The Fear of Loss of Control: Type A Personality Meets the Uncertainty of Trading

[Rande Howell 10]

by Rande Howell

www.tradersstateofmind.com

 

David had never known fear he could not conquer before now. Both as a competitive karate champion and a business man, he had controlled his fears - not allowing them to get in the way of victory. David was a very successful, "large-and-in-charge" executive. There was no mountain he could not climb and no situation he could not conquer. By sheer will power and a commanding presence, he could set a goal and make it happen. And he had the success to prove it.

 

He had sold his business, and, with a large amount of cash he was ready to attack his next venture -- trading. He believed that all he had to do was to learn a methodology and he was ready to take on trading. In his mind, trading was just another challenge to master.

 

Three years later, he had hit a brick wall. He was not losing much, but he was not winning either. Instead, David was losing his nerve once he entered a trade. After entry, he often became so frazzled with a trade initially bouncing around that he lost his nerve and would bail out on a trade before it could refresh.

 

This aspect of the uncertainty, so common to the trading world, was an alien concept to him. He had always been able to conquer doubt. By sheer will, he had forced his way to success. But trading was a very different world, with different rules, than the world he knew. David saw the handwriting on the wall. It was time to re-tool his skills.

 

A Need to Control Uncertainty

 

David’s problem is that he has been successful in other domains of performance. He is so comfortable with his belief system (which had, after all, produced success in one area of his life) that he is now oblivious to what produces success in trading – particular managing uncertainty. And it is a problem rooted in both his biology and psychology.

 

David’s brain, like any brain, is going to avoid chaos or uncertainty and will organize the mind to seek certainty as a way of ensuring survival. This is called adaptation. Once the brain locks in on a successful strategy for creating certainty in a world of uncertainty, it habituates the solution in a self-fulfilling pattern. These hard-wired patterns become our beliefs from which our psychology arises.

 

Listen to David as he explains his Type A Personality:

 

“My wife calls me a control freak. And I do need to control things. For my entire life I have felt that I have to be in control. And this attitude worked. I thought it was me, but I have learned that this need to control was the way my brain adapted my sense of self to the circumstances of my life.

 

When I was growing up, I had to be in control. After my parents divorced, I lived with my mother and we were hard pressed to keep a roof over our heads. Mom worked three jobs and I was in charge of the house, and my sister, by the time I was eight years old. If I had not been in control, things would have fallen apart. And that was not going to happen.

 

It’s these very traits that formed me. When I left home, it was just natural for me to be in control and to run things. I had a gut sense of how to manage and overcome challenges. This served me well until I began to trade.”

 

Biology Meets Psychology of Trading

 

David's brain adapted him to successfully negotiate the difficult circumstances of his formative period. This adaptation of self, his predisposition, was a perfect set-up to become a successful executive and businessman. His control-centered Type A Personality had served him well in business and competitive sports.

 

Here’s the glitch, though. The pattern-producing brain, always biased toward creating the feeling of certainty, had created pre-conditions that were counter-productive in the world of trading. In trading, there is no controlling uncertainty by using sheer willpower. Rather, a successful trading psychology is built around the management of uncertainty – not its control.

 

To become success in the domain of trading, David (and all traders) must build a new psychology where uncertainty is at first tolerated and later managed. Because your brain is mandated to create a feeling of certainty out of the uncertainty of life, a trader will have to build a new psychology intentionally. Your brain was never built for trading where the trader understands that he cannot control the outcome of the markets – he can only control how he responds to the market’s action. This is where there is a great divide - between the pre-disposition of our brain’s desire for certainty and our mind’s need to manage ambiguity.

 

David developed his psychology by being born into a particular history and adapting to it successfully. The brain will always lock in this success as self-fulfilling pattern. It then becomes the way our mind perceives the world. For traders who refuse to change the way they perceive ambiguity, they will always fear uncertainty.

 

This is David’s dilemma – giving up the illusion of control. His Type A Personality has been a very successful adaptation – so it is hardwired into his neuro-circuitry as a self-belief. Yet this belief that the outside world can be controlled and made to conform to your vision does not work in trading in the markets. Trading requires a very different emotional and mental disposition. It requires that you develop a mindset that allows you to take what the markets are willing to give you.

 

Reconstructing a Mindset

 

David is in the process of re-tooling his mindset. He is moving away from trying to control events (so successful in his previous career) and embracing a mindset built to manage uncertainty. What he has come face to face with is his fear of uncertainty. He calls this, “the glitters”. The environmental pressure he grew up in was all about controlling the potential of chaos to destroy his mother’s home. Later, as it became the shaper of his psychology, it evolved into a generalized need to have the power to force things to go his way. It is this fear of uncertainty, and the way a trader deals with ambiguity, that has to be re-understood so that a more effective mindset can be developed for trading.

