Emotions and Trading: Understanding Depression

In my recent post, I talked about a group of emotions related to anxiety and stress and how those affect trading. We also took a look at how risk management can also be a strategy for anxiety management. In this post, we'll begin a look at trading emotions related to depression, including discouragement, loss of confidence, persistent negative thinking, and loss of motivation and drive.

Just as anxiety can be a normal response to perceived threats to our values, the various emotions related to depression can be a perfectly normal response to loss. Feelings of anxiety occur when we fear the loss of something important to us; depressed mood sets in when we're faced with such a loss.

There are diagnosable disorders of anxiety (generalized anxiety disorder, panic disorder, obsessive-compulsive disorder), and there are mood disorders related to depression (major depressive disorder, dysthymia, bipolar disorder). Anxiety and depression are diagnosable when they are persistent and significantly interfere with a person's normal functioning. For example, a significantly anxious person might not be able to leave his home; a significantly depressed person may lack the energy to get out of bed and participate in work and social life.

The majority of people, however, experience moods and feelings related to anxiety and depression at a "subclinical" level. They continue to function in work and relationships, and their moods are often tied to very real threats or losses that they might face in their finances, their jobs, or their marriages.

As social psychologist Jack Brehm has observed, we can think of the depressive emotions as a kind of motivational suppression. When our values are active, they motivate us to action: we are hard-wired to pursue that which we find life-enhancing. It would not be adaptive, however, for us to be motivated to pursue unattainable ends. In the face of loss, therefore, we experience a suppression of motivation--a dampening of our pursuit for what we had valued. It is this dampening that we experience as a depressive feeling. It is perfectly normal, and it is common.

The problem for traders occurs for depressive emotions as for fear-related ones: these emotions are responses to *perceived* threat and loss--not necessarily actual threats and losses. If we perceive that our future as a trader is lost (or if we perceive that there is no way we can make money during a difficult market period), we can respond emotionally and motivationally with suppression. We become discouraged; we lose our drive to persevere; we slip into modes of negative thinking that kill our drive. If we are perfectionistic and perceive *every* trading loss as a failure, then we can wrestle with negative, depressive emotions on a very regular basis--even if the actual, financial losses are minimal.

The cognitive hallmark of anxiety is worry. The cognitive hallmark of depression is negativity. In an auto-immune disease, the body's immune system turns against the body itself, treating the body as a foreign invader. Depression is a kind of emotional immune system, in which we expel goals that are not appropriate or attainable. Depression becomes an auto-immune problem when we turn against entirely proper values and lose our drive to engage in activities that would sustain us. Our negativity toward ourselves dampens our motivation and keeps us mired in problems.

Brehm's basic hypothesis is that emotions are motivationally regulating: they impel us toward valued ends and keep us from pursuing unavailable ideals. If we look at emotions that way, then we can see that boredom and loss of interest are mild forms of depressive emotion. These are adaptive, and they may be providing us with valuable information about our values and their realization in the present.

Other times, however, depressive emotions can interfere with performance in trading--and life. In my next post, we'll take a look at how we might identify when depressive feelings are problematic and how we can shift out of those when we need to.

RELATED POSTS:

Using Emotion to Change Emotion

A Unique Approach to Emotional Self-Regulation
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Trading Psychology Diagnosis: Identifying the Root of Trading Problems

Every trained physician knows that diagnosis precedes treatment.  We have to understand what is going wrong before we attempt any kind of solution.  Auto mechanics engage in the same process: they listen to the engine, look under the hood, and run tests before they identify problems and begin to fix them.  

Too often, traders attempt solutions for their trading problems before they've truly understood the sources of those problems.  Equally often, mentors and coaches of traders offer their solutions without actually going through a thorough diagnostic process.  In this post, I will model for you a way of thinking that can help you identify what might be going wrong with your trading.  This way of thinking is anchored by several important questions.

Question #1:  Is there actually a problem here?

This may seem like a strange question.  You've just drawn down; you've been frustrated in your trading.  Of course there's a problem!  The issue, however, is a bit more subtle.  Any successful trading is still a probabilistic enterprise.  Hit rates and Sharpe Ratios don't grow to the sky; people are fallible and markets embed a fair amount of uncertainty.  As a result, losing periods are inevitable and frustrations will be encountered.  Just as we expect baseball hitters to strike out every so often and football quarterbacks to throw incomplete passes on occasion, we can expect losing trades.  A trading approach with a 60% hit rate could be phenomenally profitable, but it will still encounter strings of losing trades with regularity.

What this means is that we begin the diagnosis by examining a meaningful sample of past trading, not just the last few days or trades.  A frequent day trader making many trades a day might look at the month's results and compare with results from the past year.  A longer term trader might need to assemble data over a year or more before confidently identifying a problem.  In other words, to identify a problem, it's necessary to see that recent results fall short of past ones and that recent drawdowns are not similar to past ones.  That requires a proper historical view.

When traders assume that a problem exists without a sufficient historical analysis, they run the risk of tinkering with methods that work and making those methods worse.  This is very true when traders begin to trade systems.  They become discouraged when the system has a (normal and expectable) drawdown, so they begin to change the system, front run the system, etc.--only to turn the setbacks into protracted slumps.

Sometimes traders are taking too much risk--trading position sizes too large for their actual loss tolerance--and those strings of expectable losing trades create a "risk of ruin" situation.  In such a case, the trader can look at hit rates and average win/loss statistics and determine whether the problem is in risk taking or if the actual performance of the trading methods has changed.

All of this is a strong argument for keeping detailed performance metrics on your trading.  Only by comparing recent performance to past performance can you understand if you truly are improving in your trading or having an actual problem.  If you're a beginning trader, then you would compare your recent returns to the returns you achieved in simulation mode.  (For more on trading metrics, see this post; also this post.  A detailed treatment of trading metrics can be found in Chapter 8 of The Daily Trading Coach). 

Question #2:  If there is a problem present, is it associated with a change in the market(s) you're trading?

My first hypothesis when I encounter a trading problem (my own or that of an experienced trader) is that the problem has occurred for a reason, and that reason is related to a change in how markets have been trading.  Because of those changes, the methods that had been working no longer command the same edge.  

A great example of this has been the recent decline of volatility in the stock market.  Many, many traders who made money from momentum and trend trading have suffered during this low volatility period because moves no longer extend and, indeed, tend to reverse.  That, in turn, leads to frustration and discouragement.

