Tuesday, November 29, 2016

Working on Our Trading by Working on Ourselves

The recent post emphasized pattern recognition as a core trading skill.  That same skill is key to trading psychology.

One of Freud's central insights was that of the "repetition compulsion":  the idea that we unconsciously repeat patterns in our lives, often with negative consequences.  Change in therapy occurs when we become aware of our patterns and are able to interrupt and change those.  The different approaches to helping--psychoanalytic, behavioral, cognitive, family systems, solution-focused--are simply different ways of understanding and changing the patterns we unwittingly relive.

One trader I worked with never felt fully accepted and valued by his parents.  He was compared with his brothers and often found wanting.  He latched onto trading as a way of making a name for himself and becoming wealthy and successful.  Each time he lost money in the market, he experienced the loss as something more than the dollars and cents.  The losses felt like confirmation that he really was inadequate.  With his self-esteem riding on each trade, he found it difficult to make sound decisions.  He took profits quickly to regain the feeling of winning and took losses very reluctantly, unwittingly repeating those mistakes.

When we track our trading mistakes--and our trading psychology--in journals, we can often detect patterns that sabotage our profitability.  This is particularly the case when the same emotions crop up in trading situations, such as frustration, depression, or overconfidence.  Once we become aware of those patterns, we can begin to identify triggers that set us off.  That enables us to anticipate the patterns and rechannel our emotions and actions.  The trader I worked with learned to take breaks after losses and process his self-talk at those times.  Gradually he learned to separate his self-worth talk from his trading talk, allowing him to accept losses without experiencing himself as a loser.

It all starts with self-awareness.  We can't change a pattern if we're not aware of it.  When we become observers to our patterns, we are no longer immersed in those patterns.  As observers we can control those patterns and ensure they don't control us.  If you're experiencing repeated emotions and self-talk during your trading, the chances are great that there's a life pattern controlling you.  Market mastery and self mastery go hand in hand; working on ourselves can be the best way of working on our trading.

Further Reading:  How to Break Negative Trading Patterns