Tuesday, November 13, 2007

Psychological Burnout and Trading: Five Signs

When I first began working with traders professionally, I noticed a curious phenomenon: Many of the traders who were in the most objective trouble in their careers (i.e., at risk of getting fired from their firms) actually worked less hard at their trading than when they were making money. They insisted that they wanted to succeed as traders, but their actions spoke otherwise. They watched markets without putting on trades; they left the office early; they stopped doing their research and keeping their journals.

What I realized was that these traders were burned out psychologically. They were physically and emotionally overloaded and simply could not sustain the efforts required to come back from their deficits. It wasn't a matter of motivation. Quite literally, they didn't have enough psychological fuel left in their tanks.

Research finds that burnout has very real--and dangerous--health consequences for people. These physiological effects affect brain function and contribute to further exhaustion, creating a vicious cycle. My experience has been that, once traders in trouble hit a burnout stage, it is very rare for them to come back. This suggests that early identification of burnout symptoms and preventive measures may be instrumental in prolonging the health and wealth of traders.

So what are some of the early warning signs of burnout among traders? These come immediately to mind:

1) Loss of Motivation - This is experienced as just not caring as much as they used to. It's also expressed as avoidance of work tasks.

2) Cynicism - The trader in burnout feels that nothing will work out right; the market is out to get him. There is a palpable sense of hopelessness in later stages.

3) Exhaustion - This is experienced both physically and emotionally. Traders know they should work on their situation, but just can't muster the energy.

4) Sleep Disruptions - The trader who is burning out may oversleep or display insomnia and chronic tiredness.

5) Substance Abuse - Traders in early burnout stage may try to self-medicate to feel better and to escape their situations. Food may also serve as a refuge.

I recommend a several step program for traders who are burning out:

1) Take a Break - The worst thing a trader can do is feel guilty and try to force themselves to work harder. Burnout is not laziness, and it will not go away with willpower. Getting away from work stress and attending to good sleeping and eating patterns can help provide the energy for a comeback.

2) Get Help - Sometimes what looks like burnout can be a different problem: depression or an endocrine imbalance. Getting a medical workup is important to rule out physical causes of fatigue. If the problem indeed turns out to be burnout, short-term counseling/therapy can be very helpful in getting a handle on situations that feel overwhelming.

3) Regain Control - A common denominator in much burnout is a perceived loss of control over one's situation. Setting reasonable work goals, managing time effectively and reasonably, and finding elements in the situation that can be controlled all can be very helpful. By keeping goals modest and building small success experiences, traders can regain optimism and energy.

Burnout is common within high stress, high demand, fast paced fields, such as ambulance/EMT work; nursing; military combat; and medical residencies. By recognizing that burnout is a potential occupational hazard, traders can take a preventive stance by keeping expectations realistic and getting plenty of time away from work, in activities they enjoy and can control.

If you are no longer enjoying your trading; if you respond to losses but get little enjoyment from gains; if you stop caring about your work; or if you are just too overloaded to get the work done, consider the possibility of burnout. Renewing yourself early in the process can save a career.


The Most Common Problem Faced by Traders


Jeff Pietsch CFA, Esq said...

Personally, I experience all of these: it has been a trying week and this post clearly addresses this fact. When things get crazy, I turn off CNBC, listen to some music, and work on conceptual research. -- Jeff

Globetrader said...

Trading is a stressful occupation. And I don't think it gets any easier, if you have more money. Usually if you have more money to be used as margin, you will use it.
Trading 10 CL contracts with a 100k account is for sure as difficult as trading 2 CL contracts with a 10k account.
I have the feeling that it's extremly difficult to distance yourself from the monetary value of the gain or loss you just made. CL trades 20 ticks in the blink of an eye and seeing yourself being up or down 2000$ or 400$ on the smaller account multiple times within a trade is really the same. It is stress. And if you do it again and again and again, it becomes more stressful, not less stressful.
There are methods to distance yourself from the actual value of the trade by not looking at the current account window or the current P/L, still, after 5 years of trading futures, I can tell you exactly what my current trade will gain or cost me including commission, I don't need to look at the account to know that.
Of course removing the Account information still helped to reduce the stress, as I'm not always presented with the results of my earlier trades for the day.
Missing trades is stress and it's very difficult to go against the urge to make the "missed profits" back as you go against the feeling you are owed these profits.

So why trade at all? Because any profession is stressful. Making money is never easy or we all would be millionaires long since.