The key tell for when trading problems are related to changes in markets is that people trading similar strategies are also experiencing performance difficulties.  This is one reason it's important to have a broad network of trading colleagues, even if you trade independently.  If the great majority of traders trading similar styles are also experiencing drawdowns, you can safely assume that not everyone has turned into an emotional basket case at the same time.  

Performance indexes for various hedge fund and CTA strategies are available from industry sources and can help identify when certain approaches are winning and losing.  For example, the Barclay's short term trading index (STTI on Bloomberg) tracks the returns of professional money managers trading short term momentum and trends.  The performance of those managers over the past year or two has been dismal, again related to the collapsed volatility of markets in the wake of low interest rates around the globe.  

If your trading problems are widely shared and can be linked to shifts in how your markets have been trading, no psychological exercises in and of themselves will solve the problem.  Nor is it a solution to put one's head in the sand and hope that markets will "turn around".  Rather, the answer to the trading problems is to adapt to the new environment and search for fresh sources of edge that can complement one's traditional trading.  For example, one might find mean reversion or relative value strategies that nicely complement one's directional/trend/momentum trading.  The combination of trading approaches truly diversifies returns and produces a smoother P/L curve.  (See Trading Psychology 2.0 for a detailed presentation of adapting to changing markets).

Question #3:  If there is a personal problem present, is it--or has it been--present in non-trading parts of your life?

Here is a very, very important issue.  Many personal issues, such as anxiety, anger, depression, attention deficits, and impulsivity, show up in trading, but not exclusively within trading.  For example, a person might have trouble with patience and frustration in personal relationships, and those same problems crop up in his relationship with markets.  Similarly, a person might have self-esteem problems in life that then show up as negative thinking patterns during periods of market losses.  When the emotional patterns, thought patterns, and behavior patterns that interfere with trading are also occurring and interfering with other aspects of life, that is a strong indication that simply working on trading will not be sufficient.  It makes sense to seek professional help.

The great majority of psychological challenges can be dealt with via short-term approaches to counseling and therapy.  Research suggests that problems such as relationship difficulties, depression, anxiety, and anger can benefit significantly from cognitive, behavioral, psychodynamic, interpersonal, and solution-focused approaches. (A thorough review of research and practice in this area can be found in the textbook that I have co-edited.  A new edition will be coming out late this year).  The key to brief approaches to therapy is that they are highly targeted and make active use of exercises and experiences during and between sessions.  

In situations in which the psychological problems have been longstanding, when there has been a family history of similar problems, when those problems have been severe (significantly impairing important areas of life), and when those problems have been complex (impacting many areas of life, as in drug or alcohol abuse), longer-term approaches to helping are generally indicated.  Attempting short-term approaches to help for more significant problems runs the risk of relapse.  When problems have been longer standing, severe, and complex, it often is the case that more than one form of help is required, such as medication help in addition to therapy or group sessions (as in A.A.) in addition to counseling.  In such instances, it is very helpful to have a thorough assessment from a qualified mental health professional.  If there is meaningful depression and/or anxiety, a workup from an experienced psychiatrist is helpful, as safe and non-habit forming medications often can play an important role in addressing the problems.

Depression, anxiety, attention deficits, addictions, bipolar disorder, relationship problems--these impact a high percentage of people in the general population.  Traders are not exempt from these general problems.  Assuming that an emotional issue impacting trading is necessarily a trading issue may prevent you from getting the right kind of help.  No amount of writing in a trading journal will rebalance neurotransmitters in your brain or solve the conflicts you bring to your marriage.  When you see the problems affecting your trading also affecting other areas of your life, it's a strong indication that a more general approach to change will be needed.

Question #4:  If the problem you're facing occurs uniquely in trading settings, do you need psychological coaching or do you need further mentoring of your trading?

Here again is an important distinction.  Especially for newer traders, frustrations and other emotional problems arise in trading simply because they are still young on their learning curves.  What they need is not simply emotional coaching, but guidance from experienced mentors who can help them correct trading errors and more consistently apply trading skills.  Even experienced traders can encounter drawdowns and frustrations because they are making trading mistakes that a mentor can pick up.  I recently worked with a trader who was very discouraged because of a drawdown that occurred simply because he was not closely monitoring correlations among his positions.  What he thought were several independent trades turned out to be versions of the same trade once the central bank indicated a possible policy shift.  He lost money because he was too concentrated in that one, converged trade.

This is yet another reason why it's very helpful to be connected to networks of peer traders.  Many times such relationships offer mutual mentoring that can address situational problems and mistakes in trading. 

When drawdowns and disruptions of trading are more psychological and situational, several psychological approaches can be helpful, including behavioral methods (exposure therapy) for anxiety and performance pressure; cognitive restructuring techniques for perfectionism, overconfidence, and negative thought patterns; and solution-focused approaches to identify and expand one's own best practices.  (Specific applications of these methods can be found in The Daily Trading Coach; the creation of best practices is a major topic within Trading Psychology 2.0; an overview of cognitive and behavioral techniques for improving trading performance can be found in Enhancing Trader Performance).

Behavioral techniques are skills-building methods that you practice in real time, during problem situations.  You literally are teaching yourself new skills and new habit patterns.  For example, a very simple behavioral technique would be to take a break during trading whenever you feel anxious, frustrated, bored, or discouraged.  You quickly recognize that you're not in the right mindset for trading and you take a break from the screens.  During that break, you might engage in other skills-building activities, such as relaxation training to slow oneself down and reduce tension.  Behavioral methods are typically practiced outside of trading hours so that the skills become automatic in real time, when problems crop up.  

Cognitive restructuring methods are techniques that you use to identify and challenge patterns of negative thinking that can distort your emotions and interfere with sound decision making.  Many traders, for example, become highly self-critical when they miss a trade or when they take a loss.  This can interfere with their focus on the next opportunities.  In cognitive restructuring, keeping a journal helps the trader become more aware of his or her thinking and challenge that thinking when it's harsh and negative--or when it's overconfident!  

Solution focused techniques are ones that examine what you are doing during your best trading, both in terms of trading practices/processes and psychological self-management.  The goal of solution focused work is to "do more of what works" and become more consistent so that best practices can turn into repeatable best processes.  Trading Psychology 2.0 contains 57 best practices contributed by myself and other traders; the chapter on Building Strengths also embraces a solution-focused approach to identifying what you do best and building your trading around it.

