Spend a Little Time on You

[TheNegotiator 13]

One thing that really gets me is when people say that a trader should spend the majority of their time working on themself and their own psychology. However, the common ambiguity of such a statement leaves those who are new or fairly new to trading not knowing where to start. It's equivalent to saying you should spend your time on technical analysis. How though?!?!? What in particular is a useful way to go about "spending your time concentrating on yourself"? I’d like us to explore specifics of how someone might work on their psychology.

[TheNegotiator 13]

So what can we look at?

 

1) Who are you? What is your personality and what are your strengths/weaknesses?

Take a look at the Van Tharp trader personality test here is possibly a good start. Identifying exactly why you want to trade is another aspect to consider. Are you in it for the glory or do you have a great passion for trading? Having a good driver behind your will to succeed is perhaps the most important skill a new trader can have, because like it or not you will fail over and over again along the way.

 

2) I find that the most revealing interaction I have with the markets is in the heat of the trading day. Those actions that you are almost compelled to do by some higher force. Why don’t you take a stop? Why do you take those half-baked spur of the moment trades? Why can’t you stop yourself doing them. Emotions are a powerful thing. Usually these particular ideas come down to fear. But fear can be a subtle thing, creeping up on you until the crescendo of the actual trades you take.

 

3) What tend to be more subtle about fear are the passive actions you take. I’m not really talking about the trades you pass on. I’m more interested in everything you do (or don’t) in support to the actual trading. Journaling, making a good risk plan and preparing thoroughly for the day are some of these. Part of how “the fear” affects humans is not only seen in how they react in certain situations, but also an avoidance of situations which might present opportunity to be wrong, to lose out or to have that fragile ego bruised.

 

So what can we do to work on these particular points?

 

1) Understand there are things you will be fearful of or uncomfortable with. Think of situations in the past where you felt like this and the outcome was good. Maybe you went for an interview and in spite of being very nervous and worried, you got the job. Use this experience and accept that you are going to feel fear and discomfort in trading. This way, at least when it rears its ugly head, you aren’t taken by surprise.

 

2) Analyze where you believe the problems caused by emotions lie and explore them thoroughly. Try to trace a route back as far as you can. The first step to fixing the problem is fully identifying why it is happening.

 

3) Create a plan of how to deal with certain situations which are a result of the problem. A method of centering or rebalancing is perhaps a particularly helpful idea to explore. Meditation is something which may be of help, although again this is something which takes practice.

 

4) Journaling and collection of stats coupled with periodic review, is important to gauge progress and motivate you to improve more. It can also help uncover other issues and areas in which you excel.

 

5) Embrace failures as a vessel of learning. Mistakes cost $, so make sure those lessons are learned and you aren’t the student who has to keep paying for the same lessons over and over again.

 

Finally, fear is about not trusting yourself to do the right thing in something you either aren’t experienced in or are just not very good at. Think about when you learned to ride a bike. How nervous and worried and even fearful were you at first? In any way, do you feel the same emotions now when you ride your bike? In any way, have the intrinsic risks of riding a bike changed between when you couldn’t ride it and now? The change is you. You are the risk.

Edited May 25, 2012 by TheNegotiator

[Obsidian 10]

What does cause fear?

from what I've seen:

-lack of knowledge

-lack of experience

-trading with high leverage

 

learning how to ride a bike does not mean you will become a famous champion;)

[TheNegotiator 13]

What does cause fear?

from what I've seen:

-lack of knowledge

-lack of experience

-trading with high leverage

 

Those are some mechanical aspects to causes of fear, but there's definitely more to it than that.

 

learning how to ride a bike does not mean you will become a famous champion;)

 

Absolutely. But if you approach things in the right way, could you not? What separates the champion from anyone else? Sheer natural ability? In some cases, perhaps. But it's my contention that it is more often about mental approach than pure natural talent. Look at sportsmen. How often are the ones at the very top also the most naturally talented of the pack? Sure they have talent. But it's about how they harness that talent.

[Obsidian 10]

Those are some mechanical aspects to causes of fear, but there's definitely more to it than that.

 

Absolutely. But if you approach things in the right way, could you not? What separates the champion from anyone else? Sheer natural ability? In some cases, perhaps. But it's my contention that it is more often about mental approach than pure natural talent. Look at sportsmen. How often are the ones at the very top also the most naturally talented of the pack? Sure they have talent. But it's about how they harness that talent.

 

I do not think trading depends on talent...Education, Practice, Availability make things different...

