In my recent post, I suggested that many of us avoid emotional upset by substituting action for feeling. This is a pattern that lies at the heart of many impulsive trading decisions, including many lapses in trader discipline.
Let's take a common example: a trader is working a bid a bit below the market and suddenly a ferocious sell program takes the market five ticks lower. The trader's order is filled and, in an instant, the market is several ticks against him. He reacts first with shock, then with anger at people who "manipulate the market". In a flash, he buys more contracts, even though this sizes his position much larger than his plan allows. It's a classic revenge trade: he's going to get even. The market moves a few ticks lower, and he is forced out at the worst possible price with a much larger loss than his initial trade planned for. In remorse, he makes a note in his journal that he needs to be more disciplined in his trades.
As long as the trader views "discipline" as his problem, he is sunk psychologically. He sets up a condition in which he is split: part of him is impelled to do something under particular conditions, another part attempts to exercise control by dictating what *should* be done. This is how anorexic and bulimic patients fight with food intake; how addicts fight with drug abuse; how many of us fight with sticking to diets and exercise regimens.
We cannot substitute thought for emotion: shoulds cannot overcome emotional impulses.
The key to moving past an emotional reaction is to experience it fully and then substitute a different emotional experience. Psychologists such as Leslie Greenberg and Robert Elliott have developed emotion-focused techniques to accomplish just that. The basic principles and techniques are straightforward, well-supported by research, and described in detail in a growing professional literature.
What is happening with the trader in the example above is that he first experiences hurt and disappointment. He might also experience a fleeting sense of failure and loss. These are too painful to feel, so he has learned to respond to hurt with anger. He transforms sad to mad and then acts on the angry feeling. What appears to be the problem--loss of discipline--is his way of coping with the *real* problem, which is vulnerability.
Suppose, however, I ask our trader to go more deeply into the experience of having his order taken against him. As he talks, I notice an unhappy look on his face and a slight slumping of his shoulders. I point that out and ask him to give voice to what he's feeling. He talks about how it seems as though nothing is working in his trading, how he and his wife just bought a new house, and how they're concerned about making the payments.
When I ask what that's like, feeling as though he can't support his family, he acknowledges, "I feel like such a loser". Then, however, he speaks with a different voice: "But I know I can trade. If I would just stop trying to catch exact tops and bottoms with these orders, I can ride moves once they happen."
"So when you're working orders in the book...", I begin.
"I'm being an idiot," our trader interrupts. "I know I shouldn't be working orders that close to the market. It's too thin."
"But you're trying to catch a top or bottom to feel good and help your family," I offer.
"Yeah," he acknowledges. "But I'm f*****g it up."
"So it all starts with you feeling concerned about your family. You have to get something going in the market to make some money, so you throw an order in the book to catch a turning point," I suggest. He nods.
"Could you pretend your wife is in the room right here, right now and talk to her about that concern and what you want to do about it in the market?"
We set up an exercise where our trader talks aloud his concern for his family finances. He has no problem telling his wife that he needs to be patient and trade well in order to regain his success. By the end of the exercise, there's no hint of the angry revenge trader. In its place is the direct experience of facing his worst fear--his feelings of inadequacy--and emerging with a different emotional experience: empathy for his wife (and for himself).
"People can recognize that a feeling is not helpful to them once it has been accepted fully. The paradox is that, if the feeling is judged as not acceptable--as "not me"--it cannot be changed, because it hasn't been accepted. Only when a feeling has been accepted can it be evaluated and changed if necessary" (Emotion-Focused Therapy, p. 93).
Doing can be a way of avoiding feeling, and that keeps people stuck in problem patterns. Ironically, the solution is to deepen the feeling that is being avoided. At the other end is a very different--and usually quite constructive--emotional experience.
Brief Therapy Techniques for Traders
What Works in Trader Coaching