Saturday, March 25, 2017

Coaching Yourself for a Better Trading Psychology

Thanks once again to the good folks at, who hosted the recent webinar on techniques for changing your trading psychology.  The recording of that session is now up on YouTube.  I appreciate Mike, Terry, and crew making that available for those who could not attend live.  We had over 250 attendees and many more questions than I had time to answer.  In August, therefore, I'll do another session with, but this time with the sole focus of Q&A.  Traders can ask me any question about any trading (or life) problem, and I'll respond with ways I deal with those challenges as a psychologist and coach.  As the time gets closer, I'll post instructions for registering for that session.

In this post, I'd like to elaborate on a point made in the recent webinar:

What traders typically identify as psychological problems in trading are usually the result of an underlying problem and not the problem itself.  Successfully dealing with the issue means identifying and addressing its cause.

This is a very important concept, and it's what distinguishes would-be trading coaches from actual psychologists.  Very often the wannabe coach has a favorite tool or set of techniques for dealing with trader issues.  It's one size fits all.  A psychologist recognizes that the problems people experience can have many causes and first tries to determine where the problem is coming from.  

Let's take a typical example of a trader complaining of lapses in discipline.  The trader trades well for a while, then overtrades and loses more money than is prudent.  The trader asks the coach, "How can I solve this problem?"

It's the wrong question.  The right question is, "Where is this problem coming from?"  It's only after asking that question that we can figure out a possible solution.

Consider the following possible causes of lapses in trading discipline:

*  The trader is trying to focus on screens continually for an extended time and is becoming fatigued, with a resulting loss of willpower;

*  The trader is distracted by problems in his/her personal life, perhaps upset about arguments at home or financial issues;

*  The trader suffers from attention deficit disorder and resulting impulsivity;

*  The trader has become frustrated by recent trading losses, as these trigger past feelings of being a loser;

*  The trader has failed to adapt to a lower volume/lower volatility market and is now trading breakouts/momentum that fail to materialize.

You get the idea.  Loss of discipline is not the problem.  Loss of discipline is the result of a problem, and we have to diagnose that problem to figure out how to address it.  Filling out trading journals and checklists will not help the trader deal with personal issues at home or medical issues regarding ADD.  Working on mindfulness and awareness/control of emotions will not help a trader adapt to a changing market regime or address past psychological conflicts.  All of those techniques are useful in certain situations; none are universal solutions for our trading psychology.

The starting point for identifying causes of our trading psychology challenges is creating a catalogue of instances when those challenges are and aren't occurring.  So, for example, we would note when we are having more trouble with discipline in trading and we would jot down what is occurring at those times:  what's happening in markets, what's going on in our minds, what's happening in our personal lives, etc.  We would also write down occasions when we're faring much better in our discipline and what is going on at those occasions.  As we catalogue instances, we begin to notice patterns and those provide excellent clues as to potential sources of our trading woes.

The most important distinction is between issues that occur solely within the trading context and issues that also occur outside of trading and/or that have occurred in our past.  If we're lacking discipline in our personal lives (perhaps by not paying bills on time, by being easily distracted, by being emotionally upset), that is different from situations where discipline lapses are specific to the trading context.  Very often the connection is an emotional one:  the frustration that triggers the lapse of discipline is a frustration that is being felt in other parts of the trader's life and/or that has been felt during the trader's past.  

Very often, as you catalogue the waxing and waning of problem patterns, you'll see that working with a dedicated trading coach is not the answer.  If the problem is a conflict from your past repeating itself in your trading, a competent counselor or therapist can help with this.  If the problem is an attention deficit that has been present since our youth, this can be addressed medically and perhaps via biofeedback training.  If the problem is adapting to changing market conditions, perhaps what is needed is some mentoring from an experienced trader.

We can coach ourselves for a better trading psychology by paying close attention to the triggers of our trading challenges.  Asking the right questions greatly increases the odds of finding solutions for our trading.

Further Reading:  

Brief Therapy for the Mentally Well

More Therapy for the Mentally Well

Four Triggers for Trading Psychology Problems

A Powerful Change Technique for Our Trading Psychology

The Daily Trading Coach:  101 Techniques for Changing Trading Psychology