Sunday, December 06, 2020

How To Overcome Self-Critical Thinking and Tilt Trading

For many traders, their greatest enemy is the harsh self-criticism they heap upon themselves after losing money or missing opportunity.  Self-criticism occurs when we channel normal and natural frustration (which any competitive trader is apt to feel from time to time) as anger directed toward ourselves.  When we turn our frustrations against ourselves as anger--telling ourselves that we're no good or not good enough, that we'll never succeed, that others are doing so much better than us--we create emotional distractions and a loss of focus that can only lead to subsequent poor trading.

If you read through the most recent Forbes article, you'll notice an interesting set of findings:  Leadership and management work best when they are expressed through positive people skills.  Being a caring leader or manager is just as important as being a tough and challenging one.  Tapping into the goals and visions of others is just as important as projecting organizational goals.  Caring about people brings out the best in people.  That is true at work, and it's certainly true in our home lives.

So why should it be different in managing ourselves and our trading careers?

We channel frustration as anger when we make losing unacceptable.  If losing is a threat and a failure, then the aggressive, competitive parts of ourselves will turn against us.  It's a great example of how we can take a strength too far and turn it into a vulnerability.  The only way we can balance that aggressive and competitive strength is to balance it with a very different strength:  self compassion.  Just as we would empathize with another trader who goes through a difficult trading period, we want to be able to empathize with our own situation during inevitable periods of drawdown.  

This is why I emphasize the importance of treating losses as potential learning lessons and actually *embracing* them in our reviews.  From the vantage point of deliberate practice, setbacks are the very fuel of growth.  If we are coaching ourselves, we want to be our greatest support systems--especially during difficult times.  It works in the management of organizations, and it works in our self-management.  We can overcome self-critical thinking by replacing it with constructive thinking--and we can turn constructive thinking into a positive habit pattern by developing sound review processes.    

In my upcoming Three Minute Trading Coach video, I will describe a centuries-old technique for cultivating self-compassion and defusing self-directed frustration.  

One more thought, however:

Trading on tilt is often not a primary trading problem, but a reaction to a deeper, underlying problem.

We typically go on tilt after a setback in our trading ignites our frustration and our frustration ignites anger and a very negative sense of ourselves.  We go into overtrading/tilt mode to try to make the money back, and we try to make the money back to try to restore our emotional equilibrium and feel better about ourselves.  

In psychodynamic terms, tilt trading is a defense.  It's a way of attempting to ward off damaging self-criticism triggered by losses and missed opportunity.  Of course, such trading on tilt only deepens the losses, leading to serious emotional setbacks.  

If we want to eradicate tilt trading, we need to balance that aggressive drive to win with an equally assertive sense of self compassion.  Once in balance, we can channel frustration in ways that enhance us and further our learning in markets.  It sounds strange, but drawdowns can be gifts, teaching us something about markets, something about ourselves, something about our trading ideas, something about how we trade those ideas.  The goal is not to avoid loss; the goal is to keep learning and get better and better and better.

Further Resources: