daily and have long noted that the visitor count drops precipitously when markets close on a Friday and through the weekend. After all, what fun are markets if they’re not open and active? This is the mindset of the trading barfly. The happy trader finds joy in researching and understanding markets, in preparing for the next day and week, in reviewing trading results and tweaking performance, and in generating new ideas and methods. The distinction between week and weekend is as immaterial for such a trader as it would be for a dedicated artist or laboratory scientist. Indeed, it’s not uncommon for these traders to increase their reading during evenings and weekends: they are immersed in the entire process of trading, not just the process of making money from trades.
You will know you’re pursuing your happiness when you are so involved in what you’re doing that you don’t want it to be limited to business hours. When you’re in love with the right person, that love pervades all your activities, not just those in the nightclub or bedroom. When you find deep fulfillment in markets, you live and breathe markets, not just when they can pay you out. A useful self-assessment exercise to carry out during the coming week is to log your hours spent on trad
ing outside of formal market hours and how you feel during those times. Do you get bursts of joy when you find new patterns and ideas? Do you generate a deep sense of mastery and pride when you work on yourself and improve your craft? Do your ongoing efforts at figuring out markets and enhancing your performance bring a sense of pride and satisfaction?
If you’re not spending as much time on trading outside formal market hours as during them, trading is probably not your calling. Can you imagine a priest who spent time on his religion only from nine to five? An artist who only painted when art shows were active? When trading is truly a part of you, contributing to your happiness, you’re most likely to be immersed in the activities that build skills and yield pattern recognition. So much of trading success is finding the niche that sustains such immersion. Trading can be a great job and a potentially lucrative career, but only if it’s also a calling.
COACHING CUE
Many traders confuse contentment and fulfillment with laziness and smug self-satisfaction. Out of a fear of becoming complacent, they resist the experience of contentment. As a result, traders are often not content with their progress and fall prey to frustration—and the effects of frustration on trading. You can be content with your progress to date and still be motivated to move forward. The key is setting shorter and longer-term goals, so that you can bask in satisfaction when you reach an immediate objective, but still stay hungry for the larger objectives.
LESSON 23: GET INTO THE ZONE
Most experienced traders know the feeling of being in the zone: seeing markets so clearly that the right decisions seem to be effortless. The psychologist Abraham Maslow referred to these occasions as peak experiences; researcher Mihalyi Csikszenmihalyi refers to them as periods of flow. The hallmark of being in the zone is that the performer feels at one with the performance, executing skills in a highly competent manner, seemingly without conscious effort.
The zone is not an emotional state, though it brings feelings of emotional well-being and certainly can be disrupted by negative emotional states. Entering the zone requires immersion: a total focus on what one is doing. In that sense, the zone is a state of heightened attention: it is the result of being fully focused and involved in an activity.
Note that we can behave automatically—and even in skilled ways—without being immersed in our activity and without experiencing the zone. Repetitive, routine tasks, such as driving a car on an empty road or walking a city street, don’t require particular attention and also don’t usually bring any experience of well-being. To enter the zone, one must expend mental effort at a task that absorbs all of one’s attention. Though performance in the zone may seem effortless, it is far from robotic.
Earlier—and in Enhancing Trader Performance—I emphasized the importance of niche: performing in an area that captures one’s talents, skills, and interests. A good barometer of whether you are operating within your niche is the relative proportion of time you spend in the zone while engaged in performance. For me, those flow experiences are relatively common when I’m writing. Rarely do I operate from a detailed outline. Rather, I think about a topic and let the thoughts and words flow as I type. Similarly, when I’m working with a person in counseling, I’m completely focused on what they’re saying, what it means, and how to use the information to be of assistance. It’s not at all unusual for time to fly by quickly while I’m in a meeting with someone; I’m so immersed in the interaction that I lose track of the passage of time.
I most often find a zone state in trading when I’m actively figuring out markets—absorbing myself in research—and applying those insights to short-term trades. In an important sense, it’s the puzzle-solving aspect of trading and not the placing of trades themselves that captures my attention. If I try to trade in a mechanical fashion without engaging in the problem solving, I find trading psychologically noxious. It’s like talking with people in a superficial social context. There’s no meat on the bones cognitively; my attention remains unengaged, and I stay out of the zone.