The bottom line is that how you work on your trading should reflect the diagnosis you make of your trading challenges.  Sometimes we encounter challenges because of tricky markets; sometimes because of our psychology; and sometimes those challenges are just a normal part of risk and uncertainty in markets.  In this post, there are quite a few ideas tossed out.  For more information on those, you can simply Google the relevant topic by entering "Traderfeed" and the topic of interest.  Thus, enter into the search engine "Traderfeed solution focused" and you'll see quite a few posts relevant to that topic.  If you want even more depth and detail, the above book references will be useful.

In an upcoming series of posts, I will identify 20 top challenges that traders face and highlight specific approaches to work on each of those.  Yet another series will look more into detail into evidence-based techniques that help traders and when to use those.  All of this is part of a grander plan to eventually link all the posts into a free, user-friendly, comprehensive online encyclopedia of trading psychology.  

Thanks, as always, for your interest and support--

Brett

How We Can Fire on All Cylinders in Our Trading Performance and in Life

The old trading psychology emphasized controlling emotions, imposing discipline, and coping with the stresses of the ups and downs of markets and profits.

What my new book refers to as Trading Psychology 2.0 is that performance--in trading and across life--is a function of cultivating positive emotional experience, building on cognitive and personality strengths, and enhancing our creativity and adaptability.

In short, the old psychology is all about minimizing problems and disruptions.  The new psychology focuses on building our most positive attributes.

Most of us function in 1.5 land:  we are neither mired in problems, nor are we actively identifying and strengthening the best of who we are and what we do.  We don't hate our lives, but we are not in love with our lives.  We wake up, attend to morning routines, go about our work, and live life more or less on auto pilot--until random positive or negative events happen to befall us.

As part of researching the new book, I have consumed a steady diet of positive psychology books and research.  The general conclusion emerging from this work is that there is more--much more--we could be doing to renew our romance with our lives.  Positive emotional experience is something that can be taught and learned.  A few basic exercises, conducted with consistency, can make a meaningful difference in our levels of happiness, life satisfaction, energy level, and attachment to others.

Consider the Penn Resiliency Program described by Martin Seligman in his book Flourish.  This began as an evidence-based intervention for schoolchildren to teach them skills that prevent depression.  Through the program, students were given twelve sessions of 90-120 minutes each, focusing on information, skills-building, and between session homework.  Skills included cognitive techniques for dealing with negative thoughts and a variety of problem-solving and coping methods.  

As Seligman outlines in his book, the Penn Resiliency Program did indeed lower the incidence and prevalence of depression, anxiety, and behavioral problems within the student population for two full years following the 12-session intervention.  Lo and behold, however, the program also resulted in a number of positive outcomes, including better grades, greater curiosity and love of learning, improved emotional and social intelligence, and increased happiness, hope, and optimism.   

This supports the research of Michael Fordyce, who found that teaching skills related to 14 fundamentals of well-being resulted in significant improvements in happiness and life satisfaction.  Like the Penn program, Fordyce's training was relatively brief, but focused on concrete skills and their day-to-day implementation.

Imagine if you set out--each day--to implement a single action designed to improve your life in four different areas:  your happiness and joyful experience; your satisfaction with aspects of your life; your level of energy and enthusiasm; and your connections to friends, family, and romantic partner.  Over time, what would be the compounding effect of such skill-building?  How would it impact your daily experience if each day was a day in the emotional gym, where you gave happiness and well-being a good workout?

To borrow an analogy from Colin Wilson, we are like automobiles running on a single cylinder.  Frustrated with our slow speed, we persistently hit our gas pedal, taxing our engines even further and reducing our efficiency.  What we need is to stop the car, get under the hood, and overhaul our engines.  The elements of subjective well-being are the cylinders of our engine.  Life is a lot more productive, a lot more enjoyable, and a lot healthier if we are firing on all cylinders.

Further Reading:  Happiness and the Power of Expectations
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When the Trading Demons Get Out of Control

The following is a direct quote (with the trader's permission) from an email I received just a little while ago. It illustrates a dilemma that many traders face at some point in their career:

"I was doing ok for a few days, then I went back to my old trading ways and just suffered a big loss of my account today. I committed all the the trading sins, etc double my position size, go against the trend, being stubborn and hold onto a losing position. I think I know the correct way (maybe I am fooling myself), but I don't seem to be able to control the demon inside of me and just can't break the old bad habits."

So let's imagine this is happening at one of the trading firms where I serve as psychologist/coach? How would we tackle the situation?

First off, we would tackle it quickly. Times of crisis are also times of opportunity, when it comes to psychological change. That's when people are most motivated--and most open--to making changes. "Strike while the iron hot" is an apt principle when situations feel desperate.

Second, I would immediately institute a three-way meeting with the trader, myself, and the firm's risk manager. We would greatly cut back the trader's risk (i.e., trading size), so that no further harm could be done to the account. "Above all else, do no harm," is a principle that works for physicians and traders alike. The idea is that, with profit/loss (P/L) pressures removed from the equation temporarily, it is easier to focus on problem patterns, their causes, and possible solutions.

Third, I would interview the trader extensively (and observe him trading, if possible) in order to identify the specific situations that are associated with the loss of discipline. In other words, I would ask in detail about what is happening in markets when the trader's discipline is good and what is happening when "the demon inside of me" comes out. What we're looking for are *patterns* that we could then address with specific change techniques.

Here are the patterns that I find to be most common:

1) The trading problem is the result of a broader emotional disorder - This is more common than is commonly recognized. About 5-7% of the population suffers from a diagnosable emotional disorder during any given year, with a similar incidence of substance use disorders. As a result, at least one in ten traders can be expected to experience emotional disruptions that interfere with trading, but are not specific to trading. These disruptions include anxiety disorders (such as panic disorder and generalized anxiety), mood disorders (depression), and disorders related to attention deficits and hyperactivity. Many of these problems can be addressed effectively--and without debilitating side effects or addictive potential--through the use of medications. Many of them also benefit from counseling/therapy assistance from a qualified professional. If the problem affecting trading is also occurring in other spheres of life (relationships, work) or has predated trading experience, the odds are high that it could benefit from professional assistance. The proper course of action is to get a high-quality referral to a licensed professional, not a self-proclaimed trading coach.

2) The trading problem is the result of trading-specific performance pressures - Many times traders experience performance anxiety regarding the uncertainty and risk of markets and the pressures to make money. This anxiety leads them to trade in fearful ways, and it sometimes leads them to overtrade in the desire to make things work out. Many times the disruptions of trading occur during periods of drawdown and slump, when performance pressures become most acute. Common to these performance problems are difficulties with negative self-talk, including self-imposed, perfectionistic pressures. The key to this set of problems is that they are trading-specific. Other areas of life don't exhibit the same patterns of pressure and disruption. Many of these concerns can benefit from self-help methods, including the cognitive and behavioral methods that I outline in my book on trader performance.

