Recovering in trading generally continues to be like recovering momentum on an athletic field, at least for those who don’t really understand the leading edge of brain science. The intellect still is supposed to be in charge, as opposed to its real power or role which is, albeit surprisingly, only a small part of the overall picture.
In sports, everyone can see the drain or destruction and everyone has also seen amazing turnarounds, but who can describe it systematically? Fixing feelings, which is what momentum or negative-momentum stems from, with intellect (or at least intellectual coats of paint) rarely if ever really works. We all listen to the positive thinking advice and say to ourselves, “Yeah but …” and “You don’t understand my situation, it’s much worse than you realize.”
In fact, the reason I really got into consulting in the first place was to help people who had been very successful recover from one or another of the various meltdowns that can befall a trader, particularly one that has had to plow his or her way through all of the ineffective and even damaging intellectual advice.
In a new world where feelings and emotions count, step one turns out to be quite different than you would think. Ironically, the most helpful thing to do when you have blown it is to feel bad! It won’t kill you, it won’t even cause you to throw up (most of the time), but it will put your body in synch with your mind and your mind in synch with reality. If you have made one or a series of spectacularly stupid decisions, what else are you supposed to feel? Isn’t feeling like a chump rational? You blew it so of course you should feel like crapola!
In other words, step one of recovery amounts to mourning. You are mourning the death of your capital and you are mourning the temporary death of your sanity. Believe me, the quickest way out of this is going to be to feel as bad as you feel, whatever that is, and let that be that.
And yes, I know the objection. It seems that if you let yourself feel something bad, that you will end up in the abyss of that feeling. Most of us don’t. We allow the feeling and it passes. While it is passing, it points our minds and yes, even our intellects to areas where we can improve or learn. We also disrupt the acting out of the feeling.
Typically, men more than women want to “do” something and intentionally feeling whatever feelings exist doesn’t seem like doing anything. (Even though it is.) Men tend to immediately ask, “What should I do?,” where “do” involves some sort of deliberate physical movement. Many of my clients move first toward taking action and the action of consciously feeling something, maybe because it is internal and can be done sitting still, clearly doesn’t seem like doing anything. In terms of understanding one’s over-arching emotional context, taking action can prevent one from ever knowing what that context really is. It just doesn’t make sense to literally do anything (take physical action) until you really understand what went wrong and you don’t have a snowball’s chance of understanding where your perception got so off track until you let yourself feel crummy—most of the time, for however long it takes. I know you have visions of half-empty pizza boxes and beer bottles strewn all over your office, but, even if that did happen, would it be so bad?
It might seem like this strategy catapults you into a deep, dark hole. All I can say is, trust me. It doesn’t. I have given this exercise to many a trader, including one who sits as an managing director on a major bank trading desk and, in his case, the next time I talked to him, he didn’t even remember feeling bad. Most of the time, if you have the courage to feel badly, get to the root of the feeling, and realize that x-y-z feeling or fractal-emotional context crept up on you without you knowing it, the feeling “pops” like a balloon. Even if it doesn’t pop, it begins losing air like a tire going flat. The overwhelming sense of urgency begins to dissipate. As that energy goes away, it gets easier to see how the feeling, emotional, and social contexts—the conscious and previously unconscious—were coloring your beliefs and perceptions.
Bottom line: the debilitating part just won’t last that long if you just let yourself feel and articulate it, even if only to a journal.
Some people will tell you to put a time limit on it. That is only because they fear what will happen if you don’t. Trust your psyche, it will take care of you. Feeling bad has informational value. It leads you to be introspective, and while you are doing so, here are some questions to ask:
• What was the feeling context and emotional context, the fC and eC? Where were you on the spectrum between the fear of losing and the fear of missing out? You were definitely somewhere, and more often than not, the mistake you make will be on the right-hand side, at the fear of future regret.
• What was the fractal-emotional context, the F-eC? Of course this third one will take a little help to figure out, and even more diligence to manage. But it is manageable—set phone alerts, put up sticky notes, talk about it.
I can guarantee you that a psychological set-up exists in your trading that makes you feel like you felt when you were a child. It is all there. The simple and early fractals were there before you got to high school. They may become re-mixed somewhat and events from your teenage years may exacerbate them, but the roots go deep.
Whatever self-perception, set of beliefs and expectations, and explanations you came up with for your rightful place in the world, chances are the negative or limiting ones are just the narcissistic view of a child who, if they can jury-rig something into being their fault, gains a false sense of control over the situation.
Frankly, when the feelings and emotions you are experiencing become the most intense, you can be assured that it is not really about the markets or the money. When the thing you need to do, get out or walk away, seems to be literally the hardest thing to do, you can be assured that what you are feeling has a fractal component. It mostly is not about the here and now. The sooner you can remember this, in the heat of the battle, the less trouble you will get into. It sounds hard to believe, I know, but realizing that the intensity of wanting to be right, frustration over being wrong, or fear of missing something emanates from your past dilutes enough of the physical energy embedded in the emotion and gives you a window through which to unravel it, as opposed to acting out (or trading) with the money you manage.
