Sunday, October 29, 2017

Trading Psychology Challenges - 1: Burnout

Author's NoteThe extensive posting on how to diagnose your trading problems is helpful background to this series on challenges in trading psychology.  Before seeking solutions to issues that impact trading, it's important to figure out whether those issues are trading problems impacting psychology or psychological challenges interfering with trading.  The above linked post can help you make that important distinction--as well as a few other, key ones.

It's not unusual to hear young traders declare their passion for trading and their complete focus on developing themselves as traders.  When I hear that, I worry.

Very often those same traders are ones that burn out when they hit inevitable stumbling periods in their trading.  They pour themselves into markets and when markets don't give them anything back, they have nothing more to give.  Quite simply, they're burned out.

There are a few tell-tale signs of emotional burnout among traders, including loss of motivation and energy; negative, hopeless, and/or resigned thinking; and a loss of interest in life activities.  When I have been in a burnout state, I have felt overwhelmed.  I can't find the mental or physical energy to take on another task or responsibility.  It's a complete sense of overload.

In that state of overload, it's impossible to focus fully, further contributing to missed opportunities and poor decisions.  Equally crucially, in the burnout state, we cannot engage in high quality learning.  We're merely coping with our experience, not actively processing and learning from it.  For these reasons, burnout can take the form of a downward spiral, as lower energy and focus contribute to further performance problems, which in turn drain us of energy.

Lack of productivity--working many hours, but accomplishing little--is often an early sign of burnout.  Negative attitudes are also an early sign.  Many times, burnout in trading leaves people with little energy for the rest of their lives:  relationships, family, exercise, etc.  This, too, becomes a downward spiral.  When we lack energy, it's easy to avoid activities that initially take effort, but that could ultimately renew us.

Here are three things we can do to address burnout when it appears and also prevent it from occurring in the first place:

1)  Take Breaks - We can exhaust ourselves simply by sustaining concentration for long periods without any form of renewal.  Taking breaks during the trading day can help us review performance and make corrections.  It can also help us relax, clear the head, and renew our energy.  The key to effective breaks is that they keep you active, but not in the way you're active in front of trading screens.  Physical activity, social activity:  These are stimulating, but in different ways than trading.  Changing gears helps you restore those willpower muscles.  This principle applies to weekends and vacation periods as well: those are longer periods of renewal.  When you are truly burned out, trying something different at work is the wrong answer.  Any "trying" will simply further exhaust you.  Taking a complete break from work allows you to return with energy and focus, attacking your situation with a fresh perspective.

2)  Build In Rewards Even When Trading Is Not Rewarding - I am consistently impressed with how the most successful traders find work-related rewards outside of P/L.  Many of them work in teams and thus reap the psychological rewards of developing junior talent and contributing to others.  Many of them conduct their own research efforts and thus find fulfillment via intellectual curiosity.  During a period of flat to down performance, those research efforts may target new edges in markets, providing a sense of opportunity.  In all of these cases, traders evaluate their performance on multiple dimensions, not just P/L.  They find intrinsic rewards in managing money and are thus less likely to burn out during frustrating times.

3)  Build In Rewards In Life Outside Of Trading - As I emphasized in a recent post, using free time as down time is often a mistake.  You want your time outside of trading to be "up" time.  That is, you want your time outside of work to be energizing and stimulating--giving you energy at times when you're feeling sapped.  It is this positive use of time that prevents temporary overload from becoming a downward spiral of burnout.  Romantic relationships, friendships, physical exercise, personal interests, travel--all of these are potentially energy-giving.  

If you find yourself unable to enjoy non-trading related rewards and unable to benefit from the breaks you take, consider the possibility that your situation is more than a burnout.  Depression takes many forms and affects a significant portion of the population on a 12-month basis.  Especially if you have a family history of depression, consider seeing a qualified professional for a diagnostic screening.  There are many evidence-based therapies and medications for depression that are worth looking into if burnout seems chronic.

The key is that true burnout is situational.  Once we re-establish an equilibrium in lifestyle, we quickly regain our psychological equilibrium.  Balance in daily activities--and in life overall--ensures that no one setback in life will overwhelm us.  A great formula for well-being is a diversified and full life portfolio.