 

As David embraced emotional regulation training, here is what he is now saying:

 

“Focusing on my breath during my trading the last few days has definitely helped me keep my wits about me, but I can certainly feel the fear response trying to take over so I know I have lots of work to do! I see that when I enter a trade, I am no longer in control. I can’t make it do what I want. I am seeing my need to control comes from how I learned to manage uncertainty. Once I experienced uncertainty, it was a short ride to my fear of loss of control. I can interrupt the pattern from taking control of me now. But I’m a long way from being comfortable with not having control over external events. What I am learning is that I can have control over how I respond to the uncertainty of not being in control. Once you’re in the trade, it requires a different mindset.”

 

Learning to interrupt the arousal of anxiety by breathing and relaxation, David is now acknowledging the honest fear behind his need to control. With his biology of fear calmed down, he is learning to soothe his fear rather than push it away. He no longer is beating himself up when he triggers to fear. He is recognizing that he is simply bringing his learned dispositions that have been on automatic into his trading. Now when these pre-conditions trigger, he has the opportunity to re-train them.

 

He is learning both on a psychological level and a biological level that fear, like risk, is to be managed, not controlled. He watches for the tell-tale signs of an emotional hijacking – eyes bulging, tense muscles, breath held, and a clinched fist. He interrupts this bio-emotional arousal before his mind is hijacked. He then soothes his fears by talking himself down. And he acknowledges that, once he enters the trade and takes off a chunk of the risk at the first ping, he is not in control anymore. He had control until he pulled the trigger. Now his job is to manage his reaction to uncertainty. But my staying calm, his mind is no longer being overwhelmed by fear when he does not have control of outcome. He takes on the mindset of a defensive coordinator rather than an offensive coordinator – which is far more comfortable.

 

He is learning to shift psychological gears from the kind of mindset that evaluates set ups that give him an edge to a mindset that manages the emotional turbulence that can come when capital is actually at risk. In the first mindset, discipline and impartiality are needed to spot the opportunity and to act on it. In the second mindset of managing the trade once capital is committed, a heavy dose of self-soothing is required to keep the uncertainty of managing the risk from snowballing into fear or panic. This is the intersection where trading, biology, and trained psychology meet. It did not come natural for David, self admitted Type A control freak that he is. But, as he discovered, he is trainable.

 

The skill sets he learned included emotional regulation, mindfulness, and internal dialog management. He also had to re-discover and develop a self-soothing aspect of himself that he had never used before. He discovered that self-soothing was a powerful internal strength that every trader needed to develop to keep his mind thinking clearly during the ambiguous times of riding the trade. By learning how to do this, his trading is far less stressful and more profitable now.

[joshdance 10]

Nice article Rande, especially the next to last paragraph, great stuff.

[pat15 10]

Great article ...Thks for posting it.

 

Pat

[gosu 10]

Is Dave a real person or a hypothetical?

 

What exactly is meant by "self-soothing"? Will you give an example?

[livernik 10]

Very good article. May be I feel what it means by self soothing, I expect anyway more details about , as this point is critical. Successfull traders had this as a "gift"or have trained themselves to arrive to this point ?

[Rande Howell 10]

Is Dave a real person or a hypothetical?

 

What exactly is meant by "self-soothing"? Will you give an example?

 

Dave is actually a client of mine with a different name. And I lifted material from my notes to write this article. I change names for protection of client's privacy. Dont think he'd like his laundry spread out for the TL crowd to pontificate about.

 

Self soothing is a term I use for self compassion. The emotional state of compassion is the emotion that actually teases apart fear based self limiting beliefs so that the belief (also about self) can be reconstructed into a higher functioning belief.

 

As an example, consider what happens when things go wrong in a trade. You'll notice that most traders beat themselves up whenever they make a mistake or are on the wrong side of probability in a trade. It is this "beating self up" that keeps the self limiting belief in persistance. The more you beat yourself up, the more embedded the belief pattern is. Self compassion, self soothing, mollifies the fear so that the meaning that has fused to the fear can be changed. It's a very unique emotion in its capacity to change beliefs. In the Christian Bible you will notice that Jesus is moved by compassion when he performs miricles (changes the person's self beliefs). Nelson Mandela used compassion as a tool to change aparteid. Compassion is strong stuff in the hands of a skilled practitioner.

 

In the same way that fear is inherent to the human condition, so is self compassion. It's a matter of emotionally regulating the fear and intentionally seeing through the eyes of self soothing, discipline, courage, and impartiality -- which are also inherent to the human condition. It's a matter of the intentionality that you can consciously bring to the trading mind.

 

What was remarkable about David is that his belief system was not rigid as most Type A's are. Men tend to be stubbornly resistant to any thing beyond their current comfort zone. Most pretend that they can "leave their emotions at the door". And there is a hard edge about this group. The truth is that as long as you are alive, emotions will guide thinking. Thinking and emotions simply are not separate from one another. If you buy into this assumption, it becomes vital that the trader become emotionally intelligent and intentional in their use. Not just in trading, but in the rest of your life.

