Is it possible to actually treat neuroticism? As a physician and psychiatrist, I can tell you that, although we cannot change your personality much, high neuroticism (N) is very much indeed treatable. Sound like a contradiction? Let me try to be more clear. You cannot lower your innate propensity very much, but you can lower your emotional reactivity using various methods. It’s kind of like telling a short-statured adult, “I can’t make you grow any taller, but if you wear elevator shoes it will be almost the same thing, and you will be able to do things that tall people do.” So we’re talking more about temporary adaptation and accommodation, not permanent change.
A 1998 study by Knutson et al. in the American Journal of Psychiatry1 demonstrated that even the administration of certain pills can appreciably change one’s personality, notably by lowering his or her neuroticism. In the study, 26 healthy individuals were started on the SSRI antidepressant medication paroxetine (Paxil), while 25 control patients were given a placebo pill. As you may know, SSRIs are the most frequently used antidepressants today. SSRIs are approved by the FDA for treating people with serious primary mood disorders, such as major depression and various kinds of anxiety disorders, whereas SSRIs certainly have not been approved by the FDA for modulating personality.
But the research study showed that SSRIs could, indeed, be used to modulate personality. Healthy people (they were not suffering from any kind of mood disorder) who took paroxetine actually had a reduction in their levels of neuroticism after only four weeks (the NEO-AC was given before and after treatment). This finding stunned many psychiatrists and even made the mainstream media, as personality was previously thought to be largely stable and not something you could tweak with a pill!
However, there is no need even to take a pill to lower your N score. There is a plethora of other methods to help you reduce anxiety, including the kind of anxiety that is related to trading. Deep breathing exercises, self-hypnosis, bio-feedback, and guided imagery are all prime examples. But the most useful and effective form of treatment for individuals who are high in neuroticism is CBT (cognitive behavioral therapy).
CBT, as a therapy, is powerful, in that it has been substantially researched and has been proven to work. More important, it is based upon very solid psychological and physiological principals that can be demonstrated in both humans and lab animals. And the best part is that you can learn to train your brain in the same ways we train animals to behave or feel certain ways (through conditioned learning). The key is to rehearse, over and over, a desired set of positive emotions, thoughts, and behaviors during a period of time you are in a specific emotional state. It’s the very best way to teach an old dog (you) new tricks (a healthy mental life).
If you feel that high neuroticism is severely affecting your financial well being or any other areas of your life (job, family, social life), you should really go see a CBT therapist for a full evaluation and professional treatment. But it is also possible to learn about and use some CBT techniques at home, and I would like to present you will a few tools that have benefited many successful traders. (Again, if you are "highly neurotic,” hypersensitive, clinically depressed, or obsessive-compulsive, you truly need to be under the care of a CBT therapist who can help you work on your automatic thoughts and control them so that they don’t take over your entire life.)
First, a little history lesson. In 1907 Dr. Sigmund Freud invited another physician, Dr. Alfred Adler, to help create and use psychological treatments for neuroses. Up until then there were only two (largely useless) treatment methods: (1) hypnosis and (2) dunking the neurotic person into a tub of ice-cold water.
Freud, Adler, and three of Freud’s patients thus started the Wednesday Psychological Society, which went on to become the Viennese Psychoanalytic Society. Nine years later, Adler left Freud to form Individual Psychotherapy. This was the first holistic psychology, and for the past hundred years plus, it has been the most influential psychology school in the western world. By the 1960s, a psychotherapist named Aaron Beck, who at the time was still using the methods of free association and psychoanalysis, realized that many patients’ strong emotions were tied directly to cognitions (thoughts) and that they did not bring these thoughts up during sessions of psychoanalysis. Beck went on to develop CBT, the paramount therapy in use today for most psychological conditions.
At its core, CBT recognizes that faulty thoughts or cognitions often lead to an adverse emotional response and that people tend to get stuck in patterns of having the same sorts of faulty thoughts and experiencing the same sorts of emotions over and over. The second part of CBT says that we enact a set of behaviors in response to the uncomfortable feelings that are provoked by the cognitive distortions. CBT works by reshaping the cognitive distortions (it changes the way you think and feel) and also by replacing the maladaptive behaviors with more healthy ones.
That all sounds like a bunch of psychobabble (even though it’s not), so let’s use a few examples to make it all more clear.
First, consider a dog phobia patient I once cared for and cured. This was a young woman in high school who, much earlier in life, had been severely attacked by a dog. She developed an extreme aversion to or fear of all dogs. Over the years she learned to avoid dogs. Anytime walking down the sidewalk if she were to see a dog approaching in front of her, she would cross over to the other side of the street or turn around and head the other way. Whenever visiting a house with a dog, she always made sure the dog was sequestered before entering.