[OptionsBaller 10]

Some of the most successful traders I've ever known did not try to hide the fact that they were often completely overwhelmed by fear and or greed. The trick is not trying to eliminate emotion, but doing the right thing anyways

[TheNegotiator 13]

Some of the most successful traders I've ever known did not try to hide the fact that they were often completely overwhelmed by fear and or greed. The trick is not trying to eliminate emotion, but doing the right thing anyways

 

This is certainly one way to think about it. However, the question I would have to ask is whether they are truly experiencing fear/greed or if really they are experiencing extreme aprehension and anxiety over what they know might happen. You see with fear/greed, it's not knowing what the right thing to do is as you either don't understand what the market is doing and/or don't have a robust enough plan to cover all eventualities.

[Baker 10]

can you recommend any books on trading psychology? ive not started trading yet but ive been reading up on certain aspects of it. i took a peak at the book reviews section and you gave The Intuitive Trader a high review. would you recommend that for someone whos just getting into trading?

[TheNegotiator 13]

Something like Douglas' "Trading in the Zone" or any of Brett Steenbarger's books would be a good start. I have to say though, what I found about trading psychology very early on in my trading career was that I didn't really see (or take time to see) the relevance. If someone's starting out, then reading one of these books and bouncing ideas off others in the forums is a great idea.

[Rande Howell 10]

It's not so much about "working on the self", but about knowing the self. Emotional Intelligence is far more important to success that knowledge. Fear and greed are emotions. And emotions are rooted into our biology. They are not psychological -- they take over psychology. An emotion is any disruption to the standard familiar pattern that the brain has already established for interfacing with the environment. Fear is the response of the biological organism that we are to a disruption of standard familiar pattern in our environment that is interpreted as threatening and triggers to avoidance of the stressor. Anxiety is the negative apprehension (thinking) that occurs after fear has hijacked mind and has become standard pattern. Greed is based on the fear of missing out of scarce supplies of food or other essential elements of survival. It is derivative of fear as is anger (attacking the threat).

 

The application to trading is that few people bring the skills needed to regulate the limbic system's organization around fear and its pattern recognition that triggers to fear stressors. It does not distinguish between biological threat and psychological discomfort. Either through experience and/or training, a trader has to learn to sooth the excitory process of the emotional brain so that he can maintain an emotional state of impartiality in his trading. Otherwise primitive processes will prevail. And since most people really avoid digging into themselves and examining their worts, they stay stuck in primitive patterns of perception and action that limit new ways of approaching the enviirnoment in which they live. Trading is a great place to see this resistance to pushing through one's comfort zone. People give lip service to psychology as talk -- they rarely have the insight to confront the basis of their fears organized around managing uncertainty. They read books, have discusssions (all in the head), but then avoid approaching the problem with a mind to change.

 

There is a reason that Gail Mercer of Traders Help Desk requires students of hers to read Mindful Trading: Mastering Your Emotions and the Inner Game. She knows that a trader's psychology is what is using the tools of platform and methodology. She recognizes that her students will never be able to maintain being in the zone, if they can't rewire the brain of old beliefs about being able to manage uncertainty. Building Emotional Intelligence is not an option in trading, it is a necessity. As long as you stay in your head and think, your biology will have an open back door to sabotage perception and trading. Know thyself -- then do something about it.

 

Rande Howell

Edited May 31, 2012 by Rande Howell

[TheNegotiator 13]

One thing that really gets me is when people say that a trader should spend the majority of their time working on themself and their own psychology. However, the common ambiguity of such a statement leaves those who are new or fairly new to trading not knowing where to start. It's equivalent to saying you should spend your time on technical analysis. How though?!?!? What in particular is a useful way to go about "spending your time concentrating on yourself"? I’d like us to explore specifics of how someone might work on their psychology.

 

Rande, my idea for the thread was to try to get people discuss specifics of trading psychology and practical exercises which others might find helpful to improve. Given that you're a trading psychologist, I'm sure you can provide some really revealing and beneficial techniques...

[Obsidian 10]

Strategies for dealing with the incredibly stressful situations:

Ari Kiev Free Podcasts mp3

[zdo 20]

One thing that really gets me is when people say that a trader should spend the majority of their time working on themself and their own psychology. However, the common ambiguity of such a statement leaves those who are new or fairly new to trading not knowing where to start. It's equivalent to saying you should spend your time on technical analysis. How though?!?!? What in particular is a useful way to go about "spending your time concentrating on yourself"? I’d like us to explore specifics of how someone might work on their psychology.

