Nothing is more upsetting to people than recurring patterns of self-defeating behavior. Many times we know what we're doing wrong, but continue doing it. Why?
An important principle that I discuss in the Psychology of Trading book is that what we commonly regard as our problems are actually coping strategies that we've developed over our life span that no longer work for us. We keep coping the same way, because these strategies have become overlearned, automatic. They may have served a purpose earlier in life, but now no longer fit the situation we're in.
But if what we identify as our problems are actually coping efforts, it follows that the real problems are the underlying conflicts that we're coping with. Many times, those problems are outside of our conscious awareness. As a result, we make surface efforts to shift our coping, never addressing the underlying concerns.
Such was the case with a trader I will call Pete. I met with Pete several years ago at a trading firm. He was a moderately successful trader who prided himself on his "feel" for the market and his ability to read charts (which he reviewed religiously every evening). Every so often, however, Pete would hit a losing streak in which he would abandon his discipline and either stop reviewing the charts or place trades that went against his market ideas.
"I don't know why I do this," he explained to me. "I have a real good sense for what the market will do and then I trade the opposite way."
As Pete's coach, I began with a detailed history. I tried to get a handle on various times in the past when he had these meltdowns. Two observations came out of this:
1) Interestingly, all were periods of anxiety, although this is not how he initially presented the problem. Pete generally presented himself as a savvy reader of markets. Only with an intensive review of occasions when he abandoned his discipline did it come out that he was anxious at these times.
2) Pete's description of his market ideas (including some recent ones) struck me as off the mark. In one case, he badly misread recent action in the equity indexes. My immediate impression was that Pete was less savvy than he presented himself.
I asked Pete to mentally relive the most recent occasions in which he traded poorly. We walked through the start of the trading day, the market action, his various thoughts and decisions, etc. I encouraged Pete to allow himself to feel his anxiety right there in the meeting with me, to describe it in detail, and to share his thoughts when he was in this anxious mode. This was not easy for him. He tended to change the topic and talk about the market, his trading, his preparation for the trade, etc.
This is not unusual. To avoid painful feelings, we frequently use coping methods to keep them at bay. Freud referred to these as "defenses". A common set of defenses is to intellectualize and rationalize situations so that we don't experience the feelings associated with them. What I was doing with Pete was interrupting his defenses, so that he would have to truly experience his emotions.
What came out when Pete allowed himself to be anxious was that he felt terribly inadequate when he did not understand what the market was doing and lost money. This feeling of inadequacy led him to question his ability and future as a trader. Having failed at college and experienced conflict with his parents as a result, Pete looked to trading as his way of being a success. The feelings of inadequacy were thus extremely threatening for him. And the reality was, Pete was a good trader, but not an unusually savvy one. My observation was on the mark: many times he missed market themes and patterns.
So what did Pete do to ward off his frightening experience? He puffed up his pride at being a good trader and master chart reader, stopped following his own routines, and then blamed his losses on the "discipline" problem. The problem wasn't that he was a bad trader; in fact, the problem--as he defensively reconstructed it--was that he was a *great* trader who didn't follow his own advice.
The loss of discipline was *not* his problem. It was his avoidant way of coping with the real problem, which was his shaky sense of himself during times when he didn't understand the markets and lost money. Trading was bearing the burden of his self esteem, and the burden was too much to carry.
By attributing the problem to a lack of discipline, Pete could maintain a (false) sense of confidence and worth as a trader. Only when we got at the heart of the matter--his assumption that being disoriented in the market meant that he was a bad trader and his need to make money to prove his worth--were we able to reach some resolution.
My next post will explain how we did that.
In the interim, think about your recurring problems in trading and how they might be (misguided) efforts at coping. If you didn't have the problem, what would be the difficult emotional experience you'd have to deal with? That question puts you on the road to genuine change.
Understanding Lapses in Trading Discipline
Top Reasons Traders Lose Their Discipline