 

Rande Howell

www.tradersstateofmind.com

[Rande Howell 10]

Very good article. May be I feel what it means by self soothing, I expect anyway more details about , as this point is critical. Successfull traders had this as a "gift"or have trained themselves to arrive to this point ?

 

The potential of our humanness is enormous. Fear tends to be the factor that most limits our capacity to change. Self compassion is a necessary tool for reinvention of the self.

 

Some people are simply born with a disposition suitable for trading. Some grow up in families where risk evaluation is encouraged.. Jan Arps is such a guy as is his son Hawk. When they trade, there is a natural imparitiality.

 

Most don't come equipped off the shelf with this temperment. It has to be developed. Fortunately there is ample proor that the traits needed to trade consistently can be taught. First stop is emotional regulation. Unless fear is managed, your potential stays locked up.

 

Rande Howell

www.tradersstateofmind.com

[gosu 10]

* * *

In the second mindset of managing the trade once capital is committed, a heavy dose of self-soothing is required to keep the uncertainty of managing the risk from snowballing into fear or panic.* * *

 

Thanks for the reply.

 

I snipped the part of your article that led me to ask what you meant by "self-soothing."

 

You say self-soothing is self-compassion. Pardon me for being a bit dense, but if I replace "self-soothing" with "self-compassion" in that sentence, I'm not much better off in my understanding.

 

You give an example of what is not self-compassion: self-compassion is not beating myself up for making a mistake or being "on the wrong side of probability in a trade" (I take this to mean the trade was a loser). But if you were to instruct me in how to "keep the uncertainty of managing the risk from snowballing into fear or panic" by the use of self-compassion or self-soothing, what exactly would I be doing? Am I saying nice things to myself while I'm in a trade? Am I thinking how wonderful life is and all is well?

 

Can you be more specific as to how I would use self-compassion to manage a trade in which I'm dealing with uncertainty so that it doesn't snowball into fear or panic? What exactly am I doing, thinking, saying, etc. while I'm in the trade?

[chuckaltair 10]

I read it differently. There was a bit of emphasis on not beating yourself up. In other words, love yourself enough not to do it. Instead use the power of compassion toward yourself such that your focus remains intact, and you don't go off the deep end and compound the errors you have already made by being in a bad trade. Let those feelings go, stay in the moment and make the wisest decision you can with an unclouded mind.

 

I hope what I am saying helps,

 

Chuckaltair...

[Rande Howell 10]

Thanks for the reply.

 

I snipped the part of your article that led me to ask what you meant by "self-soothing."

 

You say self-soothing is self-compassion. Pardon me for being a bit dense, but if I replace "self-soothing" with "self-compassion" in that sentence, I'm not much better off in my understanding.

 

You give an example of what is not self-compassion: self-compassion is not beating myself up for making a mistake or being "on the wrong side of probability in a trade" (I take this to mean the trade was a loser). But if you were to instruct me in how to "keep the uncertainty of managing the risk from snowballing into fear or panic" by the use of self-compassion or self-soothing, what exactly would I be doing? Am I saying nice things to myself while I'm in a trade? Am I thinking how wonderful life is and all is well?

 

Can you be more specific as to how I would use self-compassion to manage a trade in which I'm dealing with uncertainty so that it doesn't snowball into fear or panic? What exactly am I doing, thinking, saying, etc. while I'm in the trade?

 

Self soothing is an element of compassion. Self compassion is the antidote to anger at self or fear (assuming the object of threat is not a biological threat to life and is psychological discomfort). This is why beating the self up after a mistake or loss is counter productive. It does not open us to learning to respond differently. Directing compassion toward the self after a mistake or loss occurs opens the ability of learning beyond the comfort zone that got you in the trouble in the first place. In this vignette David learned during his formlative period to be in control or face chaos. Years later in a trade, he experiences the potential of chaos (losing) and is historically triggered right back into the learned repetoire of perception. In the here and now, he learns to counter act this response to fear by bringing self compassion to the part of himself that had to be in control. And he recognizes that once he is in a trade, he is not in control of what the markets are going to do. This is where compassion is able to calm his fear so that he becomes capable of acting from a higher organization of self. Compassion soothes the fear so that he can act, not from the fear of loss of control, but from the impartiality that allows him to think and act from his trading plan -- which is more about vigilance and defense rather than the offensive nature so natural to him. This is called Emotional Intelligence.

 

Rande Howell

www.tradersstateofmind.com

[Rande Howell 10]

I read it differently. There was a bit of emphasis on not beating yourself up. In other words, love yourself enough not to do it. Instead use the power of compassion toward yourself such that your focus remains intact, and you don't go off the deep end and compound the errors you have already made by being in a bad trade. Let those feelings go, stay in the moment and make the wisest decision you can with an unclouded mind.

