Sunday, March 16, 2014

Optimism and Trading Performance

Harry Truman defined pessimists as those who make difficulties of their opportunities, whereas optimists make opportunities of their difficulties.

It turns out that optimism is an important variable in the response to stress.

This post points to research suggesting that people who are optimistic have more stable levels of cortisol (stress hormone) than pessimists.  Interestingly, optimists with high pressure jobs start their morning with higher cortisol levels.  This suggests that stress hormones can produce distress--and they can get us going.  High pressure might not imply high stress if we feel optimistic about what we're doing.

Here's an excellent article summarizing evidence that optimism is the most important predictor of emotional resilience:  the ability to weather adversity.  Summarizing the research of Barbara Fredrickson, the author makes the point that, in a positive mind state, you're more primed to notice positive things and act on them.  In a negative state, you're more likely to be defensive and narrow your field of vision.

Seeing the whole market field is not just a matter of looking at more charts and indicators; it's also a function of the cognitive set with which we process the information. 

The answer to successful performance is not to simply don rose-colored lenses.  Optimism does not mean ignoring challenges--that is denial.  Rather, an optimist finds opportunity in challenge.  We can't always feel good about outcomes, but we can find meaning and value in the process of learning and developing from those outcomes. 

Further Reading:  Optimism and Motivation


Curtis said...

The brain is primarily a rationalizing agent. Something inexplicable. Rationalize it away. Think about the argument, we eat animals so thus it must be right to eat animals because we can. Most meat eaters hold such a belief while most vegetarians will hold the belief that it is not right to eat animals and don't eat animals.

But, how many people will embrace the reality that it may be both wrong and nourishing to eat animals? That to kill an sentient animal is wrong but that it would not be wrong to eat the meat otherwise. There is some evidence that dopamine has similar activity across all species which suggest that even insects may be conscious. Is it possible to embrace that by merely walking around that a person could be killing thousands if not millions of sentient beings? The untold agony of a million deaths. Nobody will embrace that. Nobody would embrace either that just by meeting a new people and without ill will that the diseases they carried would kill hundreds of thousands.

Evolutionist and creationist share something profound in common which is the belief that it matters where we come from. But, has anyone asked, is this an important question even out of all the questions that can be asked?

And, isn't it rather unsettling to embrace the prospect of an eternity without a God? Again, the religious and non religious are invested in the more pleasing dichotomy of either heaven or nothing.

Andrew said...

How can we be sure that the road signed to hell doesn't lead up to heaven?

And people think trading is just about greedy people trying to make money...

SSK said...

Hello Brett, at the bottom of the post is a link that is entitled “Learning Optimism and building motivation” that has a questionnaire from Seligman entitled “learned optimism test”. Shockingly I scored differently that I would have guessed. The results: PERMANENCE BAD SCORE WAS 2 or moderately optimistic. PERMANENCE GOOD SCORE WAS 5 or average. PERVASIVENESS BAD SCORE WAS 2, or moderately optimistic. PERVASIVENESS GOOD SCORE WAS 5, or average. STUFF OF HOPE WAS 4, or moderately hopeful. PERSONALIZATION BAD SCORE WAS 5, or moderately low self-esteem. PERSONALIZATION GOOD SCORE WAS 4, or average. TOTAL BAD SCORE WAS 9, or moderately optimistic, TOTAL GOOD SCORE WAS 14, or average. GOOD MINUS BAD SCORE WAS 5, or average.
WOW, my wife knows me better than myself! That’s disturbing, or should I say, enlightening! I will have to read that post with its many links in further depth at some point soon. That is a large body of work you present on this topic. Based on a subjective analysis I would have thought based on how I perceive myself that I would have at least been in the upper quadrant, not the mean! I would have liked to take the attributional style questionnaire developed by Peterson, but it is not an active link anymore. I will see if I can google it…having googled it, there are links that charge about 40 bucks. I see Seligman is a co-author also. A very interesting discussion under the link “learning optimism and building motivation” that has a link entitled, “the recent post on attributional style”. In that article you mention three different dimensions of attributions:, 1st, Internal vs External, 2nd stable vs unstable, and 3rd, Global vs Specific. Those are three very poignant area’s to consider how and what we relate cause and effect to. The example that you give of the trader that loses money for weeks in a row is quite eye opening. As you mention the trader that attributes their poor performance to themselves (internal), then having the thoughts that it will never change (stable) and then the traders analysis that since he doesn’t have discipline(is global). What is really interesting is the point that your make regarding that you can also see depressed mood among traders that attribute positive outcomes to (external, unstable and specific factors)! Why? As you mention the point that emotions can be thought of as motivational states. Regarding the second series of attributional styles regarding external, unstable and specific factors, a trader might sabotage their performance in the sense that if they perceive them as such, (in other words, out of their control, or having to be in a specific framework for potential success) they might find themselves losing the motivation to adapt or change, as you mention in your illustration regarding adapting to high frequency trading programs. In summation, if you have an optimistic attributional style, you should attribute losses to the failure to adapt. If you have a pessimistic attributional style, you would attribute losses to external things, thinking that it is out of your control, rather than looking at adaptation and creativity in problem solving, keeping self-efficacy high, though having a positive attributional style. Also a great link to a series of PDF files under the link in the article entitled “attributional style and trading performance” entitled “emotions can be thought of as motivational states”, in the” personality and social psychology review” body of work. Thanks for that archive! Thank you as always! Best SSK