Saturday, November 14, 2015

Every Problem Is An Outdated Solution

One of the first lessons I learned as a psychologist is that our problems generally represent coping efforts that have long since lost their usefulness and that now bring unwanted consequences.  This is a powerful concept, and one that is not well appreciated by traders.

A classic example would be a person who is emotionally or physically abused as a child.  Good coping for the child is to keep safe distance from others and avoid getting hurt.  Good coping might also be blaming oneself for the abuse to stay in the good graces of parents who are the care providers.  Later in life, keeping a distance from others and blaming oneself for negative outcomes become problems, interfering with relationships and happiness.  But problems are not the problem; the problem is overlearned coping that no longer fits your life situation.

This is why psychological change is not so simple as calling upon motivation, positive thinking, mindfulness, etc. etc. in ridding ourselves of problem patterns.  If our problems represent coping efforts, we'll only change if we find superior, substitute coping strategies.  The person who was hurt in childhood needs to find new, constructive ways of finding safety and closeness.  Until there is new coping, there will be no ability or willingness to part ways with what worked in the past.

A second thing I learned early in my career as a shrink was that most people don't have lots of problems, though it often feels that way.  Rather, they have a single issue that impacts multiple areas of life.  If they can resolve that issue, the resolution brings positive gains at work, in relationships, in mood, etc.  

If you have a recurring problem in your trading, it may show up in different ways in different market conditions and it may seem as though you have dozens of problems. Consider the possibility that there is one main issue--and that issue is not a problem, but an effort at coping that is not working for you in trading situations.

For instance, pulling away from situations that are stressful is a great way to avoid vulnerability.  I instinctively withdraw from situations that I find to be dysfunctional.  If I can't physically leave, I withdraw emotionally and become distant.  I can feel that wall go up.  In many situations, putting up the wall has worked very well.  At several situations in my career, when office politics became hugely dysfunctional, I kept the wall up for an extended time and was able to make the most of my job.  I engaged people in a cordial manner, but otherwise had nothing to do with them.

In markets, however, you can't just pull back when things hit the fan.  It's one thing to pull away from uncooperative people; another thing to bail from an uncooperative market!  Using the coping from the job situation leads to all sorts of problems in markets, including exiting markets at the wrong time and failing to enter markets when there's opportunity.  In my own trading, I had to learn new ways of coping with stressful markets before I could consistently act upon my best-laid plans.  Clearly defining my downside in advance and mentally rehearsing the loss scenario so that I knew I could live with a bad outcome enabled me to tolerate stress without resorting to the old, avoidant ways.

So here are a few good questions for self-assessment:

1)  What are the problems that recur in your trading?
2)  What negative outcomes are your problems trying to avoid?
3)  In your best trading, how do you manage to find better ways of dealing with those potential negative outcomes?
4)  How can you rehearse those better ways of coping in real-time trading situations so that you won't fall into old, outdated coping modes?

Every problem is a failed solution to a challenging situation.  Once we accept problems as coping efforts, we open ourselves to a search for new, better solutions.  We never really get rid of our problems.  We just substitute new coping efforts that lay the groundwork for tomorrow's problems.

Further Reading:  Madness and Trading