Saturday, January 13, 2007

Brief Therapy for the Mentally Well: Programming Our Own Experience

A bit over a week ago, I described short-term applications of psychology as "therapy for the mentally well". The goal of such work is to make positive changes, not necessarily eradicate pre-existing deficits. For that reason, the first step in the change process is having a vision of the changes you wish to make. By linking these positive changes to distinctive emotional, physical, and cognitive states, we are able to become the play-actors of our ideals.

Allow me to expand on a metaphor I used in the Psychology of Trading book. Consciousness is like a radio dial, and we operate on many frequencies. Each spot on the radio dial is a particular state: a blending of our experience of our bodies and minds. The test anxious student has a spot on their dial that combines negative thinking, increased arousal, shallow and rapid breathing, and diminished access to retained information. Other spots on the dial may combine much more positive thinking, alert concentration, erect posture, and fuller breathing. When operating at those frequencies, the student has full access to the information studied and performance on the test is excellent. What we know and who we are is relative to the frequencies of consciousness at which we're operating.

The problem is not that some of the spots on our personal radio dials are programmed with negativity. Rather, the problem is that we lack full, intentional control over the dial itself. We change stations, so to speak, without intending to. What the brief therapies accomplish is a greater control over selecting our own frequencies: they give us a hand to turn our dials. The idea, after all, is to become our own trading coach: to develop our own ability to reach our goals.

What creates the "radio stations" that make up our dial of consciousness? Two things: repeated experience that becomes habit patterns and powerful emotional experience that is processed as a trauma. Just as some radio stations on our car radio dials are faint and others generate a powerful signal, some of our states are weak and some dominate the dial. The more repeated the experience--and the more powerful the experience--the more it becomes part of your spectrum of consciousness.

As I emphasized in the Enhancing Trader Performance book, one reason so many traders fail is that they create repeated, negative emotional experiences for themselves. Indeed, this is why I included self-help manuals for cognitive and behavioral change techniques as two chapters within the book. Quite simply, traders can find themselves operating on frequencies that they don't want to be experiencing: their dials change without their consent or control. And all it takes to shift our frequencies of consciousness, very often, is a simple shift in one element of our frequency: a few negative thoughts, a change in our patterns of posture or breathing, a fleeting emotion. Those become triggers that diminish our control over our own experience.

While the aforementioned cognitive and behavioral techniques are extremely valuable, it is also important to be able to program our own new, enhanced spots on our dials of consciousness. The way to do this is to rehearse positive patterns of thought and behavior while you are in a distinctive emotional and physical state. This is one of the quickest and most reliable ways to generate change.

For instance, let's say your desired behavior is to hold onto winning trades longer. You might mentally rehearse market scenarios of holding onto trades--emphasizing how excited, happy, and profitable you'll be by achieving this goal--while you are pushing yourself during a strenuous treadmill exercise. By setting the treadmill at an incline and a good speed, you will be jogging at a brisk pace and elevating your heart rate. With repetition, you will begin to associate the goal--and its emotional benefits--with your body's pumped up state. It will become an increasingly powerful signal on your radio dial. Then, before trading and during trading breaks, all you have to do is get back on the treadmill. Triggering your body's shift in state will trigger the desired shift on your dial of consciousness. You will access the behavior you desire by intentionally triggering the cues associated with the behavior.

Making changes entails far more than simply engaging in positive thinking or getting positive images in your head. If you don't change your state of consciousness--and your ability to shift your own consciousness--you'll be listening to the same programming day after day. Learning how to shift out of negative states is a huge achievement. Where dramatic growth occurs, however, is in learning how to create new, positive states: in becoming the programmers of our own experience.


Anonymous said...

Very interesting article as always.

I had been watching the screen recordings of the ER2 contract for several months after hours and developing high probability strategies based on that data using Tradestation, so last month I decided to trade full-time with a max position size of 1. My primary goals were:

1. Only take High Probability setups (that I have back tested)
2. Stick to my Daily Limits of Losses/Gains, Losing/Winning Trades
3. Walk away if I feel drawn into the game by making impulse trades.

So far I have consistently broken all these rules. Here is what I have found so far:

1. Being too eager to enter trades and ending up chasing trades when the market starts moving. Many times this has worked for me, but in few cases I have gotten really bad fills leading to big losing trades.

2. Not accepting that I made a wrong call, doubling up and canceling stops. Interestingly I have only doubled up to 2 contracts and then used a stop to exit if the position continues against me. In most cases the price then has moved in my favor for a profit.

3. If I get 3 to 5 losing trades in a row, I get very impulsive and all my rules go out the window. The same happens when the market is not moving and I feel I need to make at least some trades. It has been hard for me to walk away. Lately I have been able to control the impulse of making more trades beyond my daily limits.

Fortunately I am still at breakeven after a month of this so I consider this to be as a very good learning experience. During this time I had also started reading your book "Enhancing Trader Performance" and realized that I need to step back and work on improving my skills before I jump into the fryer. To do this, I have signed up for the free simulation edition of Ninja Trader. The software allows me to record market activity, replay it and enter simulated trades over and over again.

I like the idea of this article that I need to make trading almost an automated response and have been practicing various scenarios in the simulation account and using visualization techniques where I am accepting stops being hit as part of the game. It has all definitely started to help and I plan to continue this for another week before I try my hands again at live trading.

Thanks again for your wonderful insights. Keep them coming.

Brett Steenbarger, Ph.D. said...

Hi Simple Trader,

Thanks for the comment and the excellent observations. I think the idea of using the simulations to make the disciplined trading into a habit before risking too much capital makes a lot of sense. By turning those primary goals into automatic habit patterns, you'll be ready to handle risk. Best of luck--


Anonymous said...

Dr. Steenbarger:

You said: "so many traders fail is that they create repeated, negative emotional experiences for themselves." , well count me as one of those traders. I have been following your posts much more closely than before, because I come to realize that while I have finally worked out a good trading system, I will never become a truly consistent winner until I can overcome my psychological hurdles. The single biggest problem I have right now is to follow my trading calls: my daily trading calls have a 3:1 win/lose ratio, but I routinely act on only 1 out of 10 of the calls, and what's even worse is that I always exit from winning positions way too early. The problem? I cannot overcome the "fear" factor. Your posts have often stroked on the roots of many trading psychological problems, and they help me not only to analyze the problems, but more importantly to find effective ways to deal with them. For that, I want to say: thanks a lot!


Brett Steenbarger, Ph.D. said...

Hi FW,

Thanks for your comment. By starting with small size, mentally rehearsing taking your calls while you're in a highly relaxed state of high concentration, and then entering that state of calm concentration while you're trading, I suspect you can create positive habit patterns. Best of luck!


E said...

I agree with your premise 100%...

In the market, besides our "psychology of winning", however, nothing replaces skills.

Beyond that, nothing repalces the ability to accept a stop loss as part of the game.

The book "Sway" teaches us the importance of CRM, and avoiding the pain of small losses inevitably forces us into much deeper losses.

Bright people like Doctors and Lawyers often forget that simple fact and greatly contribute to the Boyz retiremtent fund because they are stubborn...

Maxwell Maltz and T Harv Eker are great reading... for those in need of changing their mindsets...

TY for nice article.