In the second post of this series, I laid out three principles to guide traders in working on patterns of thinking, feeling, and behaving that might be interfering with sound trading decisions. The first article in the series introduced the notion of brief therapy techniques as relatively rapid and effective tools for self-change. In this final installment, I will outline a process for utilizing these tools.
Let's say we have a trader named Chris who is struggling with a problem of impulsive trading. Although Chris has a general idea of a trading plan, she finds that she takes many trades that don't meet her criteria. This is costing her money, both in added commissions and in trading losses. How could she begin to help herself with the problem?
Recall that brief methods for changing problem patterns are effective when those patterns are situational. The first question Chris should ask is whether she is impulsive and undisciplined in other areas of her life, outside of trading, and whether she is experiencing negative consequences from this broader impulsivity. If the answer is yes, that's evidence that this is not just a situational problem. Rather than try to tackle the problem on her own, she should seek a professional to help her figure it out. Perhaps it's an addictive problem; maybe it's a problem related to attention deficits and/or hyperactivity. Perhaps it's the result of a mood disorder. An objective evaluation is in order.
If, however, this is a recent problem limited to trading, the odds for success with self-help are much greater.
What Chris needs to answer is the following: "What is the problem that she is trying to solve with her impulsive trades?"
My earlier post noted that what we label as problems are actually attempted solutions to situations that bring unwanted consequences.
In Chris' case, she may be trying to manage a specific fear: one that trading coach Doug Hirschhorn refers to as the "fear of missing out". She is afraid that the market will move without her being on board.
Her real problem is in her definition of opportunity. She equates opportunity with movement in her market. Movement, however, in itself is not opportunity. Opportunity comes from anticipated movement. Behind her impulsive trades is a kind of thinking that says, "I should be able to anticipate movement. I don't want to be wrong."
In a very real sense, Chris is trading to avoid self-blame. It's her self-blaming and her faulty definition of opportunity that are the real problems. Impulsive trading is simply her way of trying to cope with these problems.
Once we frame the problem in this manner, it is not difficult to find solutions. I review Chris' trading performance with her and identify times in which she was *not* impulsive and traded well. I ask her what she did at those times that seemed to work for her. She tells me that she made a conscious effort to stick with one or two setups, wrote those down, and taped them to her monitor.
I tell Chris that self-blaming is a good thing if we're focusing on the right behavior. A person without self-blame would be a sociopath. Chris should blame herself if she doesn't trade her setups; those are her real opportunity. If a market moves without her setup, she can always research the move after the fact and see if there's opportunity in a different setup. For now, however, her opportunity is what she knows how to do best.
We perform mental rehearsals before the start of the trading day in which Chris visualizes herself trading her setups and focusing on her opportunity. I also have her visualize the "old Chris" and imagine herself correcting her errant ways. This talk of "new Chris" and "old Chris" helps cement the changes in her mind. Then, at the end of each trading day, we give her a report card based, not on P/L, but on her ability to pursue true opportunity.
In one sense the change has occurred quickly. But in another sense, no change at all has occurred. Chris is simply more consistent in doing something she already knew how to do. By focusing on solutions rather than problems, we turned self-blame and the obsession with opportunity into virtues. While, to an outsider, it appears that she's become more "disciplined", in fact she has simply redefined what it means to pursue opportunity.
Brief change occurs in four steps:
1) View the problem as a solution and ask yourself what this pattern is accomplishing. What real problem am I trying to solve by thinking, acting, and feeling the way I do?
2) Find exceptions to your problem pattern. Once you understand what your underlying fear or concern is, go back in your trading performance and identify occasions when you've successfully dealt with that fear.
3) Create a pattern out of those successful occasions that you can become part of a market routine. Do more of what you've been doing when you've been trading well.
4) Keep repeating your solution pattern until it becomes automatic. It's not enough to initiate change; you want the change to become part of you.
Additional resources are available on the Articles page of my personal site. My Psychology of Trading book goes into greater detail about solution-focused techniques for change; my latest book on Enhancing Trader Performance details cognitive and behavioral methods you can use to shift problem patterns. My hope is that these tools help you become your own trading coach. If so, you'll have developed skills to last a trading lifetime.