This all came to a head one day when she was visiting a relative’s house. The family dog, a totally harmless one I am told, was penned up in an upstairs bedroom. But somehow the dog escaped, pranced down the stairs, and headed right toward my dog phobic patient. Terrified, my patient reverted to her typical response to dogs: she began to turn and flee. Unfortunately, she turned right into a toddler and accidently knocked him to the ground, injuring the little tike.
It was at that point my patient and her family realized that she needed help for her anxiety problem concerning dogs. I turned to CBT. From a cognitive standpoint, we reformulated her beliefs about dogs (“not all dogs are bad,” and, “not all barking means a dog is angry”). From a behavioral standpoint, I exposed the patient to the trigger, namely dogs, using titration and habituation. We started with pictures of dogs, then Youtube videos of dogs, then eventually graduated up to approaching live dogs. By the end of treatment, several months later, my patient had gotten to the point of being able to stand in the middle of a fenced-in dog park with 5 or 6 dogs running and barking around her. With enough exposure and mental restructuring, the fears went away.
But you didn’t buy this book to be a better dog trainer. What is your anxiety when it comes to trading the markets? Let’s say, for example, you place a buy trade in a market one morning. By the afternoon, you are happy, because you have some profits. You go to bed that night, feeling content in your ability to spot a winning entry point. But lo and behold, the next morning you wake up only to find that the market has taken a sudden downturn, and all of a sudden you realize you had forgotten to place a stop-loss order the day before. You just lost a hunk of money, all because of a rookie mistake, and you are not even a rookie. You start telling yourself, “you’re so stupid, you idiot!” You not only berate yourself for forgetting to put in a stop, but you start telling yourself you are never going to become a successful trader at this rate, that you are destined to become a failure in the markets, no matter what. Sound familiar?
Soon all these self-deprecating ideas and words that you are hitting yourself on the head with will start making you feel a certain way (and it is not a positive feeling; trust me). You not only have the idea you are a loser, but you will soon start feeling like a loser. And before you know it, the next step is that you will engage in maladaptive behaviors of one form or another and actually start behaving like a loser. (I refer you back to Figure 1.1.)
Do you see the pattern? An event triggers you to have a distorted thought (“I am totally incompetent and stupid”). Your thought makes you feel a certain way (sad, angry, or what have you), and your feelings make you act in certain ways (self-destruction, regression, isolation, revenge).
It all started snowballing after you had an initial negative, and largely untrue, thought. But it’s important to carefully examine the evidence. The truth is you had initially identified and placed a great trade! So clearly you are not stupid. The only reason it failed was that you were not careful in putting in a stop. You may have been a careless trader, but that does not make you an incompetent trader. Once the negative feelings set in, though, they can be hard to shake.
And it is those negative feelings (or any attempt to deal with, deny, or evade those feelings) that is going to interfere with your trading. Feeling low and irritable, are you going to get into an argument with someone you love, perhaps a spouse? Are you going to turn to alcohol to drown your tears away? Are you going to shut yourself away and stop socializing with your friends? Are you going to stop eating and exercising healthily? Or, much more subtly, on your next trade are you going to veer away from your tried, true, and proven trading methods (remember, it was a winning trade; you just forgot the stop!), all because you feel you are a loser?
Here is what to do. Use the four S’s of CBT.
1. Stop sign—Whenever you sense a negative and untrue thought you don’t want in your head, in your imagination hold up a huge red stop sign. Be creative. Perhaps your stop sign is held by a stern-faced crossing guard! Or perhaps think of a stop sign that is trimmed on all eight sides with giant, red blinking lights. Learn to recognize when you have an unwanted or untrue thought that is starting to form in your mind (“I am so stupid!”). At its earliest presence, go ahead and combat it with that stop sign in your mind. The more clear and specific your imaginary stop sign looks, the better. Some people even choose to make a physical stop sign, not just a mental one. Use the same stop sign each time. I know this sounds childishly simple and silly, but it really does work. There is good research behind it!
2. Shout it out—Shout at the negative thought. Scream at it, curse at it, yell at it with all your might (of course, not too loudly; we don’t want the neighbors calling the police on you!) until you can sense that the unwanted thought is leaving your mind. How is this going to possibly change anything, you may be wondering? Well, the nice thing about the human mind is that it basically cannot contain more than a single conscious thought at any one time. Treat the unwanted thought as an intruder in your mind, someone you do not want in there! Get angry at it! Banish it!