3) The trading problem is literally a trading problem - This is most common when traders put their money at risk before they've gone through a proper learning curve. They have read a little, observed a little, and now try their hand at trading. Because they don't understand how markets move--and what makes them move--they rely on simple patterns for entry and exit that provide them with no statistical edge whatsoever. The result is increasing frustration and loss of capital. Although the problem may look psychological, the emotional distress is really the result of the more fundamental absence of skills and experience. I would guess that easily half of all people who seek my advice and assistance fall into that category. When I ask trading and market-related questions, it's clear that they don't understand even basic fundamentals. The proper solution for this situation is to go through the learning curve the right way, starting with observation and practice (simulated) trading, and then gradually moving toward real-time risk as skills build.

A major shortcoming of seeking help from trading coaches is that they are usually only experienced and knowledgeable in area #2 above. They are not trained as professional psychologists to help with #1, and they lack the trading experience to be of assistance in identifying #3. Additionally, it is in their financial self-interest to lump as many traders into category #2 as possible, since the first and third categories are unlikely to build their book of business.

Because I don't work with individual, independent traders myself--either as a coach, psychologist, or trading mentor--I don't feel wedded to any of the scenarios above. The key is for traders to accurately diagnose the problem, so that they can follow a promising, structured plan of action. There are many reasons why the trading demons can get out of control: understanding the why of the demons is half the battle of figuring out what to do about them.

RELATED POSTS:

Coaching the Professional Trader

When Coaching Doesn't Work, Part One

When Coaching Doesn't Work, Part Two

Performance Coaching

A Referral List of Mentors and Coaches
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Markets and Minds for a Monday

* Sector Strength - The above chart shows how stock sector ETFs have fared since the January and March market bottoms. Interestingly, Materials (XLB) and Energy (XLE) are strong performers since the January lows, but have not been so dominant since the March lows. Conversely, Financials (XLF) have moved only modestly since the January lows, but are leaders in the recent period since the March bottom. Homebuilders (XHB) show up strong since both bottom periods. The most recent rally has been led by beaten down sectors, as investors are showing less fear and more optimism regarding housing and banks. Health Care (XLV) has been something of a laggard, perhaps anticipating challenges following the upcoming election.

* Building Willpower - Thanks to a reader for passing along this research perspective on how to build self-control and willpower. That is exactly what biofeedback and meditation are all about. An interesting implication, supported by research, is that efforts to contain our emotions deplete our reserves of self-control. This could be one way that emotional arousal is connected to poor trading performance, as our efforts as self-containment leave us less capable of making disciplined efforts.

* Health and Emotions - Research conducted at Duke University suggests that, individually, depression, anxiety, and anger are positively correlated as traits with the risk for heart disease. When those exist in combination, however, the risk of heart disease rises dramatically. This suggests that the overarching trait of "neuroticism"--the tendency to experience negative emotion--may bring more than just psychological consequences. Indeed, hostility may be more predictive of heart disease than such risk factors as smoking and cholesterol. It appears that the combination of hostility and depression elevates inflammatory proteins in the blood. Moreover, hostility and negative patterns of thinking are directly associated with the risk of depression. How we think thus can affect how we feel, but also how healthy we'll ultimately be.

RELATED POST:

Negative Thoughts and Trading
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When Trading Problems Are More Than Just Trading Problems

I recently wrote about how 90% of the mental game is a function of how we trade.  Our trading practices impact us emotionally, just as our emotions impact our decision-making.

Sometimes, however, there are realities we cannot avoid if we are to succeed in financial markets.  If we are going through emotional problems, such as depression, anxiety, and relationship conflicts, these can very much interfere with our concentration and our ability to weather the normal ups and downs of markets.

Addictive patterns also very much can create havoc in trading performance.  Sometimes we trade out of need and impulse, not from opportunity.

How do we know when emotional disruption of decision-making might be due to larger psychological issues?  Two factors are relevant:

*  DURATION - If problems have been occurring for an extended time, and especially if you have encountered them at different points in your life, the odds are good that they are not merely situational.  If you have experienced your problems prior to your involvement with trading, it's worth considering that the problems are not merely trading-related ones.

*  SEVERITY - The severity of a problem is the degree to which it interferes with many facets of life.  If a problem disrupts sleeping and eating, affects mood, and lowers overall productivity and social functioning, that's a good sign that it will pervade trading as well.  

Notice that a problem can be of relatively recent duration--such as a relationship breakup--and still have severe impacts.  Also, a problem may not be severe--we function adequately despite it--but it can still be of long duration and keep us from performing at our best. 

When emotional difficulties interfere with trading, the best course of action is to greatly (or totally) reduce risk-taking and devote attention to resolving the problems.  Blowing up a portfolio can only add to stress; if stress is interfering with trading, it makes sense to focus on the stress before the trading adds to it.

In situations where relationship problems, addictive patterns, depression, and anxiety/stress occur outside as well as inside of trading, seeking the help of a qualified professional is often a good step.  It is not necessary to pursue a trading coach for problems that predate trading and occur outside of trading--and, indeed, many coaches lack experience and expertise in these areas.  

If you find yourself more focused on your problems than on markets, the best trade you can make is to invest in your emotional well-being by getting the right kind of help.

Further Reading:  The Greatest Cause of Trading Problems No One Talks About
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Key Perspectives in Trading Psychology - 2: How We Can Process Market Information More Effectively

In the first post in this series, we took a look at our two distinct information processing systems and how those interact to either assist or interfere with our trading.  Drawing on the recent blog book that I released, Radical Renewal, now let's take a look at two specific strategies that can help us process market information more effectively:

1)  Strategies that build our joy and happiness - Fascinating research from Dr. Barbara Fredrickson suggests that psychological well-being (happiness, fulfillment, energy, closeness to others) not only makes us more productive and physically healthier; it actually broadens our field of vision.  When we are stressed, it is as if our perception becomes tunnel-visioned.  Under conditions of well-being, we broaden our vision and perceive more at the periphery.  A simple example of this is, when positions move against us, we can become fixed on screens, hanging on every tick.  When we experience well-being, we can sit back and more easily explore various pieces of information to detect patterns.  A different way of stating this is that, when we have greater well-being, we have greater access to intuition and our capacities for pattern recognition.  What we do to build our well-being (inside and outside of trading) helps us generate better trade ideas.  A great exercise is to review your trading journal entries and identify the ratio of positive, happy, fulfilled sentences to upset, frustrated, negative sentences.  None of us like to lose, but it's the trader who can extract joy from learning from losses that is most likely to rebound.

