Consider the following scenarios:
1) A woman is motivated to lose weight and goes on a diet, losing 20 pounds over time. As she becomes more comfortable with her weight, she relaxes the diet and begins to put the pounds back on. Only after she has returned to her original weight does she reinstate the diet with renewed motivation.
2) An alcoholic attends AA meetings every day and remains sober for months. He tells himself he can become a social drinker and control his intake, only to relapse into his prior pattern of overdrinking and erratic behavior. When he is given another DUI citation, he is in jeopardy of losing his driver's license and returns to his AA meetings and prior sobriety.
3) A trader has gone through losses and trades smaller and more cautiously, planning out trades carefully in advance to maximize reward and minimize risk. As he makes money, he relaxes his trading criteria and takes a number of unplanned trades, resulting in losses. Once he loses the money he had made during his good trading, he returns to trading smaller and more carefully.
Each of these is a situation in which problems occur in cycles. The cycle involves strict, conscious, and motivated attempts at self-control followed by lapses of self-control. During the periods of self-control, the unwanted behaviors are contained; during the lapses, they spiral out of control and bring undesired consequences. Think about the eating patterns of a bulimic patient or the interaction patterns of spouses who repeatedly fight and make up. The problems are different, but the cyclical quality of the problems is constant.
Much of my book The Psychology of Trading deals with this problem of "multiplicity": how people can behave one way, in one state or frame of mind, and quite the opposite when those states shift. Reviewing cognitive neuroscience research, I conclude in the book, "People lose money in the markets because the person who places the trade very often is not the same person who manages and closes the trade. Quite literally, another self has taken over--another mind...People cannot sustain purpose in their lives--and trading is certainly a purposeful act--because they are fundamentally divided beings" (p. 79).
It takes the shock of significant consequences to change people's feelings and state of mind and shift them into the self-controlling mode. Once those consequences are not salient, the mind state becomes more relaxed, the urgency of maintaining control is reduced, and old behavior patterns come to the fore.
Conversely, when consequences are *always* salient, there is no problem maintaining desired behavior patterns. Most of us don't feel particularly tempted to steal merchandise from stores or drive at high speeds on the wrong side of the highway. We're quite aware of the consequences and following rules and doing the right things take no particular act of effort or discipline. Similarly, when a heart attack patient realizes his fragile health status, he finds it relatively easy to stick to a regimen of medications and proper diet. Salience of consequences promotes consistency in behavior: in classrooms, at work, and in day to day life.
The first step in breaking problem cycles of behavior is to become aware of those cycles as they are occurring and to focus attention on the likely consequences of those cycles. In practice, this means being very sensitive to the triggers that set the problem cycles in motion. For the alcoholic, the triggers are cravings or thoughts that it might be possible to engage in controlled drinking. For the trader, the triggers often are frustration and perfectionistic thoughts about how much money one should have made (or shouldn't have lost). If those triggers are accompanied by alarm--a concern for consequences--it will be relatively easy to interrupt the problem cycle and, in the case of trading, step back from the screen, calm oneself, and redouble efforts at careful, planned trading. The entire key is attaching that sense of alarm to those triggers.
I'll have much more to say about this in my forthcoming book on self-coaching, including specific techniques for sustaining self-control. Readers of the Trader Performance book might want to consult the chapter on "Behavioral Techniques for Enhancing Performance", which outlines, step by step, how to identify triggers and use exposure techniques to interrupt and reprogram them. In the exposure method, you use relaxation and guided imagery to vividly walk yourself through specific trigger situations, while you keep yourself physically calm and cognitively focused and mentally rehearse the concrete actions you want to take in those trigger situations: recognizing the trigger, reminding yourself of the dire consequences of repeating the problem pattern, and redoubling your efforts at cautious, controlled trading.
In other words, you want to respond to the trigger situations--the frustration, the thoughts of needing to trade to make money back, the overconfidence--the same way that you respond to losses of significant money. Instead of waiting until you lose money to become virtuous in your trading, you train yourself to become virtuous when you recognize the trigger situations and feelings that would take you out of your game. The more you mentally rehearse the trigger situations in the right state of mind and body, the more prepared you'll be to respond to them in a calm and focused way when they arise in real time.
Problem and Solution Patterns
Breaking Trading Slumps
Top Reasons Why Traders Lose Discipline
Understanding Lapses in Trading Discipline