Tuesday, August 14, 2007

One of Trading's Greatest Emotional Pitfalls

Research in psychology tells us that there are several important facets to subjective well-being (SWB):

1) Joy - Our happiness; the proportion of time we experience positive emotion;

2) Contentment - Our satisfaction with life and sense that life is meaningful and worthwhile;

3) Energy - Our physical and emotional sense of vitality;

4) Affection - The quality of our close personal relationships; the consistent giving and receiving of love.

Past efforts among psychologists have been to help people manage stress. What we're now finding out from the research is that it may be more important to maximize well-being. There are a number of emotional and physical health benefits associated with high levels of well-being. We're also most productive when we have high levels of SWB and are most likely to have optimal attention, concentration, and cognitive performance.

I would argue that it is just as important for performers in cognitive fields (like trading) to maximize their well-being as it is for performers in physical fields (like athletics) to maximize their physical conditioning. Indeed, it may be fruitful to think of SWB as a kind of cognitive and emotional conditioning that is developed in the "gymnasiums" that make up our lives. One yardstick of how we spend time each day (and a yardstick of each of our major activities) is the degree to which it contributes to SWB and thus enhances our emotional fitness.

One of trading's greatest emotional pitfalls is relying upon the making of money for SWB. I know many traders who make their happiness, contentment, and energy contingent on trading success. Indeed, I've known many traders who define themselves by their trading success and use that success to seek attention/affection from others.

We can see from recent market experience that even very successful professional traders and trading organizations can undergo meaningful drawdowns when market regimes change. If our SWB rises and falls with our P/L, we are doubly vulnerable--and that adds quite a burden to future trading.

Yes, trading can--and should be--a source of pride, accomplishment, and challenge. It cannot, however, substitute for a full life. The pitfall of wrapping our well-being up in trading results has resulted in much of the trader burnout I've seen in my years of working with traders. If your well-being hinges on your trading results, what will provide the emotional fuel for your comeback?


A Personality Questionnaire for Traders

Steps Toward Improving Your Well-Being