3. Substitute—Have handy a sentence or thought to put in the place of the unwanted thought. Make it something strong, something positive, and something you really want to believe! Some people carry such positive or self-encouraging thoughts with them on 3-inch × 5-inch note cards. Or type it up, print it out, and place it directly above your computer monitor. An example substitution thought might be: “I am a capable trader, and I am learning from my mistakes!”
4. Sustain—Keep at it. As you kick the unwanted thought out the front door, it will turn around and try to sneak in a window or down the chimney! Don’t let it! Also, reflect on what happened. Is it possible you created the unwanted thought for a reason? Psychology of use says you think all your thoughts (even the ones you don’t want) in order to get something from them! In our example above, the reason you are telling yourself, “I am incompetent and stupid” is really because you were careless and forgot to put a stop order in. So realistically you need to recognize the mistake you made for what it is and why it happened (in this case it was due to carelessness, but not stupidity). Identifying and appreciating the true situation, that you are actually very smart but at times careless, you can now move on to rectify the problem, that is, next time you will be more careful and place that stop!
Keep repeating the four Ss until you find yourself in charge of the thought you don’t want. As you become more comfortable with this, you’ll find you are more in control of your whole mind and also of your negative feelings. Again, the point is to catch yourself with a negative thought before it creates negative feelings and negative behaviors. By using this simple four-step approach faithfully, you will find you have much more control over your unwelcome and disturbing thoughts and emotions, and you will become a better trader because of it!
One common mistake that trader’s frequently make is to concurrently mix trading with emotional processing. They may try analyzing or dealing with their emotions right in the midst of active trading. This is never a wise thing. Trading takes a lot of concentration and mental wherewithal. So does CBT. Bottom line: Don’t attempt “self-talk” or CBT techniques while you are immersed in the markets. When trading, stay focused to what is on your screen, indicators that will be important to you, and so on. Save your CBT, deep breathing exercises, and whatnot for when you can really devote yourself to it (before trades, after trades, or when you are in a trade, but can turn away from it for a while).
If you notice you are getting very anxious while trading, step away from your screen long enough to appreciate what is making you anxious. You probably don’t want to be making decisions blindly based on fears anyway. Again, don’t mix self-help strategies and trading—you will fail at both.
You can even take CBT to a deeper and more powerful level if you so choose. Let’s look at a more advanced CBT technique. Let’s say that you have tremendous anxiety over when to exit trades. Your current (and unhealthy) routine and predictable behavior is to exit a winning trade too early, resulting in reduced profits and a sense of self-failure. Your desired new behavior is to hold onto winning trades longer (ideally up to the point of maximum profit, of course).
The first step in changing your behavior is to choose a strenuous endurance activity you enjoy and are reasonably good at. This could be running, swimming, biking, jump roping, or what have you. Whatever the activity, you are going to tether it to the desired goal, and then condition yourself to the response.
To do this, set aside a 30-minute block of time every day to work exclusively on this task. Each time, as you gradually start to engage in the chosen physical activity (let’s say running on a treadmill), start to become aware of your body’s physical response (heart rate goes up, breathing faster, sweating, more alert). Simultaneously, begin mentally rehearsing the desired behavior or feeling in your mind’s eye. Imagine yourself, in this example, holding onto your winning trades longer. As you are jogging along, envision yourself seated at your trading desk in front of the computer monitor you usually use. Visualize trades on your monitor and what it feels like to hold onto the trades. Imagine in your mind’s eye that the market is tempting you to exit your position—but resist the urge! What does it feel like? Imagine how happy, content, and masterful you feel as you continue to rack up profits in the face of anxiety that tells you to exit now. Keep holding onto your position; resist the temptation to take your profits early. Persist. Again, you are imagining all of this while engaged in your chosen physical activity (running on the treadmill).With frequent repetition of this very simple exercise, your brain will begin to associate the desired goal with your body’s alert, energized, and pumped-up state. This is conditioning. Keep conditioning yourself with the same goal connected to the same stimulus (activity). Do not alter or deviate from the routine.
Eventually, after your brain is fully conditioned, you will arrive at a point where, just by engaging in the stimulating activity (running), your brain will automatically kick in to the desired framework (positive emotions, confidence, a sense of mastery) that will help you produce the desired effect(s). You will not even have to remind yourself to think about the desired feeling or behavior, because it is now a habit that comes naturally.
Next, with your brain fully primed, use the same exercise (running on the treadmill) immediately before you begin a trading session. Do you see what you are doing here? You are programming your mind to feel and react a certain way and then calling on it when needed. Give yourself “booster shots” during trading breaks. Every time you engage in the activity, you will trigger your brain to react in the way you have trained it to. In this example, you will now find it much easier to tolerate the anxiety associated with holding onto winning trades until the market reaches your target exit point.
