Sunday, September 15, 2019

Key Perspectives in Trading Psychology - 3: The Power of Passion and Purpose

In the first post in this series, we took a look at two information processing systems and how those interact to create trading opportunities and problems.  The second post explored what we need to do to process market information more effectively.  This third and final post will also draw upon the Radical Renewal book to propose a fresh idea with powerful implications for trading psychology.

As the book notes, the single most powerful influence on our information processing is trauma.  When people are traumatized, the disruption to their safety and security is enough to overwhelm their ability to perceive self, others, and situations normally and objectively.  The victim of post-traumatic stress disorder, for example, will perceive threats in normal situations, simply because those might remind him of experiences during wartime.  

Normal emotional experience enables us to process information normally.

Traumatic (non-normal) emotional experience disrupts our normal information processing, sometimes permanently.

Traders who do not manage risk properly and lose all their money generally cannot come back and take normal risk.  Even modest drawdowns can feel threatening and unbearable.  The information that markets provide is lost, overwhelmed by the internal, threat-based processing.  Quite simply, to use the terms introduced in the first post from this series, trauma keeps us mired in self-focused processing, so that we cannot understand the "other", whether the other is a market, a person, or a life situation.

With that in mind, here's the big idea:

What if extreme positive emotional experience, such as profound joy and inner peace, creates a form of positive trauma in which we become rooted in other-focused processing?  In other words, what if very meaningful experiences that draw upon our sense of passion and purpose have just a profound impact on our information processing as traumatic stress?  In such a situation, what we would be capable of in terms of meaningfully processing the world would be as far from our normal daily experience as is our functioning under post-traumatic stress.  

When I conduct webinars and talk with traders, very often their questions focus on how they can reduce or eliminate their negative emotions, such as fear, greed, overconfidence, and frustration.  What they miss is that there are ways of cultivating extreme positive experience that can provide us with much more powerful market antennae.  

By consistently tapping into what we are passionate about--what gives us meaning, purpose, and fulfillment--we become consistently able to process the world in terms of what is meaningful.  We exit our self-focused internal chatter and become more sensitive to the nuances of the world around us.

Reducing negative emotions will help you process markets normally.  That's not a bad thing.  But what if your aspiration is to function beyond normal?  To perceive what is actually meaningful in markets, we need to be attuned to meaning--and all that lies on the far positive side of normality.  In Maslow's terms, the goal is to cultivate our capacity for the peak experience.  That keeps us grounded in the flow state, from which we draw both inspiration and creativity.

Further Reading (Free Blog Book):