Thursday, April 03, 2008

Frustrated Trading: Stilling the Negative Thoughts in Your Head

One of the most disruptive emotional influences in trading occurs when normal, expectable frustrations encountered during the trading day trigger longstanding, habitual patterns of negative thought. At that point, as cognitive therapists emphasize, the negative thoughts follow a well-worn—and automatic—path, adding frustration to frustration. This is particularly damaging to trading for two reasons: 1) it prevents traders from constructively addressing the original, market-related sources of frustration; and 2) it escalates frustration to the point where it impedes future decision-making.

Take the example of Rick, an active intraday trader, who grew up in a family dominated by conflict and fighting. Hit and yelled at frequently as a child, he developed resentments toward authority figures that continued during his schooling. He likes to champion the underdog and often complains that “big guys”—those with power and influence in business and government—take advantage of the “little guy”. When he is trading, Rick can be very focused on his markets and keen in his observations. Every so often, however, his markets will move suddenly on news items, rumors, or large institutional (program) trades. That becomes his trigger: the market event that sets off his negative thought patterns.

When the market moves suddenly and sharply against Rick, his first reaction is anger and frustration. Automatic thoughts rush into his head: “I can’t believe this is happening again” and “I can’t believe how unlucky I am.” Although he voices these thoughts in a frustrated and often sarcastic tone, there is no doubting his sadness. He experiences himself as a victim of the market’s adverse movement. He has become the “little guy” hurt by the “big guys”, just as he was hurt during his childhood.

As the market moves further against him, Rick makes the transition from frustration to outright anger. He raises his voice, exclaiming that he can’t believe how unfair and “rigged” the markets are. He declares that it’s impossible to make money; the markets cheat the “little guy”. Eager to lash out at the big guys who are “taking my money”, Rick fights the trend and doubles down on his now-losing position. He rebels against the “big guys” just as he did against his parents, teachers, and bosses. The market, however, doesn’t listen and doesn’t care. It grinds Rick’s oversized position into a major loss, leaving him feeling saddened, defeated, and shocked at his own lack of “discipline”.

Rick vows to do a better job of keeping his cool and following his risk rules and, for a while, he keeps a lid on his frustrations. Inevitably, however, one of those market moves is likely to once again go against his position, and his thoughts and feelings return. It’s as if his brain is taken over by an alien influence—one deeply rooted in his past.

The important thing for Rick to recognize is that he is not simply reacting to the markets; his emotional reactions are colored—and exaggerated by—his past. In fact, this is a useful psychological principle: there are no emotional overreactions to events, only reactions that mix the past with the present.

At the time Rick is finding his negative, automatic thoughts triggered, he is not aware that this is a function of the past intruding into the present. He doesn’t see that he is transferring his anger and hurt toward his father (the first “big guy” who hurt him when he was a “little guy”) to the markets. Because he isn’t aware of this connection, he winds up repeating it again and again in a destructive fashion.

Many, many times, the “overreactions” of traders are reflections of unresolved issues from the past intruding into the present.

In coming posts, I will explore ways of coming to terms with these patterns and isolating them from trading decisions. The first step, however, is for traders to recognize when their frustrations are boiling over—and to stop trading at that time. Above all else, do no harm is the principle. If you felt your car was not responding properly to your driving maneuvers, you wouldn’t keep driving, and you certainly wouldn’t speed up! So why keep trading when your mind is not responding to your planning and reasoning, and why especially trade more aggressively?

This is very important: developing the ability to stop yourself. By itself, it will not solve the problems from the past, but it will drive a wedge between you and your negative, automatic thoughts. You may not be able to stop the thoughts right away, but you can ensure that they don’t control your behaviors. All you need is a rule that you follow religiously that says: once you start yelling, swearing, pounding the table, clenching up, or talking negatively at the screen, you take a break until you’re calm. That’s it. You can choose to trade or not trade when you’re in or out of the zone.

You’ll be surprised how taking a break will help you still the voices in your head, regain your composure, and build your sense of self control. A few minutes of slow, deep breathing and focused concentration perform miracles in this regard. (I find biofeedback especially useful in this regard, as it tells you precisely when you're re-entered the zone). Many more traders would be successful if they only traded when they were in the right state of mind.


Therapy for the Mentally Well

Emotional Intelligence and Trading


CharlesTrader said...

Hi Brett,

Would like your thoughts on the best way to relieve internal frustrations:

1. Put on some boxing gloves and have a few rounds with a punching bag, or
2. Sit in a quiet room and meditate while being attached to a biofeedback monitor, or
3. Do #1 first and then #2 above.

In other words, is it ever good to express your internal frustrations with something external, such as punching a punching bag?


StuartR said...

Hi Brett,
Excellent article,i know just how Rick feels.
I have just purchased a bio feed back machine that plugs straight into my computer.hopeing this will help me.


Marc said...

Sex with the wifey works for me. (non-violent of course)

(I'm not joking)


pdcreative said...


I couldn't agree wtih you more. I've recently been doing some very intense personal development and have learned much about myself. Mainly, I've come to understand that all of the subconscious beliefs and self images I've since childhood have drastically effected how I create my life. This absolutely extends to my trading.

I've realized that I've been fed by a need to be right and have therefore created scenarios where I can't be wrong. When in losing trades, I would get angry or adopt the "why me" mentality, which completely shut down my ability to be objective. I would root for the market to go in the direction I wanted.

I realized that I've been a bear in large part because I somehow felt the market deserved it for being "irrational". In short, I haven't traded what the market was telling me but what I was telling myself.

I am now in the process of telling myself repeatedly that it doesn't matter whether I win or lose on a particular trade. What's important is that each trade is a great opportunity to learn about the markets and these opportunities are allowing me to be successful. This has eased the tension in my body quite a bit and will do so even more as I get better at adopting the correct mental attitude.

This has been a huge breakthrough for me and will propel my success going forward.

Stress and tension relievers are great. But even better is being able to have the right mental attitude and to see wins and losses for what they are. Like I suspect Rick did, I took losses personally, feeling they were somehow a reflection of my success as a person. Now I've realized that they are simply a step towards better trading and an opportunity to learn more.

- Peter

tradahmike said...


Good comments, have you reviewed or are you aware of Denise Shull's work in this area? It's really very interesting.

Brett Steenbarger, Ph.D. said...

Hi Charles,

Yes, some people find a physical outlet for tension to be quite helpful. A quick jog to clear out the head, for instance, can precede a period of meditation and concentration. It's worthwhile to experiment in this regard and figure out what works for you. Thanks for your comments--


Brett Steenbarger, Ph.D. said...

Hi TradahMike,

Yes, I know Denise personally and like her work with traders. Thanks for pointing her out as a coaching resource.


Brett Steenbarger, Ph.D. said...

Hi Peter,

That is an unusually perceptive comment, esp. the part about need to be right and trading because you think the market "deserves" something, not because that's what the market is telling you. Embracing losing trades as sources of information takes away much of their threat--especially when you're sizing trades properly--and that prevents much of the frustration that interferes with good decision making. Thanks for writing--