For those of you who are skeptical about using such easy and cheap (actually, free) CBT methods to lower your neuroticism, I would urge you to consider these data. The proof of the pudding is in the eating. In 1989, a meta-analysis was done by a researcher in Australia looking at what types of therapies were most effective in modifying neuroticism. (A meta-analysis, by the way, is a study which combines the results of many other studies into one large, mega research project. By combining the results of lots of studies you can be more confident in the results.)
The results of this study (Jorm, Australian and New Zealand Journal of Psychiatry2) showed that “rational-emotive and related therapies” were far and away the most effective method of reducing neuroticism. “Rational-emotive therapy” is the precursor of what today we refer to as CBT. In fact, the study showed that all the other therapy methods (including meditation, stress inoculation, muscle relaxation, group therapy, study skills trading, and anxiety management training) were really about as effective as placebo in reducing neuroticism, while rational-emotive therapy was three times more effective than placebo. Also, the effects of this therapy were lasting; even a year after treatment study participant’s retained their lower neuroticism levels.
Back to medications. In 2009 a second study (Tang, Archives of General Psychiatry3) showed that SSRI drugs are helpful in reducing neuroticism (similar to the first study I cited in this chapter). However, Tang’s study also showed that CBT was able to reduce neuroticism (though not as effectively as the drug). In 2010 an article by Glinski4 in the journal Behavior Change added more weight, as she too showed, “treatment (with CBT) was associated with significant reductions in neuroticism.”
The field of cognitive behavioral therapy continues to evolve and be better defined by clinical research. Today, in 2012, one exciting and promising cutting edge of CBT is a specific subtype of therapy called cognitive bias modification (CBM). CBM, developed primarily by reputable psychologists at Brown University, is a therapy that is delivered entirely via computer software and has been shown in multiple small clinical trials to be a very good potential treatment for combating anxiety (recall that top market traders have low trait anxiety levels). Although the trials have been limited in scope and size and much more needs to be elucidated, CBM appears to be as effective as in-person therapy or drugs for treating anxiety.
CBM consists of performing very simple exercises several times per week for four to six weeks, using a computer program that is designed to teach and train the brain to cope better with anxiety. The idea of computer-based therapy is certainly controversial. Many psychotherapists of course are opposed to the idea, primarily over fear that clients would be able to manage and temper their anxiety entirely from the comforts of home—without the need of a pricey therapist. Others are skeptical that something as simple as a computer program could help people substantially lower anxiety. Psychologists and psychiatrists in general consider anxiety (both from primary mental disorders and neurotic personalities) one of the hardest mental symptoms to treat or manage—much harder than depression, for instance. The idea that a computer program can be as effective as psychotropic medications or intense psychotherapy in controlling anxiety just doesn’t compute for some, but the data are starting to show that it just might be!
CBM software uses an “attention” technique, which trains people to ignore an anxiety-provoking cue and to instead complete a simple task. Here’s a simple example: On a split computer screen, research subjects are simultaneously shown pictures of both a disgusted or frightening human face and a neutral human face. Which face appears on which side of the screen is random, and over an hour or so about a thousand of these split screen images show up in a rapid succession. For each screen shot shown to the research subject, one of the two faces is quickly replaced with a letter (either an E or an F), while the other face remains on the screen. The incredibly simple task given to the research subjects is to report which letter pops up on the screen each time, simply by clicking either the E of F on the keyboard. Two groups of people are tested: a therapy group and a placebo group. For those receiving the active CBM therapy, the neutral appearing face is always the one replaced by a letter and the disgusted face always remains on the computer screen. In this manner, the research subjects are forced (trained) to divert their attention away from the anxiety-provoking face, so they can complete the simple task. Meanwhile, for the placebo group, either of the two faces has an equal chance of being replaced by the letter E or F.
In a nutshell, you are training your brain to make cognitive decisions (figuring out which letter is being presented to you) in the face of a noxious and anxiety-provoking stimulus. Sound too easy and too good to be true? Well the data so far show that the CBM treatment substantially and even dramatically lowers anxiety following four to six weeks in the treatment group, and not at all in the placebo group. CBM still needs to be proven in larger trials with longer follow-up times, but so far, this therapy appears to be very promising as a way to effectively reduce anxiety. It has started to receive attention in popular media, including The Economist, and I think you will be hearing much more about the burgeoning field of CBM. And remember, our research shows that the best traders are those who are low in trait-anxiety on the NEO-AC. So, if there is a way to program your brain to be less anxious, it may very well help your trade results!
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