Tuesday, August 14, 2007

One of Trading's Greatest Emotional Pitfalls

Research in psychology tells us that there are several important facets to subjective well-being (SWB):

1) Joy - Our happiness; the proportion of time we experience positive emotion;

2) Contentment - Our satisfaction with life and sense that life is meaningful and worthwhile;

3) Energy - Our physical and emotional sense of vitality;

4) Affection - The quality of our close personal relationships; the consistent giving and receiving of love.

Past efforts among psychologists have been to help people manage stress. What we're now finding out from the research is that it may be more important to maximize well-being. There are a number of emotional and physical health benefits associated with high levels of well-being. We're also most productive when we have high levels of SWB and are most likely to have optimal attention, concentration, and cognitive performance.

I would argue that it is just as important for performers in cognitive fields (like trading) to maximize their well-being as it is for performers in physical fields (like athletics) to maximize their physical conditioning. Indeed, it may be fruitful to think of SWB as a kind of cognitive and emotional conditioning that is developed in the "gymnasiums" that make up our lives. One yardstick of how we spend time each day (and a yardstick of each of our major activities) is the degree to which it contributes to SWB and thus enhances our emotional fitness.

One of trading's greatest emotional pitfalls is relying upon the making of money for SWB. I know many traders who make their happiness, contentment, and energy contingent on trading success. Indeed, I've known many traders who define themselves by their trading success and use that success to seek attention/affection from others.

We can see from recent market experience that even very successful professional traders and trading organizations can undergo meaningful drawdowns when market regimes change. If our SWB rises and falls with our P/L, we are doubly vulnerable--and that adds quite a burden to future trading.

Yes, trading can--and should be--a source of pride, accomplishment, and challenge. It cannot, however, substitute for a full life. The pitfall of wrapping our well-being up in trading results has resulted in much of the trader burnout I've seen in my years of working with traders. If your well-being hinges on your trading results, what will provide the emotional fuel for your comeback?


A Personality Questionnaire for Traders

Steps Toward Improving Your Well-Being


Dot said...

Gold, Oil and Corn and Wheat are going to get crushed this week and the following................

Bernanke will never lower interest rates until the Fed sees a drop in commodity prices to alleviate inflation on the consumer.

The Fed will start the easing of interest rates in Sept, but stock market will still continue to spiral downward until second rate cut in late October.

Dow will be trading at 11,750 by mid September, which will cause Bush to pull out of Iraq.

Bear Stearns is a reminder of "When Genius Fails".

Major stock market rally will come about next year, but the margin calls on the longside will be painful this year.

Dave said...

Great post, Brett. I'd go a step further and say that physical fitness (and therefore, general wellness) can even contribute to a trading edge, albeit indirectly.

I've long felt that it has for me.

tapeworm said...

great post...from my own experience, i would say that sometimes we want something so bad, and neglect other areas of our life in pursuit of a dream...in reality it probably keeps us from progressing as fast as we might otherwise as u suggest

i agree with dave on the exercise tip...for those who want a quick workout that burns calories like a mofo, and will tone u up, try kettlebells...inexpensive, take up little space, and do wonders for your physical and mental well being

Dr Bruce Hong said...

Hi Dr Brett

Just a reminder that Joy and a sense of Well-Being can be an emotional trap as well. It can cause os to become overconfident, act as a biasing agent for the next trade. And, when it reaches up to Euphoria and Exaltation, can really, really destroy a person. I'm thinking of a bi-polar patient in their manic phase, of course, but I can remember times when I had a run of good trades and felt as if I were invincible.

Sadly, "The Man of Steel" is not a good mind-set for a trader.

Brett Steenbarger, Ph.D. said...

Hi Dave,

I think you're absolutely correct; it's difficult to sustain work effort, concentration, etc when physically run down.


Brett Steenbarger, Ph.D. said...

Hi Tapeworm,

Excellent observation; that one sided pursuit can undermine many aspects of life--


Brett Steenbarger, Ph.D. said...

Hi Bruce,

Great point re: the distinction between well-being and overconfidence. Thanks for the note--


Dean said...

Sources of SWB should be diversified just like your investments.