Monday, December 11, 2006

Controlling Emotions Is NOT The Goal Of Trading Psychology

Pick up a book or magazine article about trading psychology and you're likely to find prescriptions for success based on controlling emotions and increasing discipline.

Yes, emotional arousal can interfere with performance, but does that mean that elite performance is a function of dampened emotions?

When you look at some of the greatest performers in sports--and in trading--you'll find highly competitive individuals. They are quite emotional and don't take well to losing. Lance Armstrong? Michael Jordan? Tiger Woods? Muhammad Ali? All were quite intense, emotional individuals who managed to channel their emotional drive into victory.

Conversely, I've encountered many well-balanced individuals who have sought success in trading. They don't blow up, they follow rules faithfully, and they have no intense, competitive emotional flame burning within. I've never yet seen one go on to become successful.

Can anyone watch the really successful college basketball coaches--Coach K., Jim Boeheim, Bob Knight, Tom Izzo--and attribute their success to emotional restraint? Yes, there have been emotionally reserved winners--think John Wooden and Dean Smith--but one suspects their emotionality was that of a warm mentor, not that of a cold fish.

The important ingredient in success is not emotional dampening per se, but the enhancement of concentration and focus. That is what enables people to act with sustained purpose and stay rooted in their goals.

When we review the lives of great individuals across a variety of fields--the research of Dean Keith Simonton and K. Anders Ericsson stands out in this respect--what we find is that the greats have prodigious capacities for work. They are hugely productive. They sustain effort hours at a time, day after day, week after week, year after year.

Only the ability to regularly access "the zone"--that flow state of consciousness that comes from being wholly absorbed in an activity that captures our interests, skills, and talents--can account for the amazing dedication of the Olympic athlete, the great career scientist, or the chess grand master.

Indeed, such exemplary performers can use emotion to access the zone. Michael Jordan used to provoke players on opposing teams so that they would argue and fight back. That would arouse Jordan's competitive instincts and elevate his game.

When we operate outside that "zone" and lose our focus, we are no longer activating that executive center of our brains--the frontal lobes--that control planning, judgment, and reasoning. Left with a weak executive center, we become like the person with Attention Deficit Disorder: prone to wandering attention, reduced self-control, and impulsive behavior.

That makes it look as though "emotion" and "lack of discipline" cause our trading problems.

In reality, however, these are the results of the problem; not the causes.

The goal of trading psychology is to build consciousness, not reduce emotion. The goal is to create regular access to the flow state of heightened learning and focus. Talking to a trading coach, in itself, won't accomplish that; nor will well-intentioned efforts to calm oneself or take breaks from trading.

We can only build consciousness by working on consciousness. That is why I find meditation, heart rate and galvanic skin response biofeedback, self-hypnosis, and newer methods such as hemoencephalography to be valuable tools for traders and emphasized their use in my book on the psychology of trading.

These methods don't eliminate emotion; they build minds. If we can exercise for 30 min./day and build our cardiac fitness and our physiques, maybe--just maybe--a similar commitment could strengthen our abilities to operate within life's "zone". I'll be posting more re: my personal experiments with mind training in the near future.


Anonymous said...

Great post as always!

Looking forward to your postings about experiments with mind training.

I did read something about tha law of reversed effect, that imagination always wins over willpower. Since then I starts every trading day with practice rehersal, 15 minutes, where I in my mind flawlessly identify my trading opportunity, initate the trade and disciplined manage my position.

A practice that has made it easier for me to automate my behaviour, and my trading much more effective.

Brett Steenbarger, Ph.D. said...

Thank you, Fredrik; that's an excellent observation. I *very* much like the technique of mental rehearsals under conditions of enhanced focus/concentration as a means for preparation. Self-hypnotic methods work well for that, and I've had success with sound and light machines for that purpose. The hemoencephalography feedback ensures that concentration is high while doing the imagery work.

There's also some good research in sports psychology on the method you're using--


Anonymous said...

It would be interesting to hear what you think about the use of metaphors for trading and the market movements.

If you have any experience in using them and if you have found them helpful in creating condidence and objectivity.

Brett Steenbarger, Ph.D. said...


I find metaphors to be helpful in reframing our understandings of things and in seeing things in new ways. I think that confidence, however, comes from repeated experiences of success.


Anonymous said...

Hi Brett,
Great post, would you consider NLP to be helpful in mind training along the same lines as meditation, could it achieve good results in less time.

Brett Steenbarger, Ph.D. said...

Hi John,

NLP is really an extension of some of the change techniques pioneered by Milton Erickson, MD. It is helpful as a way of programming new behavior patterns, but is not in itself a method to expand the ability to sustain a high degree of concentration. NLP attempts to change what people think about; it doesn't pretend to alter their conscious capacities a la meditation. I appreciate the comment and the opportunity to clarify--


yinTrader said...

Hi Brett

Your ongoing research on mind training brings to mind what Harry Emerson Fosdick advocated:

No life ever grows great until it is focused, dedicated, and disciplined.

Like you have always likened mind training for traders to that of great athletes.

The only handicap is advance in age which to some extent slows down memory or concentration power although some catalysts in the form of learning a new hobby helps.

I fall into this category and hence, am in need of how to enhance my attention span!

Thank you for taking time to share your experiments on the mind.

Brett Steenbarger, Ph.D. said...

Hi Yin,

I think you've put your finger on one of the most exciting applications of this research of all: how to slow the cognitive effects of aging by exercising the mind.


EddieFl said...

Hello Brett,

Excellent, excellent article. At least for me and my angle of thinking now, and the level I am at in my trading, your articles hit the point on the head.

You cover definitve points of interest for me.

KEpp up the great work.


Brett Steenbarger, Ph.D. said...

Thank you, Eddie. I very much appreciate the feedback of what is useful in the blog posts--


Anonymous said...

Hi Brett,

I know I'm slow to this - I just discovered your blog. I thought this was a fantastic article. Particularly about conciousness and focus. Both things I enjoy preaching on my blog at A lot of my posts talk about awareness, and the importance of being aware whilst experiencing day to day trading. You article has expressed some of the thoughts I've been having on trading perfectly. Quite simply superb, I know I'll be reading this blog for a long time.

My blog is about gambling, but I am also a trader and use the fairly new innovation of betting exchanges to make a living. All of the principles of financial market trading hold true to this medium. The psychology of trading is a particularly enjoyable subject for me, so I'm glad I stumbled accross this. All the best,


Brett Steenbarger, Ph.D. said...

Hi Matt,

Thanks for your note, and thanks for the link to your site. I'll link to Punt from my personal site; you're right in noticing similar issues among gamblers and traders--and a wide gap between pros and wannabees in both areas.


Derry Brown said...

This is a different way of looking at things that I have not considered before. When it comes to investing, decisions must be clinical and not influenced by emotion. Passion and drive are important to go the distance though.

You use Tiger Woods as an example. If Tiger allowed his good performance to inflate his ego to the point where he was to good for training then he would quickly fall from glory.

Like wise, if he allowed a few bad games to knock his confidence or the pressure of making a game winning putt $$ in front of a huge TV audience to dislocate his composure then he would not be a golfing great.

Talent is not the key to Tigers success it is his emotional intelligence, ability to focus his drive in a constructive way combined with his talent.

I think you put it beautifully when you said:

"The goal of trading psychology is to build consciousness"But the control and reduction of negative emotions (ego, fear and greed) is necessary to make sound investing decisions.

I enjoy your work