2)  Strategies that build our quiet - As the first post emphasized, when we get into the fight or flight stress mode, our bodies speed up.  When we eliminate our inner chatter, we are most likely to achieve our flow state and absorb the patterns that markets present.  This is why meditation has been effective as a way of accessing those pattern recognition skills and achieving greater clarity of perception.  Research has found that the mindfulness created by meditation is helpful in treating such problems as anxiety and depression.  Similarly, meditation can help traders exit their self-relevant/fight and flight processing and become more aware of what is happening around them.  Research also finds that meditation can also help us reduce stress, improve focus, and increase the quality of our sleep.  Other strategies, including physical exercise, yoga, and prayer, can similarly contribute to a clearing of our minds and improved energy and focus.

In sum, we can see that the traditional advice that traders should control their emotions and be more disciplined is limited.  What we want is a set of tools--and indeed a lifestyle--that allow us to better access our capacities for insight and understanding.  By increasing our focus and broadening our perception, we can become better idea generators and better equipped to detect meaningful changes in market behavior.

Further Reading:

Radical Renewal

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The Promises and Limits of Coaching: Lessons From College Counseling

In my recent post on how much coaching is enough to produce change, I summarized research from the dose-effect research literature. One problem with this is that the literature is primarily oriented to clinical populations: those with diagnosable disorders. Fortunately, there is one setting for applied psychology that focuses more on normal, developmental problems than clinical ones: college counseling centers.

Having worked at a college counseling center at Cornell University and then directed a student counseling service at SUNY Upstate Medical University, I can attest to the similarities between work with students in higher education and coaching of professionals in trading and other fields. In my work at Syracuse, fully two-thirds of the people seeking assistance were looking for help with such normal concerns as relationship problems, career issues, and performance-related stress. Interestingly, these are also among the most common issues that traders discuss with me. Many of the same cognitive, behavioral, and solution-focused methods that are helpful in work with students are also relevant and useful for traders.

So what can college counseling teach us about the coaching of traders? A very interesting research study conducted in 2000 summarized college counseling work with almost 1700 students across over 40 campuses. This provides a broad cross-section of schools and students. The study found that over 1000 of the students--about 60% of the sample--only attended 3 or fewer counseling visits. This is not unusual: other studies of utilization of helping services have found that the modal number of visits to a psychologist or counselor is one.

The low number of visits does not necessarily mean that the services were not helpful. Rather, the study found that almost 30% of the students reported significant improvement by the end of one session and nearly 40% by the end of the third visit. Among those who attended 10 sessions, 54.5 % reported significant improvement. The study authors suggest that this shows a dose-effect relationship among the college students: more visits produce better results. It also suggests that about half of all people in the college setting--which I believe is the best mirror for coaching settings--can benefit from short-term help. Indeed, they often vote with their feet and only attend several helping meetings.

Still, the data suggest that many people do not benefit from short-term help. On college campuses, this can include people with ongoing problems with anxiety, depression, eating disorders, and substance abuse. Similar problems can be found among traders. Of the people who attended 10 sessions, 9.1% actually deteriorated over time and 36.4% reported no change. This is a finding that is not frequently discussed among psychologists and counselors, and certainly not among coaches: some people get worse, despite best efforts at helping. This may be due to a lack of skill among helpers; a poor personality fit between helper and client; or an unusual problem that is not detected by the counselor.

My experience is that the latter is most often the case. I have met with traders who have received prior coaching (and sometimes therapy), only to find that they have a diagnosable problem that went unrecognized. Sometimes the problem is depression; sometimes it is a form of anxiety; sometimes it is an eating disorder; and sometimes it is a purely medical problem that manifests itself as emotional distress (e.g., a thyroid disorder). It is also sometimes the case that a problem is longstanding and severe and simply needs more than 10 sessions of assistance. One research study, for example, found that individuals with severe emotional disorders continue to show therapeutic responses for 25 sessions of therapy and more.

So what can we conclude from this research? Simple performance problems--especially those that are relatively recent and not severe--often require only short-term assistance. In such cases, coaching can be targeted and brief. Longer-standing problems and those that are affecting multiple areas of life--not just trading--often take more than a brief course of assistance. Generally they require a comprehensive assessment from a trained professional. Coaching holds much promise for many people, but extrapolations from the college counseling research suggest that about half of all people will not benefit from it. That's something you won't hear from helpers eager to collect your fees, but it's important for you to know if you're contemplating help.

RELATED POSTS:

Coaching Yourself for Profitable Trading

What Works in Coaching
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When Trading Problems Are More Than Trading Problems

Consider the following situations that I've encountered recently:

*  A trader was concerned about his inconsistent performance.  He asked for help with sticking to a set routine.  When I gathered background information, it turned out that he had significant symptoms of depression and a family history of depression.  Because he did not have a full-blown major depressive disorder, he assumed that his inconsistencies of mood and energy level were simple lapses of discipline.

*  A trader asked for help with overtrading.  He took too many trades, especially when he became frustrated.  His impulsive decision making was costing him money.  He wanted to find a way to achieve greater discipline in his trading.  His history documented a lifelong pattern of attention-related problems and poor frustration tolerance.  He had been diagnosed with attention deficit disorder in grade school but stopped taking medication and assumed he had outgrown the problem.

*  A trader showed good trading results, with superior risk-adjusted returns.  He did not take meaningful risk, however, and as a result never made much money.  Despite encouragement from his manager, he found it difficult to increase the size of his trades.  His early adult history included episodes of social anxiety and psychosomatic problems related to anxiety.

In each of these cases, the trading problem was the result of a larger problem.  The trader approached the problem as if it was a trading issue when in fact it required professional attention.

Not every problem that impacts trading can be solved by goal setting, writing in journals, and placing motivational post-it notes on a computer monitor.  Sometimes a trading problem is a manifestation of a much broader problem.  No amount of talking with a trading coach can properly address issues of depression, ADHD, or anxiety.  If you examine your history and find problems that have occurred outside of your trading, perhaps those need to be considered as possible causes of your trading concerns.  The right diagnosis and the proper help can be the best thing you could do for your trading.

Further Reading:  Best Practices for Dealing With Drawdowns
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Emotional Trauma, Risk, and the Dark Side of Trading

In this post in the series, we'll take a look at what happens when traders find that emotions from past, traumatic events intrude into their trading. Previous posts in this series covered trading, trauma, and the brain and a checklist for self-evaluation regarding issues related to trauma.