 

...research being undertaken by John Coates, a neuroscientist at Cambridge University and a former derivatives trader, … suggests that hormones drive investment decisions to a far greater extent than economists or bank executives realise. When traders are on a winning streak, their testosterone levels surge, sparking such euphoria that they underestimate risk. When they are acutely stressed, the adrenal cortex produces a flood of cortisol, a hormone that can make them overly fearful and risk-averse.

 

Mr Coates says he was drawn to study these biochemical processes because he wanted to understand the “unbelievably powerful emotions” that make traders “go crazy”. In past experiments conducted on a London trading floor, Mr Coates saw cortisol levels in traders’ saliva jump by as much as 500% in a day. Remarkably, cortisol increased in direct correlation to implied volatility, a measure of expected future variance in asset prices. “The uncertainty is almost worse than the shock itself,” says Mr Coates. “It’s always a lot worse not knowing where the goddamn monster is.”

 

Cortisol prepares humans for danger, partly by helping the brain retrieve important memories. This early-warning system is invaluable in the wild. But raging hormones can eventually wreck investors’ ability to think rationally. Chronic stress over weeks or months can produce so much cortisol that the brain focuses excessively on negative memories and perceives threats where they do not exist. This loss of judgment is exacerbated by other symptoms of stress, such as sleep deprivation.

 

Mr Coates likens this condition to the state of “learned helplessness” identified in the 1960s by Martin Seligman, a psychologist who delivered random electric shocks to dogs constrained in harnesses. Eventually the animals lost the will to escape, even once they could do so.

 

Traders and rodents also seem to have something in common. Place a rat in an open field and its fear is obvious. Although visible symptoms of anxiety gradually disappear its cortisol levels remain elevated, showing that it is more stressed than it looks. Mr Coates has seen a similar phenomenon among traders. In questionnaires they displayed no awareness of the rampant stress indicated by their cortisol measurements.

…

Traders

 

That quote is the essence of, or at least a pretty accurate way of describing, what all the “trading pyschology” bullshit is about (and I say bullshit because the word ‘psychology’ is the wrong word!). Whether by really ‘clearing’, by ‘interruption’ techniques, by de-sensitization, or by ‘manipulation of conflict’ (via standing aside or throttling back, or ‘external’ audits and controls, … or whatever) – thriving in spite of the emotional peptide floods, the hormone “juices”, turning a profit despite the varying wetware limitations, is what “working on themself and their own psychology” is all about

 

Many “new or fairly new to trading” have not experienced the full consequences of emotional imbalances. Also, and I can’t emphasize this enough, there are HUGE discrepancies in individual susceptibilities to fear and to ‘lack of fear’.

Some traders can go for months, some even years, without susceptibility and then wake up one morning drowning in it. (A sign of them on forums are posters who constantly denigrate the psych threads, etc., etc… then one day you never hear of them again... Another example are 'quant' whales who do well for ages then all of a sudden take down the whole dang firm…)

…On the other hand, some traders are painfully beset by the trading challenges leveraged by fear or euphoria on a daily basis, starting on their first day ever or first loss ever or whatever…

A very lucky few are ‘immune to the stuff’ period. They can’t help the rest of us and the best thing they can do is keep their postin mouths shut…

 

“where to start”

Rather than look for “where to start” ‘out there’ in a book or technique, I think it's better to literally set up multiple situations where the ‘juices’ are released for yourself. No ambiguity here : That is where to start – period.

 

“in particular … a useful way” do mindfulness in each of those “starts” you just created. ( and, if you need, practice mindfulness beforehand )

 

“explore specifics of how” by ‘journaling’ your own process

really ‘measuring’ might be a better word than ‘journaling’ – what we measure directly impacts what we ‘get’…

…and do it each time!… each time, each challenge, will repeat but each will also be distinct, different to some degree. if you’re mindful

… not easy to apply across the board to all trading challenges either http://www.traderslaboratory.com/forums/trading-psychology/8410-edge-first-integration-first-both-first.html

 

When you know what you must work with to survive and thrive and move toward your own ideals – when you really understand!, then and only then include ‘out there’ - books, coaches, youtubes, peers, whatever, for help working on specifics …

but don’t ever rely on them!… you’ll be just plain ole lucky if you ever really get any help at all from ‘out there’

 

 

 

 

… Negoc8r, as a super moderator, one of the things you could do to differentiate TL is get the “psychology” word out of the sub forum titles, etc. Name it Trader Self Development or something… others may have better suggestions for a title. Point is, get the 'psychology' contructs out of it folks... for traders, both the hard and the 'soft' sciences fall far short...

