Friday, August 29, 2008

The Fundamental Error of Trading Coaches

My last post suggested that we learn trading problems in much the same way that we learn market patterns: through implicit learning, accelerated by novelty and emotional impact. One implication of this view is that the problems that affect trading--from performance anxiety to frustration and impulsivity--are not verbally mediated. Because they are the result of repeated negative experiences in markets, they are conditioned responses that occur without prior thought.

The fundamental error that trading coaches make is to assume that, because such problems interfere with trading discipline, they can be solved by imposing stricter discipline. If the anxieties and frustrations that disrupt decision-making are implicitly encoded, however, they cannot be modified by creating more and different trading rules, by talking oneself into discipline, by discussing discipline with coaches, or by establishing trading plans. All of these are conscious, verbal, explicit attempts to deal with phenomena that are not encoded in conscious, verbal, explicit ways.

This is why, for example, talk therapies tend to be relatively ineffective in dealing with post-traumatic stresses. Suppose a soldier has been traumatized in wartime and now finds his work in civilian life disrupted by memories and images from his time on the battlefield. Would he be helped by reviewing and writing down rules for the workplace? Would he be helped by talking to someone who encouraged him to stay disciplined in his work? Would creating plans for greater productivity even begin to touch the problem? Of course not.

Psychological problems created by repeated negative emotional experience can only be solved through experiential means. That is why conditioning therapies work so well with traumatic stresses; it's also why anxiety can be dealt with more effectively through relaxation and imagery than through talking about one's fears. About 60 years ago, two psychoanalysts, Alexander and French, challenged Freudian orthodoxy by insisting that change occurs through "corrective emotional experiences", not from intellectual insight. That perspective has greatly shaped the approaches to helping known as brief therapies. Sadly, it has yet to permeate coaching practice with traders.


Brief Therapy for Traders

Therapy for the Mentally Well