One of the more fascinating phenomena in trading psychology is that traders will trade poorly, miss opportunities, and lose money--and then they will proceed to do exactly the same things the next day and the next week. Finally, hurting from the losses, they seek psychological assistance. But is the problem primarily one of psychology?
A close look finds that traders commonly respond to losses in two ways:
1) As frustrating events, inevitable but difficult to experience and important to move beyond;
2) As mistakes, to be noted and learned from.
Not uncommonly, traders will respond in the first way and then transition to the second in order to put losses and missed opportunities behind them.
Then, having placed the experience behind them, the traders repeat the exact same behaviors!
Why? Haven't they done the right things, psychologically?
Let's imagine a different situation. Suppose you unwittingly hurt the feelings of someone you love and damage their reputation. Or suppose you are entrusted with the care of young children and feed them improperly, causing great and painful illness. How would you respond? Would you simply deal with it as an annoying, frustrating event? Of course not. Would you respond by merely keeping a journal and jotting down a lesson to be learned? I don't think so.
If you truly hurt people you cared for, you would feel deeply guilty. You would be overcome with regret and you would beg their forgiveness. You would not deal with the situation as a mere psychological issue. You would respond to it spiritually: as something profoundly wrong requiring repentance. You would be unlikely to repeat the hurtful situations, because your sense of regret would sear into your heart and mind a commitment to be more aware and sensitive in the future.
We commonly view guilt as a negative emotion to be overcome. We view "guilt trips" as things to be avoided. It is not by coincidence, however, that all major religions incorporate the ideas of sin, guilt, and atonement. It is also not by coincidence that programs such as AA emphasize moral inventories and making amends for the damage created by addiction. We don't change because we're frustrated by a behavior, and we don't change because we treat that behavior as an error. We change because we feel horror, regret, and disgust at what we've done and the damage we've created. We move on, not by minimizing our behavior, but by fully connecting with the consequences of that behavior and then proceeding, in all sincerity, toward forgiveness.
Alcoholics who hurt their health, hurt their friends, hurt their career opportunities, and hurt their spouses and children--and who don't view all that with absolute regret and an absolute desire to change--those are alcoholics at risk for relapse. Traders who lose their money, miss opportunities in life and in markets, who fail to support families that count on them--and who don't look at that with a deep feeling of guilt and responsibility--those are the traders who will continue the error of their ways.
All the psychological techniques in the world can't help someone who doesn't perceive and deeply feel the need for transformation. Pain alerts us to a situation in our body that needs to be evaluated and treated. In that context, pain is an important part of health. Guilt and regret are pain of the spirit. They are telling us we have been on the wrong path. That can be a very constructive element in our development.
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