Friday, May 1, 2015

Changing How We Cope

Many traders are aware of behavior patterns that consistently lose them money and can't
understand why they repeat these patterns despite their awareness. This is the
fundamental dilemma that brings people to psychologists: knowing your problem patterns
is necessary for change, but not sufficient. Addicts, for example, are typically quite
aware of their problems. What waxes and wanes is their emotional connection to the
consequences of these problems. To some degree, we are all addicts: we act on habit.
Knowing our bad habits and sustaining the awareness to avoid and change them are very
different challenges.
Often, frustrated by their inability to change their patterns--and the perverse tendency to
repeat costly mistakes--traders become armchair psychologists and conclude that they
harbor, deep within themselves, a desire to fail. Repetitive patterns are self-defeating,
but this doesn't mean that traders have a hidden urge to do themselves in. In fact, just the
contrary: As we saw in the first article, problem patterns often began as healthy coping
efforts during an earlier life period. This is why they are so resistant to change: they have
been overlearned precisely because they did work so well for a considerable period of
time. Imagine the trader who grew up in an alcoholic household filled with conflict.
Fearful of being drawn into the strife, he learned to bottle his emotions and withdraw
from heated situations. Now, as an adult, he no longer lives in such an environment, but
bails out of trades at the first hint that they are moving against him. This consistently
loses him money, and--feeling like a jerk--he wonders why he so often sells the lows. He
doesn't recognize that the feelings evoked by the losing trade are sufficiently similar to
the emotions of the past that they trigger the old methods of coping.
So how can we change these overlearned coping patterns? Although the particulars of
each person's change process are different, the structure of change is remarkably
consistent. Three stages appear to be essential to change:
1) Pattern recognition - In some ways this is the most difficult of the stages. It is not
possible to change a pattern unless you can recognize its appearance in real time. For this
reason, many therapists have their clients keep journals in which they observe situations
that trigger problem patterns and the correlates and consequences of those patterns. By
keeping detailed records, for example, you may find that your pattern of impulsive,
revenge trading after a loss is preceded by a high degree of muscle tension and verbal
expressions of frustration. This allows you to use the tension and venting of emotion as
cues for recognizing that your old pattern is about to repeat. Adding a log of your
emotions and behaviors to your trading journal is extremely helpful in helping you see
the patterns that set you up for success and failure.
2) Pattern interruption - Once we become familiar with the triggers and cues associated
with problem patterns, we may not know what to do instead, but we can actively choose
to not repeat the pattern. If my pattern is one of anger outburst and impulsive action, I
can choose to walk away from the situation and gain a new perspective. This is often
most effectively accomplished by interrupting the pattern with vivid reminders of the
consequences of those patterns. For instance, an alcoholic might rationalize that it's ok to
go to the bar with friends, but will intercept the "stinkin' thinkin'" and remind himself that
his last relapse began exactly that way. By getting in touch with the consequences of that
last relapse (or that last bad trade), a person turns the motivational tables and puts the
brakes on automatic behavior patterns. I often tell my clients that "You will begin to
change when you consistently hate your old ways." Once you make the problem pattern
an enemy and vividly remind yourself of all the ways it has cost you money and grief, it
is much easier to interrupt its future appearance
3) Pattern substitution - After interrupting a pattern, it's necessary to try something
different. The alcoholic of our above example might choose to visit a friend or talk with
an AA buddy rather than go to the bar. A frustrated losing trader who is tempted to put
on larger trades to make her money back might instead take a break from the screen and
engage in biofeedback exercises until she is calm and focused. The goal is to take the
triggers of the old coping pattern and turn them into triggers for new, more constructive
coping. Imagery and mental rehearsal are excellent ways of building new patterns for
substitution. Before the trading situation starts, for example, the trader might purposely
visualize--in great detail--a market scenario that has recently caused emotional havoc. In
her mind's eye, she will watch himself feel tempted to make the same mistakes, but then
visualize herself interrupting this urge and engaging in a better trading behavior. By
rehearsing the desired trading behavior before the market session and looking out for
triggers during the session, the trader tilts the odds in her favor that she will be able to
extricate herself from her old ways.
The key to making this work is repetition. You want to turn your desired behavior
patterns into habit patterns. Motivation is important when you first make changes, but
eventually you don't want to have to muster your motivation every time you want to do
the right thing. You want the right behaviors to occur naturally. This means that good
trading behaviors need to be repeated so many times that they become overlearned.
Mental rehearsal can accelerate this process, but ultimately we need to work the change
process every day in real time circumstances. Every trading day offers you an
opportunity to repeat old mistakes or to make changes. If you focus on personal change,
you can't guarantee that every market day will make you money, but you can ensure that
every day will be profitable.

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