Wednesday, February 20, 2019

Using Your Body To Program Your Mind

One of the most common questions I get from traders is how to tune out thoughts and feelings that can sway our decision making.  Some of the common steps traders take to keep away fear, greed, and frustration include focusing exercises (including meditation) before the start of the trading day and taking breaks during the trading day to clear one's head.  What is interesting, however, is that, despite these steps, many traders continue to struggle with impulsive, reactive trading.

What is going on?

First, let's establish why this is important.  As the quote above suggests, when we quiet our minds, we gain access to our intuitive knowing.  There is nothing mystical about this.  Our pattern recognition represents a non-verbal level of knowing.  We engage in that form of information processing every time we drive a car or read a person in a conversation.  If we are busy talking to ourselves--engaging in inner chatter about missing trades, needing to trade bigger, losing money, etc--we by definition are not in our non-verbal processing mode.  We cover over our intuitive processing with our endless self-talk.  Quieting our minds provides us with access to what we know but don't necessarily know that we know.

So let's say we practice relaxation techniques prior to trading and teach ourselves to focus our attention and calm ourselves.  That way, when we become stressed and go into fight-or-flight mode, we can return to our exercises and regain our composure.

Sounds good, but it doesn't work that way.

The problem is that the state we are in when we are doing our exercises is miles apart from the state we're in when we're experiencing our fear and frustration.  We can't prepare for the heat of battle off the battlefield.  The skills simply don't transfer.  That is why behavioral therapists try to recreate stressful situations through imagery and gradual exposure while engaging in the self-control exercises.  We need to program our minds for when our bodies are going haywire. Otherwise, we perform the exercises fine prior to trading and during our breaks and then fall back into reactive processing when the fight/flight mode is upon us.

A technique that behavioral psychologists have found helpful is known as interoceptive exposure.  What this means is that we simulate the physiological state that is associated with the stress and then learn effective coping methods.  For example, someone with a panic disorder might go round and round in circles making themselves dizzy and lightheaded.  This simulates some of the physical sensations of panic.  In that state, the person practices their coping techniques, so that they can stay calm and centered despite those sensations.  When panicky feelings actually hit, they now are prepared for them and don't become stressed by their own anxiety.

It turns out that many of our problems are not due to initial stress and anxiety reactions, but to our getting stressed out about our stress!  This is known as secondary anxiety.  Through interoceptive exposure, we literally program our minds to stay focused and relaxed during those initial periods of stress.  Then, sure enough, the stress passes without causing us distress.

So how does this relate to trading?

I've recently begun a creative exercise that has been greatly helpful not only in trading but across a number of challenging life situations.  Each morning I do an aerobic workout on my treadmill.  The idea is to keep myself in an elevated, target heart rate zone for a certain period of time.  My Fitbit tracks my progress on that.

The unique part of the exercise is that, while I am working out on the treadmill, I practice my deep, regular breathing and focused imagery.  In other words, I get myself "in the zone" by quieting my mind while I'm sustaining an elevated heartrate.  Through daily practice, I've become quite good at entering that flow state during my time on the treadmill.  A side benefit is that the workout seems to go much quicker, and I more quickly find my second wind.  Once in the flow, I don't really feel fatigue.

The greatest benefit, however, is that the daily repetition literally trains and programs my mind to stay focused and calm--i.e., stay in the zone--while my body is aroused.  That fight or flight state begins with elevated heartrate and a speeding up of physiological functions.  By training ourselves to stay relaxed through the initial arousal, we can make that fight/flight state completely non-threatening.  There is no snowballing into secondary anxiety/stress.  Now, when a stressful event occurs in the market, I very naturally slow my breathing and enter the focused rhythm from the treadmill.  

This turns interoceptive exposure into a peak performance tool.

Most of the problems of trading psychology are state-dependent.  They are triggered by particular states of mind and body.  By training ourselves to engage in our best information processing while we are in the states that trigger us, we gain a level of control over ourselves and our trading that simply is not possible with casual self-help techniques.

Who knew?  Your aerobic workouts could become your best trading psychology workouts!

Further Reading: