A large number of traders that I work with express the feeling that they are somehow sabotaging themselves: repeating the same mistakes day after day, giving back valuable profits in a fraction of the time it took to earn them. Their intuition is that there is some kind of pattern to what they’re doing; they’re repeating the same mistakes again and again. They realize that they’re not mentally ill and don’t have a history of out-of-control behavior, so they are understandably confused as to why they can’t stop shooting themselves in the foot.
In this article, I will summarize a few ideas central to brief therapy, a discipline which uses very active techniques to accelerate change processes that might otherwise take months or years. Brief therapies have been subjected to considerable research scrutiny, and the consensus is that they are highly effective in changing emotional and behavioral patterns over a period of weeks, especially among people who do not have chronic, diagnosable mental health problems. A summary of this research, as well as a thorough description of the how-to’s of brief therapies, is included in a text for beginning therapists that I recently co-edited. Applications of brief therapy to trading can be found on my free website and in my book The Psychology of Trading. All of those sources are linked below. This article will focus on ways that traders can serve as their own brief therapists.
Step One: Regaining A Sense of Control
By the time traders seek help, some are angry and frustrated; others are depressed, anxious, or confused. The common denominator is that they experience the sense of a loss of control over their trading. Think of it this way: If you feel in control of something in your life, there's no way that thing will make you feel depressed or anxious. If I'm in control of my health, an illness will neither depress nor worry me. If I have control over my family budget, an unexpected expense will not prove upsetting. What turns stress into distress is the perception that we no longer control something that is important to our well-being. If I feel that I have lost control over my marriage, my health, or my career, the first result will be anxiety: I will become mired in doubt and uncertainty. If I continue to perceive a lack of control over important aspects of my life, that anxiety will turn to depression. The perception, "I don't think I can handle this" will become "I know I can't handle it."
Our first goal in your turnaround is to regain a measure of control. It won't happen all at once or in all areas of your life, but any movement in the direction of increased control will help you feel more optimistic, more energized. Depression, as psychologist Martin Seligman pointed out, is grounded in learned helplessness: the sense that one is powerless. Any constructive exercise of personal power helps dispel the helpless state.
A step-by-step strategy to regain control is far better than an unfocused, shotgun effort. Many people, fired up to make grand changes at the start of a New Year, tackle large goals--only to find themselves frustrated by their inability to reach these quickly. It is much better to define smaller, achievable goals that you can build upon than grandiose visions that will take months or years to realize. Your effort to take control expresses your fighting spirit: your determination to not let events control you. Even if that effort does not lead to a complete turn-around--and it usually won't--it is an important part of the psychological turnaround that precedes larger life turnarounds.
The research literature in brief therapy tells us that the very first thing to change is not behavior; it is mood. People begin the change process by feeling greater well-being. They become more optimistic, more hopeful. This is because they have taken some concrete measures to regain control over their lives.
Take the example of Lance Armstrong in his book It's Not About the Bike. He describes in detail his reactions to learning that he had testicular cancer just as his cycling career was blooming. Each piece of news seemed worse than the last one: his cancer turned out to be late-stage; it metastasized to his brain. Even the optimistic physicians gave him no better than even odds at survival and most assumed his career would be over, due to the toll that chemotherapy would take on his lungs.
Armstrong first took control by learning everything he could about his disease. He became a partner in the treatment process, not just a passive patient accepting a doctor's advice. The knowledge he gained helped him assemble a team of professionals to assist in his care, including some world-renowned physicians he would never have known about had he not educated himself. When he was faced with a choice of who would ultimately guide his cancer treatment, he selected a physician who understood his patient's love of cycling and took the extra step of finding chemotherapy agents that would not devastate his lungs. During the difficult chemo process, he refused to use the wheelchair offered to him, preferring to walk on his own. When a nurse brought in a lung machine to test his capacity, he angrily blew into it as strongly as possible and told her to never bring the machine into his room again. Staying in control of the small things helped him deal with the big ones—and sustained his fighting spirit.
Finding Your Control
If there is a "cancer" in your life or trading, removing it may be as difficult as it was for Lance, albeit in a different way. The problem isn't going to go away overnight and may require wrenching life changes. Your control, however, like Lance's, will come from your refusal to relinquish control. You can learn everything possible about your trading difficulties the way Lance made himself an expert on cancer, so that you become an active agent in your turnaround. A thorough review of the year's trading results will tell you a great deal about where you made money and where you lost it. Most important, it will reacquaint you with your trading strengths as well as weaknesses. Very often, I've found, such reviews reveal that a relative handful of trading days made the difference between a dismal trading year and a good one. If so, you want to focus your attention on the common denominator within that handful of losing days--that is going to be the first challenge to tackle. Sometimes that common denominator is a time of day or type of market—you’re losing money overtrading markets that become slow Sometimes the common denominator is an emotional state: You’re trading while you’re frustrated or angry. As we’ll see, becoming an observer to your problem patterns is half the battle. When you an observer to a pattern, you are outside the pattern, not lost in it. That provides a measure of control.
While you are reviewing your performance, you also want to focus attention on your big winning days: clearly these were occasions when you operated outside the sphere of your problems. What was different in your trading approach on those days? What was different about your state of mind? Sometimes we forget that we enact solution patterns as well as problem ones. Recognizing what you’re doing when you’re trading well—become an observer to success as well as failure—increases the odds that you’ll be able to reproduce these solutions when you need to.
One trader I recently worked with was near despair over his tendency to give back his gains as the trading day wore on. By the time we talked, his risk management was erratic, he was reading market action poorly, and his timing was off. He felt that he had so many trading problems that he would need to find a different occupation. When we carefully reviewed his trading, however, a single pattern emerged: He tended to lose money on trendless days, especially when his mornings started out poorly. He typically raised his size into the afternoon, increasing his risk even as he faced less opportunity. The result was that he would get chopped up with his maximum size. Our initial strategy for gaining control was very simple: We treated the morning and afternoon as separate trading sessions and set a maximum allowable loss for each. This level was large enough to allow him to trade normally, but not so large as to prevent him from recovering from a bad start to the day. Finally, we created a rule that his initial position size could never be raised to his maximum if he was down money. In other words, he could only use maximum size when he was trading well, not when he was in the mood for revenge. I helped him monitor the following of these rules and, before long, they became positive habits. As he stopped the large losing days, he saw the results in his bottom line--and in his enhanced feelings of confidence and control.
This example is not unusual among good traders in slumps. What seems like an overwhelming set of problems is actually a single pattern that recurs in different ways, at different times. If the pattern can be broken, surprising changes can result, because it's the pattern--not basic trading ability--that is the problem. That is why brief therapy works. It does not attempt to change your life. It focuses on specific patterns and changing those. The first step in the change process is regaining the feeling of control by simply figuring the pattern out: learning everything you can about the problem so that, like Lance Armstrong, you can find the right kind of help--and the right helpers. Even if your initial efforts lead to nothing more than stopping what isn't working and focusing on what you're doing well, that will contribute to putting you in the psychological driver's seat. As one trader put it when he began to regain his sense of control, "The problem is my pattern (of overtrading); I've been telling myself that I'm the problem."
Separating you from your problem is the first step toward mastery.
Step Two: Finding the Theme Behind the Pattern
The mere recognition that you don't have many problems--just many manifestations of a single problem pattern--is in itself relieving. It is much easier to change a single pattern than to make multiple changes across a variety of situations. Most patterns are expressions of themes that run through our lives, much like a theme might run through a novel or symphony. Rarely does the pattern only show up in one facet of life, such as trading. More often, it cuts across areas of life, which is why it has so many manifestations and can leave us feeling like we're bundles of problems.
Let's take Jack, a talented young trader who has achieved inconsistent results at his trading firm. Jack grew up as a rebellious teen in a strict Eastern European household. He loves his parents and feels they love him, but he resented their imposition of "old world" values. He resisted their curfews when he was young and recalls with bitterness how they prevented him from having friends when he was a teenager. He later rebelled against their desires that he attend school locally and marry a woman of the same faith and national heritage. Instead, Jack went out of state to college and experienced a varied social life. He experimented with drugs, missed many classes because of fraternity partying, and disappointed his parents with mediocre grades. Jack recalls many battles when he came home during vacations, as he and his father went toe to toe over his "wild" behavior.
What brought Jack to my office initially was not his trading, although that had taken a downturn. He was depressed following the breakup of his first serious relationship. His girlfriend found out that he had cheated on her, and she promptly broke up with him. When he tried to convince her to give him another chance, she confronted him with evidence of multiple cheatings and ended things for good. "I really f***** up, man," Jack explained to me. "I don't know why I do those things. As soon as I have something good, I f*** it up. It's like I'm trying to hurt myself."
"What other ways do you f*** up the good things?" I asked.
You saw what happened yesterday," Jack raised his voice. "I was up in the morning, trading well, and then I just went nuts in the afternoon. I broke every one of my rules and ended up the day losing money. I don't know how many times I pull that s***. Just when I think I'm trading well and doing all the right things, I pull something like this. I have to be the world's biggest f*** up."