 

... gone again, guys

http://www.traderslaboratory.com/forums/trading-psychology/10549-they-don-t-schedule-championships-trading.html

[Rande Howell 10]

Rande, my idea for the thread was to try to get people discuss specifics of trading psychology and practical exercises which others might find helpful to improve. Given that you're a trading psychologist, I'm sure you can provide some really revealing and beneficial techniques...

 

Before techniques comes the need for understanding. A basic understanding of emotion and the way it drives mind is simply necessary from my perspective. Read zdo's comments on the neuro-scientist studying traders -- the traders did not even know that their mind had been seized. This is what I see with new clients. They only know that they are in an emotion once they are able to feel it. This is way too late. Ask trader who has taken losses because of skewed thinking.

 

Once a trader has a grasp of what emotion is, it is earlier to start regulating it and then designing for its use.

 

I'm placing an article here in the next couple of days that addresses emotion and the importance of observing emotion at the beginning of its arousal so that it can be managed. The first tip comes from there -- you begin observing your body for signs of arousal that you can intervene early in the triggering of emotions. Later you learn to be designer of the emotional state you are taking into various moments of the trading cycle. But first you become an observer of emotion in your body. It's takes a little practice, but it's alot better than finding out later that your cortisol and adrenaline levels have ambushed the mind you are trading. Same with euphoria and its cocaine like neuro-chemistry -- just not wanted in the brain of a trader during the performance of trading.

 

Rande Howell

[gosu 10]

* * *

 

I'm placing an article here in the next couple of days * * *

 

Just change the title of one of your old ones and repost. Save yourself some time.

[TheNegotiator 13]

Before techniques comes the need for understanding. A basic understanding of emotion and the way it drives mind is simply necessary from my perspective. Read zdo's comments on the neuro-scientist studying traders -- the traders did not even know that their mind had been seized. This is what I see with new clients. They only know that they are in an emotion once they are able to feel it. This is way too late. Ask trader who has taken losses because of skewed thinking.

 

Once a trader has a grasp of what emotion is, it is earlier to start regulating it and then designing for its use.

 

I'm placing an article here in the next couple of days that addresses emotion and the importance of observing emotion at the beginning of its arousal so that it can be managed. The first tip comes from there -- you begin observing your body for signs of arousal that you can intervene early in the triggering of emotions. Later you learn to be designer of the emotional state you are taking into various moments of the trading cycle. But first you become an observer of emotion in your body. It's takes a little practice, but it's alot better than finding out later that your cortisol and adrenaline levels have ambushed the mind you are trading. Same with euphoria and its cocaine like neuro-chemistry -- just not wanted in the brain of a trader during the performance of trading.

 

Rande Howell

 

I still think this is a little ambiguous Rande. I agree that understanding your own emotions to some extent and seeing how they affect your trading by observation is a good first step. But how does someone just pick that up and run with it? By their very nature, the emotions which you're trying to observe are skewing your perception of reality. Then when you think you've pinned down all these emotions, how is the average trader qualified to make truly meaningful conclusions about what they have observed?

 

There are many guys who are very experienced in dealing with their own and other peoples' psychological(/neurochemical) disruptions here on the Traders Laboratory forums. I wanted to give them the chance to share some simple and easy strategies for others to implement into their own trading and research.

 

Zdo made a good suggestion in setting out certain scenarios. For me, setting out possible problems and really exploring the intricacies of what each is and does is the first step. Then it's important to theorise when and where they might occur during the trading day and what the qualitative effects might be. Next comes diligently journalling in an "emotional diary" if you will. Try to be as clear as possible about each feeling and situation involved. Then comes studying of what you've written. Are there any themes so you can avoid or minimise situations where the issues arise? Are there any techniques you can use to "interupt" the problematic chemistry when it does occur? Is the direct awareness gained by the exercise as a whole leading to more stability anyway? Come up with some ideas and then repeat the process.

[phi 10]

One thing that really gets me is when people say that a trader should spend the majority of their time working on themself and their own psychology. However, the common ambiguity of such a statement leaves those who are new or fairly new to trading not knowing where to start. It's equivalent to saying you should spend your time on technical analysis. How though?!?!? What in particular is a useful way to go about "spending your time concentrating on yourself"? I’d like us to explore specifics of how someone might work on their psychology.

 

yea..I've experienced that difficult time learning how to use indicators with demo account..

But, anyhow it works on me. At least i know the chart and the lines what wants to tell me about.