One of the most damaging psychological patterns I see among traders is that they attempt to create a counterfeit zone by trading with too much risk. In other words, traders are not intrinsically interested in markets and the process of trading, so they attempt to create interest and attention by making large wagers on trade ideas. This is problematic for obvious reasons: it exposes traders to outsized losses and potential risk of ruin. Psychologically, however, it is also ruinous. Once the trader habituates to one level of risk, a higher level is needed to grab attention and interest—much as addicts require greater doses of a drug to achieve a high. Eventually the trader who needs the excitement of risk to sustain interest in trading has to blow up. This, truly, is addiction, not passion for markets.
More on trading addictions can be found in Enhancing Trader Performance and here: http://traderfeed.blogspot.com/2006/11/dr-bretts-heartfelt-plea-when-trading.html
One of the most effective ways to exit a flow state—or prevent one from emerging in the first place—is to focus attention on oneself rather than on one’s performing. You can’t be immersed in a sexual encounter if you’re worried about your sexual performance. You can’t find the zone in an athletic performance if you’re pressuring yourself to set a record. The trader who focuses on P/L during the trade is, to that degree, no longer market focused. The dynamics of performance anxiety—thinking about the performance while you are performing—is a recipe for disaster if your goal is to operate within the zone.
When I wrote my first trading book, I decided to complete the entire manuscript before I ever had a signed contract from my publisher. I certainly wanted to see the text published, but I wasn’t writing it for royalties or recognition. The book was written for me, to clarify my thoughts and contribute to the body of knowledge within the field. When I wrote in this fashion I didn’t have to worry about how the readership would react to the ideas, whether editors would like my work, etc. I could just focus on the writing. It is very, very difficult to need to perform well and to stay absorbed in the performance. The surest way I could have ruined my writing experience (and my books) would have been to split my attention between generating/writing ideas and speculating about how those ideas would be received. Once performance becomes an acute need, not just a genuine desire, it is nearly impossible to place the outcome of performance in the back of your mind and solely focus on performing.
So it is for the trader. If a trader needs to make money, it is difficult to weather market ups and downs and stay focused on the execution of trade ideas and plans. If today’s trade is needed to provide tomorrow’s food and shelter, there can be no zone: anxiety naturally takes over whenever profits are threatened. Similarly, if I become psychologically attached to profitability, basing my self-esteem and identity upon my trading results, I no longer control my trading experience: market movements are likely to control how I feel. The experience of flow requires a basic level of control over what we are doing.
Perhaps a different analogy will illuminate the issue. My wife Margie and I recently invested a good amount of money in tax-free bonds, taking advantage of a situation in which their yields had skyrocketed above the corresponding yields on (taxable) Treasury instruments and certificates of deposit. Our plan was to lock in these positions as investments, not as short-term trades. Over time, we felt, we would benefit from attractive yields and possible capital appreciation as tax-free yields fell into line with those of taxable instruments. We could make this investment comfortably because it represented less than 10 percent of our savings. Our remaining capital was diversified in other investments, working for us even as our bonds might move against us in the short run. We could stay focused on our overall investment plan because we were so diversified that we didn’t need any one position to perform wonderfully.
Diversification, in life and markets, reduces performance pressure and allows us to become immersed in what we are doing.
Similarly, a trader who risks a small portion
of her account on a trade can stay focused on executing an overall trading plan, because there is no acute need for that position to work out—and no acute threat if it fails to work.
This is a psychological paradox: To best focus on any single performance, it helps to be diversified among performances. If I have a successful experience as a father, husband, and psychologist, I don’t need my books to sell well or my trades to make money. It is precisely that emotional diversification that enables me to stay focused on my writing and trading and achieve satisfying returns from them.
As your own trading coach you don’t need to spend more and more time, effort, and emotion on markets. Indeed, if you place all your psychological eggs in the trading basket, it is a sure way to burn yourself out and stay out of a performance zone. Rather, you can best coach yourself by ensuring that trading is one among many fulfilling activities within your life. Other eggs might go into the baskets of spiritual interests, artistic activities, athletic pursuits, social life, intellectual life, family, community, and hobbies. If your life is full in those ways, you are best able to weather ups and downs in trading performance. You no longer need trading to work at any particular point in time, so you become more able to focus on the process of trading and generate and execute good trades.
So this is your assignment: Give yourself a grade for how much interest and satisfaction you’ve been achieving from the areas of life mentioned above. How diversified are you in your sources of well-being? Then select one area for cultivation to improve your emotional diversification. Not only will you find a new source of enjoyment and accomplishment, you will also lay the psychological groundwork—the inner sense of security and fulfillment—to find and stay in your performance zone.
The Daily Trading Coach Page 11
