Thursday, January 25, 2007

Subjective Well-Being: Why It's Important for Traders

Yesterday I posted a short personality questionnaire for traders; in this post, we'll look at what the results are telling us.

An important research review in the Annual Review of Psychology by psychologists Richard Ryan and Edward Deci examined what we know about positive emotional experience or what is often called subjective well-being (SWB). We often hear about how important it is to minimize stress, but an increasing body of research emphasizes that it is more critical to maximize our well-being.

One of the very interesting findings of the review is that a key component of SWB is our ability to pursue autonomous goals: goals of our own choosing. When we are free to set and pursue our own goals, we tend to be much more fulfilled than if we are pursuing goals that have been set for us. Indeed, a very recent study found that people who set and follow their own ends experience more happiness and self-fulfillment--and better physical health--than those who follow controlled goals. The key link between goal pursuit and physical health was stress and coping. High stress and the absence of autonomous goals was a recipe for lowered self-realization and increased physical symptoms. Another recent study found that it is both what you pursue--intrinsic vs. extrinsic goals--and why you pursue it--autonomously or controlled--that contributes to SWB. Being free (autonomous) to set goals that are meaningful to you (intrinsic) is associated with positive emotional experience.

These studies are but a small fraction of the large body of work linking SWB to enhanced physical health. Interestingly, such factors as salary and physical attractiveness do not predict SWB. In fact, people whose values show a preference for high income and job success over personal relationships tend to report less happiness and self-fulfillment than those who emphasize interpersonal attachments. Altogether, Ryan and Deci identify three major components of SWB: a sense of competence, autonomy, and relatedness. While happiness is an important part of SWB, there is more to positive emotional experience than just being happy. The authors stress that people with high levels of well-being also experience high levels of personal fulfillment and satisfaction with life.

The questionnaire that I posted recently does not tap into all aspects of SWB. Instead, my intent was simply to assess well-being and stress in the context of one's trading. So we can think of the questionnaire as a kind of job satisfaction measure, if we think of trading as our job/career. To provide a more well-rounded, overall assessment of well-being, we would need additional questions pertaining to the quality of one's social relationships.

The questionnaire taps several facets of well-being, including:

* Happiness
* Personal satisfaction
* A sense of energy and vitality
* Perceived competence
* Perceived autonomy

On the other side of the emotional ledger, the questionnaire assesses:

* Stressed-out, anxious feelings
* Feelings of discouragement
* Feelings of guilt or regret
* Feelings of frustration or anger
* Feelings of loss of control

Research subjects in general report higher levels of the positive emotions than the negative ones. When the even items in the questionnaire (stress) approach or exceed the odd items (well-being), we can take this as a situation that is out-of-balance. In my own research review from my recent book, I emphasized that high levels of immersion in one's trading are necessary to internalize the patterns of shift in supply and demand and make rapid and accurate decisions. It is difficult to believe that one could sustain such an immersion if trading were bringing as much negative as positive experience. Indeed, as I report in the book, the enhanced learning processes that are common among expert performers require that such immersion be a positive emotional experience.

Trading may not always be profitable, but it is important that it contribute, over time, to a sense of autonomy and competence and that it be accompanied by experiences of personal fulfillment. Without a positive balance between positive and negative emotional experience, we are unlikely to sustain the activity that will contribute to our growth and development as traders. The research also tells us that success in trading, in itself, will not necessarily bring sustained well-being. The quality--not the quantity--of our social relationships is equally important. A single-minded pursuit of trading success may undercut itself if it does not contribute to a sustained sense of self-fulfillment in life itself.

6 comments:

b hong said...

Another excellent review, Dr Brett. I like advice that is based on data, not opinion.

Some of the psychological terms are a little bit unfamiliar to many of us and so I hope that you will have follow-up posts that will further explain these concepts and, more importantly, developing strategies to incorporate them into our lives (and trading).

Thanks a lot. This is the type of literature that I don't routinely get in the NEJM, etc.

Brett Steenbarger, Ph.D. said...

Thanks, Bruce; by all means feel free to ask questions about specific unfamiliar terms. I do plan some follow-up posts and appreciate the interest--

Brett

Anonymous said...

Hi Brett,

Thanks for the test and analysis.

In a previous post you mentioned emotional involvement in trading and that it is not necessarily a bad thing. I have found that this is very important for me. I take my trades (win or lose) quite personally. This gives me a lot of motivation to improve but does create some stress at times.

I find it interesting that when I take a profit I'm quite happy about it...unless I take it too early. One of my big lessons is to enjoy my successes without being too greedy.

I really enjoy your teachings.

Thanks,
Marc

Brett Steenbarger, Ph.D. said...

Hi Marc,

Good point. Competitive drive is common to most of the excellent traders I've known, but they also can channel that drive into a real laser focus on the markets. It's how the emotion is channeled that seems to be important. Thanks for the note--

Brett

hemant said...

Thanks a lot, Dr. Brett. I'm a trader from India. The psychological test and the subsequent article were really an eye opener for me. It has helped improve my SWB as well as my awareness so much.
I would like you to suggest how a trader should train to stop hoping when the trade goes wrong and to stop fearing excessively when the trade goes the right way.
Thanks again.
-Hemant Mandhare.

Brett Steenbarger, Ph.D. said...

Hi Hemant,

I find cognitive and behavioral techniques helpful for changing such patterns. Two chapters in my Trader Performance book are devoted to those methods and may be of help to you--

Brett