Wednesday, October 07, 2009

Three Life Problems That Can Become Trading Problems

In my work with traders, I've found that life problems that spill over into trading mostly fall within three groups:

1) Mood Problems - This is where problems with anger, anxiety, depression, and other mood states interfere with aspects of life outside of trading, but also sometimes get in the way of trading decisions. Simply tweaking one's trading will not address the underlying problem if this is the case; profits in markets cannot be counted upon to compensate for negative feelings--or negative feelings about oneself. Often, professional help can be quite useful, particularly if self-help efforts fall short.

2) Problems With Addictive Behaviors - Here is where difficulties with gambling, drinking, and drug use can also manifest themselves in trading. A number of people with addictive problems also have mood problems and, in some cases, the addictive behaviors are an attempt to cope with disruptive moods. Similarly, traders can put on positions more to regulate their emotional states than to objectively capture supply and demand in the marketplace. This is another area where professional help can be essential.

3) Problems With Attention Span and Impulse Control - Sometimes people are prone to distractions across a variety of situations. That makes it difficult to plan actions and follow intentions. This can show up as getting behind in chores at home, being disorganized with time and responsibilities at work, and as impulsivity in decision making. Many traders who have trouble sticking to rules and plans experience similar lapses elsewhere in life. Biofeedback and medication help can be helpful when the problems reach levels where self-help efforts at time management and organization fall short.

In these situations, it makes sense for traders to not assume that reading books and chatting with coaches will solve their problems. Sometimes problems have biological and psychological roots that require more directed intervention. If self-help has failed, it may be because other forms of help are needed. I encourage traders to evaluate themselves as objectively as possible; great things are possible once you're freed up to simply trade markets as you see and understand them!


david said...

I am having mood problems.

Everything was great until I officially started paper trading a simulated account in late August. I find myself feeling anxiety when I'm in a trade, and am prone to panic-driven early exits of positions. Also, if I make a mistake I am often confronted with urges to immediately make a trade to correct the mistake, and the urges are sometimes so intense that I have to turn off the computer and leave the room. This is becoming a major concern for me because as much as I try to treat this account as real money, it can't substitute for the real thing. So if I am having some anxiety issues trading fake money, how will I react to trading my own money?

You mention professional help being an option if self-help isn't getting the job done. What kind of professional help would you recommend and how should I go about finding it? I really want to deal with this, not just to help my trading, but also because learning to better manage stress/anxiety could greatly improve other areas of my life as well.

Many thanks.

Viktor said...

Hi David,

Trading is not easy. You cannot learn everything in one day. Do not expect that you will be profitable from the beginning. Start to paper trade and find your weak points. Then start to correct them, but start with only one. If you manage to fix one problem, you will be happy and you have self-confidence to fix the others later. Learn to trade gradually, that is the only way.
You close your position prematurely because you have risk aversion problem. I had the same problem, too. Decide your exit strategy before you open position. You cannot make money if you does not risk a little, but you should control the risk.
You cannot correct a bad trade with a good one. Every trade is independent. If you made a mistake, analyze it, learn the lessons, then next time you will do it better.
I recommend you to find a good trading community. There are lots of people out there who struggled with similar problems but know the way to overcome them.