Monday, December 11, 2006

Controlling Emotions Is NOT The Goal Of Trading Psychology

Pick up a book or magazine article about trading psychology and you're likely to find prescriptions for success based on controlling emotions and increasing discipline.

Yes, emotional arousal can interfere with performance, but does that mean that elite performance is a function of dampened emotions?

When you look at some of the greatest performers in sports--and in trading--you'll find highly competitive individuals. They are quite emotional and don't take well to losing. Lance Armstrong? Michael Jordan? Tiger Woods? Muhammad Ali? All were quite intense, emotional individuals who managed to channel their emotional drive into victory.

Conversely, I've encountered many well-balanced individuals who have sought success in trading. They don't blow up, they follow rules faithfully, and they have no intense, competitive emotional flame burning within. I've never yet seen one go on to become successful.

Can anyone watch the really successful college basketball coaches--Coach K., Jim Boeheim, Bob Knight, Tom Izzo--and attribute their success to emotional restraint? Yes, there have been emotionally reserved winners--think John Wooden and Dean Smith--but one suspects their emotionality was that of a warm mentor, not that of a cold fish.

The important ingredient in success is not emotional dampening per se, but the enhancement of concentration and focus. That is what enables people to act with sustained purpose and stay rooted in their goals.

When we review the lives of great individuals across a variety of fields--the research of Dean Keith Simonton and K. Anders Ericsson stands out in this respect--what we find is that the greats have prodigious capacities for work. They are hugely productive. They sustain effort hours at a time, day after day, week after week, year after year.

Only the ability to regularly access "the zone"--that flow state of consciousness that comes from being wholly absorbed in an activity that captures our interests, skills, and talents--can account for the amazing dedication of the Olympic athlete, the great career scientist, or the chess grand master.

Indeed, such exemplary performers can use emotion to access the zone. Michael Jordan used to provoke players on opposing teams so that they would argue and fight back. That would arouse Jordan's competitive instincts and elevate his game.

When we operate outside that "zone" and lose our focus, we are no longer activating that executive center of our brains--the frontal lobes--that control planning, judgment, and reasoning. Left with a weak executive center, we become like the person with Attention Deficit Disorder: prone to wandering attention, reduced self-control, and impulsive behavior.

That makes it look as though "emotion" and "lack of discipline" cause our trading problems.

In reality, however, these are the results of the problem; not the causes.

The goal of trading psychology is to build consciousness, not reduce emotion. The goal is to create regular access to the flow state of heightened learning and focus. Talking to a trading coach, in itself, won't accomplish that; nor will well-intentioned efforts to calm oneself or take breaks from trading.

We can only build consciousness by working on consciousness. That is why I find meditation, heart rate and galvanic skin response biofeedback, self-hypnosis, and newer methods such as hemoencephalography to be valuable tools for traders and emphasized their use in my book on the psychology of trading.

These methods don't eliminate emotion; they build minds. If we can exercise for 30 min./day and build our cardiac fitness and our physiques, maybe--just maybe--a similar commitment could strengthen our abilities to operate within life's "zone". I'll be posting more re: my personal experiments with mind training in the near future.