Sunday, January 28, 2007

Three Steps Toward Improving Your Well-Being

The first posts in this series introduced a questionnaire for traders and explained how the items tapped into subjective well-being: the balance of positive vs. negative emotional experience. My most recent post explained how to interpret the questionnaire results and why it is important to sustain a favorable emotional balance for optimal performance. In this final entry, I will outline a few basic ideas for generating and sustaining a high level of well-being.

1) If you're out of balance, figure out if the problem is specific to trading - The question to ask is whether you feel out of balance in general, or whether those feelings are mostly limited to your trading experience. If the problem is trading-specific, you'll want to identify causes of your frustration and stress. Among the common culprits are: a) trading size that is too large for your account, creating losses and gains that are outsized relative to your total capital; b) normal slumps that occur when markets change and we get strings of losing trades; c) trading patterns that don't truly provide you with a directional edge in the market; and d) trading a time frame, market, and/or style that is not well-suited to your personality and personal needs. Teasing apart the common causes of performance problems will help immensely in exploring possible solutions.

2) If you're out of balance in general, figure out other aspects of life that might be contributing to distress and a relative lack of well-being - We know from research that the quality of interpersonal relations--the depth, not just frequency of contacts--and the experience of mental and physical vitality are crucial to well-being. Many traders so emphasize their work that they neglect these other areas of well-being. Then they wonder why they're not feeling more fulfilled even though they're making money. We also know from research that a sense of autonomy and competence are critical ingredients for well-being. Do the various activities of your life enable you to employ your skills productively, toward goals that are meaningful to you? Many times we become so caught up in low-yield activities and chores that we fail to put time into the priorities that could bring fulfillment. A nice measure is calculating the proportion of each day that you spend doing the things that make you happiest and most satisfied--and then actively structuring your days to maximize that proportion.

3) Consider keeping a diary of your emotional experience, inside and outside of trading - Researchers call it "experience sampling", and it's an excellent way to track the ebb and flow of positive and negative emotions. You want to jot down what you've been doing at the time and how you are feeling, with several readings per day. Examine what specifically you are doing in your trading when you're feeling good about it, and what you're doing when you have a more negative emotional balance. Similarly, keep tabs on good days and not-so-good days: are you doing something different on those good days with respect to work, relationships, exercise, eating? Finally, if your diary shows no relationship between your activites and your mood--and especially if you find yourself chronically out of balance emotionally--consider a medical evaluation. There are many physical problems that can contribute to an absence of well-being, including hormonal imbalances, seasonally-related affective problems, and sleep disorders. Similarly, such factors as anxiety disorders, depression, and drug/alcohol abuse can contribute to a lack of well-being. Your diary can be very helpful in distinguishing when problems are situational vs. chronic.

Perhaps the most important strategy of all is to have activities and interests in your life that sustain you during the inevitable lean times of trading. As I mentioned in my previous post, markets change and those shifts take a toll on our trading performance. Slumps are every bit as real for traders as for athletes. If all your emotional eggs are in the trading basket, you'll be vulnerable--and it will become impossible for you to do the new learning needed to internalize the new market patterns. If, however, you have many facets of life contributing to well-being, problems in trading need not become personal threats and jeopardize your overall sense of happiness and satisfaction. Diversification is a strategy that works both in monetary and personal investments.