An important framework for thinking about this issue is that psychological trauma is not an all or none thing. Emotionally painful events can impact us with varying degrees of trauma, with resulting disruption of thought and mood and periodic flashbacks.

For example, I have worked with people who have experienced infidelity in a relationship as traumatic. The threat to emotional safety and security left the individual with painful memories, intrusive thoughts and feelings of anger and betrayal, and subsequent difficulties in trusting others.

In order for an event to have a traumatic impact, it has to threaten a person's basic sense of safety and security. Getting stopped out from a trade that was planned well, with favorable reward relative to risk, will not traumatize anyone. Losing more than half your capital on an "all-in" set of market bets may or may not have a traumatizing impact. If the capital is what you're counting on for your vocational and financial future, it's hard to believe that the loss of half your future could be taken in stride.

Poor risk management is a major reasons traders experience traumatic impacts. Placing large bets relative to one's account size exposes us to risk of psychological as well as financial ruin. We also court trauma when we trade with capital that we cannot afford to lose. It's not just the absolute magnitude of real or threatened losses that impact us emotionally; it's the psychological significance of those losses. Many traders react strongly to losses, not because of the dollar amounts, but because the losses signify the potential death of a dream.

It's easy and romantic to glorify traders who take huge risks in search of grand payoffs. We all like to see the player who has the balls to go "all in". To those who are tempted to play out this fantasy, allow me to share my perspective:

I'm the psychologist. When those bets go sour--as bets inevitably do at times--I'm the one who sees what happens to those ballsy traders. I see their affliction with anxiety and depression; I help them pick up the pieces of lost careers and try to find jobs with resumes that suddenly appear razor thin in a desperate economy. I also see the family members who have to pay the price for Ballsy Trader's testosterone-fueled dreams when bills can't be paid and basic needs can't be met.

No one puts those traders in how-to trading books, breathless magazine articles, or "find your next big opportunity" websites and newsletters. We read a lot about "trading for a living"; not much about how living can be impaired by trading. So I'm the one who occasionally writes these posts and afflicts traders' comfort, even as I try to comfort traumatic afflictions.

The next and last post in this series will focus on techniques for overcoming traumatic emotional reactions. The posts below and their links address this issue from a variety of angles.

More:

Approaching Trading as an Entrepreneur, Not a Gambler;

Risk Management and Maintaining a Positive Trading Psychology

The Little-Acknowledged Problem of Trading Addiction

NY Times Article on Craving Trading Highs

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Heart Rate Variability (HRV): Enhancing the Trader's Self-Control

In a recent post, I suggested that the enhancement of focus and concentration--not the elimination of emotions--was a central goal of trading psychology. Because expertise comes from a relentless learning process, and because we process new information more deeply when we are in a state of enhanced concentration, anything we can do to minimize distractions is likely to help us internalize market patterns and retain access to them once they're acquired. Unlike many authors who have written on the topic of trading psychology, I do not subscribe to the notion that emotions are the root of all trading problems and that anyone can succeed at trading if they develop themselves psychologically. Trading success requires skill and a true edge in the marketplace. When the loss of discipline is an issue for traders, many possible causes may be present. Often, it is the result of trying to trade a style or time frame that does not fit one's basic talents, skills, and interests. It is very difficult to find your performance edge if your basic approach does not match your basic skill sets.

Where the issues of focus/concentration and behavioral discipline come together is under a wider umbrella that we can call executive self-control. In a recent post, I explained how I use a form of biofeedback called hemoencephalography to enhance activation of the brain's executive center: the frontal cortex. When we sustain such activation, we not only possess superior concentration; we also have greater behavioral control. As mentioned in that article, the frontal cortex is the CEO of the brain: it focuses our efforts and effects our reasoning, planning, and judgment. The ability to sustain frontal activation should thus help traders on two related fronts: 1) in the deep learning (internalization) of market patterns; and 2) in the ability to act upon these patterns in planful ways. In short, the highly developed trader is the highly regulated trader: able to retain an emotional feel for markets after seeing many patterns repeated, but also able to not become overly swayed by situational pressures and the shifts of emotional state they create.

A recent journal article in psychology highlights heart rate variability as a promising index of self-regulation. As the article explains, heart rate variability is a measure of flexibility of autonomic responding. In the authors' words, "...heart rate variability (HRV) is a measure of the continuous interplay between sympathetic and parasympathetic influences on heart rate that yields information about autonomic flexibility and thereby represents the capacity for regulated emotional responding" (p. 230). High levels of HRV, suggesting superior ability to regulate emotional responses, have been found to be linked to superior coping under stress and enhanced attention. Low HRV has been linked to such psychological disorders as anxiety and depression. A list of studies related to HRV can be found on the SharpBrains site.

Now here's the interesting part. When I sat at my trade station and used the Freeze Framer program to measure and chart my own HRV, I found that I had a smooth set of sine-wave curves (see above). That smooth pattern, which the developer of Freeze Framer calls "coherence", represents a high degree of HRV: enhanced flexibility and regulation of emotional response. I then introduced an annoying distraction into the situation and notice how the shape of the sine wave curves was destroyed. I entered a period of low HRV. After a few other experiments, I found that even the simple distraction of a conversation lowered my HRV readings.

Might it be possible to track our degree of executive self-control during trading by following our HRV through the day? Might it be possible to train traders to achieve higher levels of self-regulation? Might enhanced HRV be related to trading performance? These will be the topics of the second post in this series.

Here are blog links, pivot levels, and market perspectives for Wednesday

New Techniques For Improving Trading Psychology

 

3/6/2026 - In their research review of successful psychological techniques, Barlow et al discuss methods by which we can achieve "cognitive flexibility".  This is important because how we think greatly impacts how we feel and how we act.  If traders can become more flexible in how they think about markets and their trading of markets, they can avoid the negative traps associated with fear, greed, and frustration.

This is a great example of how advances in psychological research can lead to new and better practices in trading psychology.  

The authors identify two specific "thinking traps":  jumping to conclusions (probability overestimation) and thinking the worst (catastrophizing).  These lead us to overreact to situations and respond to those situations in rigid ways.  The first step in changing these patterns is to become aware of them in real time.  This means that we must build our skills at "metacognition":  thinking about our thinking.  

The first step in that process is to recognize--as it's happening--when we are overreacting to a situation.  Typically that will be signaled to us by feelings of frustration.  We need to make frustration a cue to take a brief timeout, so that we can challenge the automatic thoughts that are frustrating us.  In taking that time out, we're reminding ourselves, "It's my thinking that's making me feel this way; it's not the only way to see the situation and respond to it".  Or, more simply, "Here I go again, overreacting!  How can I put this situation in perspective?"

