Sunday, September 14, 2014

Overcoming Impulsivity and Procrastination

Perhaps the two most common psychological concerns of traders are impulsivity--doing things without clearly thinking through the rationale--and procrastination, failing to act upon our plans and intentions.  Most commonly, impulsivity is the result of frustration and excitement:  our body's arousal impels us to action, even when it might be best to stand aside.  Procrastination is most often a function of worry and anxiety.  It is a way to avoid potential negative consequences.  Both behaviors lead to situations in which traders fail to act upon their ideas and plans.

It is common for traders to work on these problems by trying to control themselves (to reduce impulsivity) and by trying to motivate themselves (to reduce procrastination).  In both cases, there is a divided self:  one side that pushes the "good" behavior and the other side that gravitates toward the "bad" behavior.  Not only does this self-division not work; in fact, Wegner's research suggests that trying to suppress unwanted behaviors can actually make them stronger.  It is a bit like trying to make yourself not think about a pink elephant or trying to make yourself go to sleep.  The more you make the effort, the more you reinforce in your mind the consequence you're hoping to avoid.

This is where habit formation is most useful.  When we break desired behaviors into chunks and turn those into routines, we take ourselves out of the realm of control and motivation and instead enact the behaviors automatically.  For me, a good example is market preparation.  Before each trading session, I update dozens of spreadsheets that inform me about current market conditions, from breadth to sentiment.  That process is a very well-worn routine--so much so that I haven't missed a spreadsheet update in quite a few years.  The key is that I enact the updates in the same way, at the same time of day, in the exact same manner.  Because it is a habit, I don't expend mental capital on the exercise, trying to get myself to finish the task or making sure I perform the updates diligently.  Once behaviors are automatic, there is no division of self.  That saves considerable energy and emotional wear and tear.

When the essential elements of trading are distilled into routines, the result is a trading process.  A robust process is nothing more than a coordinated set of habits.  There are many benefits to being process driven, including grounding oneself in best practices.  The major psychological benefit, however, is consistency.  If we are not at war with ourselves, we can devote full attention and focus to the battle for profits.       

Further Reading:  Making Sound Decisions Under Conditions of Fear