 

I hope what I am saying helps,

 

Chuckaltair...

 

It's accurate for sure.

 

Rande Howell

www.tradersstateofmind.com

[gosu 10]

So basically you are speaking of a general attitude. Got it.

 

I misunderstood the meaning of what you wrote. I saw the reference to managing a trade and thought you were discussing a specific technique.

 

I suppose "Don't beat yourself up" is specific enough. But that is so basic that it should be a given.

[joshdance 10]

Is Dave a real person or a hypothetical?

 

What exactly is meant by "self-soothing"? Will you give an example?

 

I thought I would post this from Joe Ross's blog, as it kind of fits this thread:

 

Why beat yourself up if you can’t fix something that is severely broken? You can’t put a broken egg back together again, so you might as well make scrambled eggs. Similarly, with trading, you need to fix whatever is wrong with your strategies or methods as soon as possible. You don’t have time to blame yourself for what went wrong. It’s better to concentrate on how you can change what’s going wrong by taking an objective, problem solving approach. Don’t take things personally and emotionally.

 

When things don’t go your way, do whatever you can to change matters, and do it fast. Don’t continually assume that every unpleasant event you encounter is your fault, and that you should take the blame as if you did something wrong. Don’t ridicule yourself for making an understandable mistake. Now, at some abstract level, it may be your “fault.” Ultimately, you are in control, but it doesn’t help you recover from a setback to constantly dwell on how you did something wrong and should be blamed for it. When we take too much responsibility for our actions, we tend to blame and punish ourselves when things go wrong, the same way our parents may have punished us when we were children. When it comes to performing a task, such as entering or exiting a trade, it’s vital to de-personalize or objectify matters. Rather than consider the “meaning” or “personal significance” of an action or event, it’s more useful to think strategically. Concentrate on the ongoing process of trading.

 

So when things go wrong, don’t think emotionally, think strategically. Concentrate on what you can do next to solve the problem. Enjoy the intellectual challenge and rise to meet it. If you can avoid taking setbacks personally, you’ll rise to higher levels of experience, and trade like a master.

[Rande Howell 10]

I thought I would post this from Joe Ross's blog, as it kind of fits this thread:

 

This is kinda like Nancy Reagan's campaign for drug avoidance in the 1980's -- Just Say NO.

 

The problem with this approach is that it doesn't work, though it sounds like it is good advice. Deeply embedded perceptual maps just don't respond to logical problem solving. Changing a habituated engrained emotional pattern that has proven successful requires much more than good sounding advice for change to occur.

 

Many people read trader psychology books , or advice like this, till they can quote them and talk the talk. They know what the mindset is supposed to look like, but they keep their inconsistent ways. But they can't walk the walk based on their performance. They don't understand HOW to change their current perception into an effective mindset for trading. This is what this article addresses.

 

Rande Howell

[joshdance 10]

This is kinda like Nancy Reagan's campaign for drug avoidance in the 1980's -- Just Say NO.

 

The problem with this approach is that it doesn't work, though it sounds like it is good advice. Deeply embedded perceptual maps just don't respond to logical problem solving. Changing a habituated engrained emotional pattern that has proven successful requires much more than good sounding advice for change to occur.

 

Many people read trader psychology books , or advice like this, till they can quote them and talk the talk. They know what the mindset is supposed to look like, but they keep their inconsistent ways. But they can't walk the walk based on their performance. They don't understand HOW to change their current perception into an effective mindset for trading. This is what this article addresses.

 

Rande Howell

 

What specifically doesn't work? And what's wrong with "just say no"? Sometimes the best solutions to complex problems are often simple.

[Rande Howell 10]

What specifically doesn't work? And what's wrong with "just say no"? Sometimes the best solutions to complex problems are often simple.

 

Kids keep doing drugs and more of them. The campaign was designed to lessen the problem. That is what didn't work.

 

Rande Howell

[MightyMouse 12]

Kids keep doing drugs and more of them. The campaign was designed to lessen the problem. That is what didn't work.

 

Rande Howell

 

Sure, kids continue doing drugs; however drug use has declined and so has crime over the last few decades. It is hard to measure how much of an impact "just say NO!" had on drug use. There were many factors that helped reduce drug use.

[Rande Howell 10]

Sure, kids continue doing drugs; however drug use has declined and so has crime over the last few decades. It is hard to measure how much of an impact "just say NO!" had on drug use. There were many factors that helped reduce drug use.

 

And Just So No was a joke to most of the people who were in the trenches doing treatment with youth and their families as I was during this time period. We did get a lot of parents in denial who thought their kid would never lie to them or would never do such things. Of course, the same things are happening today.

 

Back to the topic.

 

Rande Howell