Taking the time out to think about our thinking is half the battle.  In the next post, we'll look at the other half:  what the researchers recommend to change our thought patterns.

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3/5/2026 - The 48 positive emotional experiences listed in yesterday's post (below) create a checklist both for your daily experience and for your trading experience.  The idea here is the reverse of what traders typically do with their journaling.  Instead of writing down all your mistakes and negative experiences, write down your best trading decisions and most productive experiences and then identify, from the list of 48, which emotions accompanied your productivity.  If you do this over a period of time, you'll notice a pattern in the positive emotions that contribute to your best ideas and best actions.  

For instance, your market experience that is accompanied by inspiration and curiosity and also by a sense of serenity and calm may mark the generation of your most profitable trade ideas.  Conversely, when you're trading out of stress and fear of missing opportunities, that could mark your worst trading.

Once you know your best patterns, you can set up routines/processes that draw upon these emotional experiences.  Instead of only combating the negative, we are looking to understand ourselves and build our positives.

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3/4/2026 - What are the positive emotions that lead to enhanced overall wellness and to peak performance?  If we can track our positive emotions--and what helps generate them--then we become able to trade at our best.  Craske and colleagues offer a "positive emotions dial" that actually is a system for "diagnosing" our optimal experience.  Here are the categories on their dial:

Optimism:  Hopefulness, Positivity, Encouragement

Exuberance:  Vivacity, Liveliness, Animation

Serenity:  Peacefulness, Calm, Relaxation

Gratitude:  Thankfulness, Appreciation, Contentment

Euphoria:  Joyfulness, Merriment, Cheerfulness

Love:  Affection, Compassion, Empathy

Zeal:  Passion, Determination, Motivation

Delight:  Enjoyment, Amusement, Pleasure

Fulfillment:  Honor, Pride, Confidence

Exhilaration:  Excitement, Enthusiasm, Eagerness

Inspiration:  Fascination, Interest, Curiosity

Elation:  Happiness, Pleasure, Satisfaction

Please pay close attention:  Here is the foundation for an entirely fresh approach to trading psychology.  Study your best trades and your best trading periods and identify where you stand on the above dimensions at those times.  That includes what you're experiencing in your personal life and during your trading.  What is the positive context that drives your greatest successes?  Those are the emotional experiences that you want to cultivate, day to day and week to week.

What if we've had it wrong all this time?  What is combatting our most negative thoughts, feelings, and actions is *not* the way to win at trading?  What if we've been ignorant of what drives our success all along and simply need to do more of what makes us our best selves?  

No amount of fighting losing will bring us what we need for winning.

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3/3/2026 - In the Positive Trading Psychology book (p. 132), I cite reviews of research that conclude "that happiness contributes to our work success and the quality of our relationships contributes to our happiness".  I point out that "The challenge for our trading processes is to create happiness habits that keep us energized, inspired, and fulfilled, so that the power of repetition can not only help us undo our negative patterns, but instill new, positive ones.  For the peak performer, every day should be practice in building happiness habits".

Negative thinking and self-blaming can be thought of as unhappiness habits.  Happiness habits are ones that energize us physically, that make us feel appreciation and gratitude, and that focus on opportunity.  It is not enough to avoid the negatives; we want to build the cognitive, emotional, and physical positives that keep us at our peak.  As I discuss a bit later in the book, we not only have triggers for our worst thoughts and actions, but also positive triggers that cue us to act upon opportunity.  One of my positive triggers is a brisk walk each morning to start my day after feeding the cats.  It is during that walk that I engage in prayer and meditation, voicing my thanks for the day, for my family, and for the challenges that help me grow.  The goal is to start the day invigorated and inspired--and then to carry those experiences forward throughout the day.  

When we make happiness a habit, we are much less likely to fall into the negative emotional traps experienced by traders.

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3/2/2026 - An important insight from recent research in psychology is that it takes emotion to change emotion.  Simply talking about problems or writing about them in a journal does not truly help us internalize solutions.  In emotion-focused therapy (EFT), couples work on their problems by giving voice to the positive feelings that typically underlie the negative reactions that bring them for help in the first place.  For example, members of a couple might distance from each other and grow further and further apart.  In EFT, they learn to express the feelings of hurt and disappointment that lie behind the distancing--and the desire for love, closeness, and acceptance beneath their pain.  In expressing these feelings constructively (with the therapist's help), the couple regains a sense of openness and connection.

For traders, reactions of anger, frustration, and revenge trading mask their disappointment over their results and their positive desire to find and act upon opportunity.  When the trading coach points out that occasions of frustration are occurring at points where markets are acting in unexpected ways and that many other traders are likely to be fooled by this unexpected market action, the trader is then able to view the period of frustration as a potential period of opportunity.  This enables them to replace the negative emotions that can lead to tilt trading with the positive curiosity of digging into market action and detecting new patterns.  

Traders do not talk themselves out of tilt.  The trader learns to replace the negative emotions of tilt with the positive emotions that accompany best trading practices.  Once the trader recognizes that frustration occurs when new and different things are happening in the market, it becomes possible to step back, identify the fresh opportunity, and return to successful trading and a successful mindset.

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3/1/2026 - With the bombing of Iran over the weekend, the death of the Iranian leader, and subsequent retaliation, we have the prospect of markets in turmoil this week.  A spike in oil prices, a flight away from risk (stocks), and a move toward the safety of fixed income instruments (bonds) are expected.  With VIX already hovering in the 20 region, we can expect a meaningful degree of volatility in the near term.

Here is a great opportunity to work on our trading psychology.  The game has changed for the time being.  New participants may enter the market (keep an eye on volume), reflecting the need of money managers to limit their downside.  Too, it is not clear that this will be very temporary.  China receives a large amount of their oil from Iran and surrounding countries and would be quite impacted by any disruption of the Straits of Hormuz.  Russia has already made it clear that it will be more willing to act unilaterally in the face of this action by the U.S. and Israel.  In short, we will have more (and different) market participation and more uncertainty and volatility.

The worst thing traders can do is blindly go forward, trading the same themes and chart patterns that have guided them recently.  A valuable technique employed by psychologists is exposure work, in which we face stresses through imagery work and mentally rehearse our coping.  Doing that again and again helps prepare us for actual stressful events, because we've already prepared ourselves and activated our responses to challenge.  This same approach can be very helpful in a new and volatile market environment.  We can observe and observe and see how markets are trading and note the patterns that are appearing.  We can mentally rehearse trading those patterns and make the unfamiliar more familiar.  The key to the success of this method is giving ourselves the time and space to observe the new market conditions and figure out how we can best trade them.  