But there are ways to make your life easier.
What helped me is finding contracts which move in sync with my own risk parameters. If you look at different contracts you will notice a certain range in which each contract swings without violating your trade pattern.
Identify this range and ask yourself if you can handle that range. If 20 ticks up and down on your short is too much for you, then trade something which swings only 10 ticks or 5 ticks, before you know your position is wrong. I always had the feeling, when I have a problem trading the Euro/Dollar, I can always trade the USD/CAD or AUD/USD as these trade more sedate, less stressful. So the last time I went to a difficult patch, I told myself, Chris, why only go to USD/CAD when the going gets tough. If you feel good with this contract, trade it on a regular basis. I'm now doing so and doing fine. I still trade other contracts beside USD/CAD, but eg. I've restrained myself from trading the last hour in CL.
Huge gains are to be made during these 60 min of trading, as CL usually swings about 80 ticks in this last hour, but the pace of the tape becomes so fast, that I'm no longer able to trade it without a lot of stress. And as this last hour in oil comes when I've been at the computer for around 10 hours usually, as it's 7:30pm here, when it starts, I'm often a bit fatigued, I've already had a good or bad day and I might blow a good day in the blink of an eye, because I'm not fast enough to close out a position or reverse it in this manic trading arena CL has become.

Last think about your charts as art. Make them an artwork, you might as well print and put on a wall for everyone to see. Make them pleasing to you. Certain colors have certain meaning, give certain responses within yourself. A topic Brett can sure add his own comments to.
We are wired to recognise Red as an alarm signal. If you are a driver you will instantly recognise a flashing blue light. A lot of traders use a black background, even if black is like looking into a hole, a bottomless pit. Then they have harsh colors on the chart, each indicator line more pronounced than the other, usually the latest add-on is the most prominent so you can distinguish it from all the other lines you already have on the chart.
Take the time and list the indicators you have on your chart from least to most important. Make the important things more prominent than the less important ones.
But first think about the background. What color do you like? Really black? Would you paint the office you sit in day in and out really black? That's depressing.
Most will have white walls, but unfortunatly white on a screen is an active white, not a passive one like we have on our walls. So I use a kind of sandy white, which looks a bit like the clouds in the morning on a day which is to become warm and sunny. But you might as well use any other color. Just play with the infinite number of colors you have available to choose for a background. Then adjust the colors you use for bars and indicators to fit this background color, so you finally have an artwork, which feels pleasant for you to look at day in and out.
Next ask yourself, if you really need all your indicators. The less indicators you have on a chart the less stressful it becomes to make a decision to take, close or leave a trade (also something I'm sure Brett knows a lot about).
The best traders often use just 1 or 2 additional indicators beside Bars, if they use charts at all.
I've switched to Rangecharts (each bar has a specific range) and Heikin-Ashi barsto reduce the number of indicators on my charts. Heikin Ashi charts are a certain way to build a Candlestick chart which keep you in the trade, as they "filter" wiggles against your trade without the candle changing color. Take a look at this YM chart to see what I mean
(Be aware that the times on this chart are CET which is 6h ahead of New York)
Maybe someone finds an idea in this post to make his or her life easier.

robin said...

Perfect timing Brett.
I am having some difficulty as well. It has been a tough few weeks for me. I have been debating whether to take a break or not...Thanks for the heads up!
Since you mentioned "journal" I have noticed that my journaling has suffered a bit. Perhaps this might be a sign? It would be a treat to take a look into your journaling. You might have already posted on this topic. Thanks much.

Wilson said...

I totally agree, Dr. Steenbarger. I definitely feel the signs of burnout as I'm going through the process right now. Not necessarily from trading directly, but as the pressures of a combination of recruiting season, CFA Level 1 (in 3 weeks), 23 credits|5 classes/qtr as I wrap up my final year of undergrad, and a 5-day a week internship stack up, in addition to internal pressure to continue personal research.

The only thing I haven't experienced is #5 - I'd actually change it to 'Escape mechanisms' instead of 'substance abuse' because instead of doing drugs/etc I find myself starting to actively _avoid_ work or studies (playing flash games, watching tv, reading slashdot etc.)

It's easy to stack on obligations.. but it's much harder to take them off. This is the position I find myself in - I justify it because after this quarter things will be relatively easy, with the CFA being done and job hunt hopefully resolved, I can just focus on school, internship, and personal research.

Even now I type this as I procrastinate on an Econ paper...

jedi said...

thanks for the article brett. i decided to take some capital off the table today for some more peace of mind even though we're probably going into the best time of year. i am hoping my higher reward approaches make up for the decreased capital. like globetrader says with the account screens, there are many ways to work and rework the process towards stressfree trading. i'm not sure if i remember this from your book or somewhere else, but the more smooth the automation of the process, the less stress there is in my opinion. nonetheless, the last month, i've let my emotions get the best of me and it was quite a task to overcome greed and take some money off the table, but after doing it, it feels much better so far.

Brett Steenbarger, Ph.D. said...

Thanks for the great comments on burnout as well as the suggestions. I especially appreciate your detailed insights, Chris (GlobeTrader). You have a keen sense for the intersection of psychology and trading; thanks for sharing your perspectives--