Understanding this internal data gives you an edge, the psychological leverage, that no one no one can take away.
Figure 21.1. Contexts diagram.
This diagram moves from the most conscious to the most unconscious elements of the feeling and emotional contexts. The feeling contexts include the basic physical feelings like tired and hungry. The emotional refers to the relatively easy to get at fears on the spectrum we have discussed. The innermost circle parallels your unconscious psyche, the fractal-emotional contexts or the transferences and repetitions of psychoanalytic theory.
Yes, there will always be time lags of varying degrees in how soon you realize it. But if you are managing to the objective of creating and maintaining psychological capital first, you will recognize your situation sooner. Likewise, if you recognize it sooner, you get to the point where you can have one awful trade, just one (sort of like one potato chip or one chocolate chip cookie). Instead of turning into a gorge-fest, you have a psychological strategy to fall back on. Then you will have made it.
It is rarely, if ever, that first loser that kills you, it is almost always what comes after it.
In Chicago, they used to say, “Your first loss is your best loss,” and it is true. Furthermore, if you manage to a strategy of psychological capital and leverage, oftentimes you will have your signal to take a break before you even get a chance for the second loss.
The BIKB trade is that one you really regret. It is the one that you really didn’t want to take but then again couldn’t help yourself. It is the one that you get the maddest at yourself for. Why? Because you know better and you know you know better.
Nevertheless, even in a case where the meltdown isn’t spectacular, the process is the same. First, let yourself feel bad. In fact, try actively to feel as badly as you can about making a mistake. Once again, a feeling can’t in and of itself hurt you; it is just a feeling and once it gets your attention is likely to roll right on out of there. We are taught to not feel what we feel. We are taught to use our intellects to override how we feel. We are taught to reframe how we feel.
But I will tell you what, just feeling how you feel, and particularly feeling it for what it is and not some derivative, will save you a boatload of hassle and ultimately make you a lot more money. As the wife of a client once said, “Well, your head won’t blow off.”
In fact, if you don’t go through this process, you can bet on a losing streak. I’ve seen it hundreds of times now—as well as the reverse, ending a losing streak by retracing one’s steps to where the BIKB happened.
On the other hand, if you keep an eye out for all the variations of feelings you will have—anticipate them—then those feeling and emotional contexts don’t automatically become the unknown canvas coloring your perception of the next trade. You have already examined it and you have already felt it. Your brain knows you got the message and is satisfied that your neurons, synapses, and glial cells are less likely to forget the next time.
In fact, force yourself to celebrate when things go brilliantly!
In this case, consciously act out that real feeling, that one where you get the next million dollar paycheck. Delve fully and completely into it. Why?
Want to know why winning streaks turn to losing streaks? The answer remains the same—people are acting out a context of feelings. They throw caution to the wind in the overconfidence that makes them think they have a golden touch.
Feeling the feeling, knowing what it is and why, and putting it into words short circuits that process. If you manage to your level of mental capital and psychological leverage first, you know when you feel “over the moon.” You should also know, though, that this feeling carries the same risk signal as being tired or angry. It creates a context that skews your perception. It changes your beliefs, at least for the time being. If you revel instead, you can feel the feeling—really enjoy it—but keep it out of your account. All in all, that is a very good deal—deeply felt pleasure, extra clarity in uncertainty, and a high likelihood of another good decision.
Think of the multiplier! You get the first good trade, avoid the trading out of an overconfident emotional context, keep the money, and set yourself up to take the next trade with just the right amount of psychological capital. Now that is leverage!
In one way or another, I have coached about 2,000 traders since I founded The ReThink Group and TraderPsyches. Many of my clients have told me that improving their trading has turned out to be a journey of learning about themselves more than a journey of learning about the markets. Sure, they could put together a string of good trades but then something always happened, and they didn’t understand why things fell apart, particularly at that moment. They had trouble getting things back together; sometimes it takes months or even years. Just like the day to day resembles being a quarterback, the long run resembles a marathon. I understand how you want to get to the end point and you will make leaps where you will look back and say, “Wow, this is much easier than I made it out to be”; but in trading, you always have to keep running. The markets have many personalities and what works with one doesn’t work with the other. It can take a lifetime to get good at them all or give up on the ones that just don’t suit your internal rhythm.
The thing you have to go on now is that our understanding of brain science just a few short years ago is analogous to when we thought the Earth was flat. Now that you indeed know that the Earth is round and that your brain is an emotional-context operator, you can sail across whatever waves the market throws your way. In doing so, your beliefs that Markowitz pointed out were so important and the perceptions and judgments that rely on those beliefs will be much more about the here and now and much less about what came before.