By itself, market movement is not opportunity.  It only becomes opportunity when we are prepared and understand the movement.  Exposing ourselves again and again to various scenarios prepares our psychology as well as our trading.

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2/27/2026 - An important body of research suggests that our lives are not disrupted by an excess of stress, but by our lack of balance between stress and well-being.  When we have many things in our lives providing happiness, fulfillment, and closeness with others, we can tolerate very high levels of stress and emotional demand.  It's when that balance is disrupted that our stress becomes distress.

In their recent summary of research, Craske et al outline a number of "positive affect treatments" that combat depression and anxiety.  Their research finds that techniques that enhance our positive experience are more effective in improving mood and functioning than techniques designed to reduce negative states.  Among the techniques they employ are methods for enhancing loving-kindness, gratitude, generosity, and appreciative joy.  Notice that we can think of these methods as ways of growing our spiritual strengths.  

The implications of this line of research are profound.  It may well be that the ups and downs of market performance and the stresses we feel as a result are only problems if we don't have sufficient positive emotional experience in our lives.  By literally exercising our capacities for joy, gratitude, love, and giving, we create buffers for all of life's stresses--and we become better people in the process!

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2/26/2025 - Well, the new book is finally available!  The subtitle says it all:  Turning personal strengths into trading strengths.  The big challenge for developing traders is figuring out what they do well and then leveraging that in their trading processes.  Yes, it's important to avoid trading on tilt, fear, greed, etc.  Doing less of the negative, however, will not achieve positives.  The important perspective that the book discusses is that your trading success will draw upon the same strengths that have created your life's successes to this point.  Think of your greatest accomplishments, your greatest areas of mastery.  Somehow, in some way, your trading has to leverage the talents and skills behind your life's greatest achievements.  

In this series of posts, we'll look at innovations in positive psychology that can improve our trading psychology and our trading practice.  The solution focus is one of the most basic innovations, where we turn our attention to situations in which our problems are not occurring.  We don't always trade with poor discipline.  We don't always trade emotionally.  What are we doing when we are disciplined and level-headed?  Is there something we're doing that we're not aware of that actually is the solution to our problems?  Many, many times, our best practices are hiding in the situations where our problem patterns are not occurring.  Let's journal those exceptions!  Let's learn from what we're doing right!

In the book, I describe the learning process at SMB Capital, where newer traders operate in teams with more experienced traders.  In some teams, the experienced mentor and the developing trader will share a joint account and make decisions together:  what to trade, how to size it, how to manage the risk, etc.  Yes, this is a great practice for learning trading, but notice how it is also a great way to study successes and identify best practices.  If everyone you team up with shares just one thing each day that they did well and breaks it down to show how they did it, imagine the acceleration of learning and development that would occur!  Even if you use a trading community to find just one trading buddy, that could greatly expand the development of your trading strengths.

Studying the one or two or three great trades you placed in the last week helps you internalize the ingredients of your success, but more importantly helps you internalize a sense for your own greatness.

Three Steps Toward Improving Your Well-Being

The first posts in this series introduced a questionnaire for traders and explained how the items tapped into subjective well-being: the balance of positive vs. negative emotional experience. My most recent post explained how to interpret the questionnaire results and why it is important to sustain a favorable emotional balance for optimal performance. In this final entry, I will outline a few basic ideas for generating and sustaining a high level of well-being.

1) If you're out of balance, figure out if the problem is specific to trading - The question to ask is whether you feel out of balance in general, or whether those feelings are mostly limited to your trading experience. If the problem is trading-specific, you'll want to identify causes of your frustration and stress. Among the common culprits are: a) trading size that is too large for your account, creating losses and gains that are outsized relative to your total capital; b) normal slumps that occur when markets change and we get strings of losing trades; c) trading patterns that don't truly provide you with a directional edge in the market; and d) trading a time frame, market, and/or style that is not well-suited to your personality and personal needs. Teasing apart the common causes of performance problems will help immensely in exploring possible solutions.

2) If you're out of balance in general, figure out other aspects of life that might be contributing to distress and a relative lack of well-being - We know from research that the quality of interpersonal relations--the depth, not just frequency of contacts--and the experience of mental and physical vitality are crucial to well-being. Many traders so emphasize their work that they neglect these other areas of well-being. Then they wonder why they're not feeling more fulfilled even though they're making money. We also know from research that a sense of autonomy and competence are critical ingredients for well-being. Do the various activities of your life enable you to employ your skills productively, toward goals that are meaningful to you? Many times we become so caught up in low-yield activities and chores that we fail to put time into the priorities that could bring fulfillment. A nice measure is calculating the proportion of each day that you spend doing the things that make you happiest and most satisfied--and then actively structuring your days to maximize that proportion.

3) Consider keeping a diary of your emotional experience, inside and outside of trading - Researchers call it "experience sampling", and it's an excellent way to track the ebb and flow of positive and negative emotions. You want to jot down what you've been doing at the time and how you are feeling, with several readings per day. Examine what specifically you are doing in your trading when you're feeling good about it, and what you're doing when you have a more negative emotional balance. Similarly, keep tabs on good days and not-so-good days: are you doing something different on those good days with respect to work, relationships, exercise, eating? Finally, if your diary shows no relationship between your activites and your mood--and especially if you find yourself chronically out of balance emotionally--consider a medical evaluation. There are many physical problems that can contribute to an absence of well-being, including hormonal imbalances, seasonally-related affective problems, and sleep disorders. Similarly, such factors as anxiety disorders, depression, and drug/alcohol abuse can contribute to a lack of well-being. Your diary can be very helpful in distinguishing when problems are situational vs. chronic.

Perhaps the most important strategy of all is to have activities and interests in your life that sustain you during the inevitable lean times of trading. As I mentioned in my previous post, markets change and those shifts take a toll on our trading performance. Slumps are every bit as real for traders as for athletes. If all your emotional eggs are in the trading basket, you'll be vulnerable--and it will become impossible for you to do the new learning needed to internalize the new market patterns. If, however, you have many facets of life contributing to well-being, problems in trading need not become personal threats and jeopardize your overall sense of happiness and satisfaction. Diversification is a strategy that works both in monetary and personal investments.

Here Are Sunday Links and Market Perspectives