The average person listening to Jack would conclude that he has several problems: conflicts with his family, relationship problems, and lack of discipline in his trading. Indeed, the sense that every important part of his life is messed up is a big part of why Jack feels depressed. He feels out of control, unable to stop himself from self-destruction. In reality, however, he has one pattern that shows up in several spheres of life: he experiences expectations as limitations on his freedom and threats to his independence. He saw his parents' rules as punitive constraints, and he experienced commitment in a relationship similarly. And his trading rules? At an emotional level, they were no different from his parents' rules--which is why he periodically rebelled against them, to the detriment of his P/L.
Most of our themes, like Jack's, begin during an earlier period of life in which there was conflict. Indeed, the themes usually begin as attempted solutions to those conflicts. Jack's parents really did limit his freedom during his growing up years, and his rebellion was his way of trying to find a balance. Although it generated arguments at home, it worked for him: he made friends, broke away from his small community, and gained experience with a broader slice of life. The problem was that this strategy became overlearned, which made it automatic and patterned. His way of dealing with constraints at home, through rebellious assertions of independence, became his way of dealing with all constraints--even the ones that he knew were good for him, such as monogamy in a serious relationship. What he knew and how he told himself he should act--and what he experienced emotionally--were very different things. He thinks he has f****** up his life, but in fact he is simply repeating a pattern that had worked for him in the past.
The problem is that he has outgrown that pattern. It no longer brings him freedom.
An Exercise for Finding Your Themes
It is very difficult to change your patterns if you don't know what they are. As we’ve seen, becoming aware of your patterns--and separating yourself from them--are essential first steps in the change process. But it can also be difficult to locate your themes when you are immersed in them. They occur so automatically--and feel so much like parts of ourselves--that we're generally oblivious to their existence, much like a fish must have little awareness of water.
One exercise I ask people to do is create a set of sine waves on a blank sheet of paper. The waves have multiple peaks and valleys. I then ask traders like Jack to write down on the peaks all the best experiences of their lives. On the valleys are written the worst life experiences. Afterward, as we look across the peaks and valleys, the themes jump out at us. Jack felt best when he felt free, when he was doing his own thing. He felt worst when he was tied down and after he unsuccessfully fought against the feeling of being tied down.
If Jack were to create separate sine wave charts for his family, relationship, and trading lives, the correlations would be enormous. The same feelings, the same situations recur. And recur. And recur. Freedom and constraint…happiness and angry rebellion.
I invite you to try an exercise and create your own sine wave chart. Include at least seven peaks and seven valleys. Carefully go through your life and identify the best experiences you’ve had and the worst: the times you’ve been happiest and most fulfilled and the times you’ve been most miserable. If there are very special happy times, draw those peaks higher; if you’ve had some real low periods in your life, make those valleys deep. You don’t need to have one peak per valley and vice versa. At good periods in your life there might be many peaks; at other times multiple valleys.
Once you’ve completed the chart, focus your attention horizontally. Look across the peaks and across the valleys. Try to find a single theme or common ingredient for most or all your entries. You’ll notice that many of the manifestations of a theme appear different on the surface, but are united by the same feelings and similar behavior patterns. Someone who grew up feeling inferior as a child now compares himself to other traders and feels inadequate; a person who unsuccessfully tried everything to please an alcoholic parent now finds herself overwhelmed by perfectionistic expectations that can't be met in trading. To find your theme, look for a common emotional state and a characteristic way of handling that emotion. Most of our themes are old, outmoded coping patterns.
Jack, I'm pleased to report, was able to extricate himself from his pattern. It actually happened in a funny way. During one meeting, he became convinced that the pattern was controlling him and he rebelled against it! By pretending that his pattern was a set of tyrannical parents, he found it easy to summon his motivation to not fall into the pattern. He followed his trading rules, not because he learned to love rules, but because he saw trading well as an exercise of choice and free will--and saw rule-breaking as a return to the control of his past.
His first step of change, however, was to understand himself and why he was doing what he was doing. He wasn't self-defeating. He was simply doing what he had (over)learned to do during a difficult developmental period. The good news from the sine wave chart exercise is that you have positive patterns as well as negative ones. Our job is to tip that balance and create more peaks than valleys.
Step Three: Accelerating The Change of Problem Patterns
Years ago, it was assumed that problem patterns would take a long time to change, given that they had formed over a period of years. As I mentioned at the start of this article, a collection of methods known as brief therapies has shown that a wide range of patterns can be changed in a matter of days or weeks. One element common to these therapies is that they rely on experience and learned skills rather than talk with a therapist in the creation of change. Indeed, one reason that they can accelerate change is that they exploit hands-on techniques that can be practiced from day to day.
Several elements of brief therapies are helpful to traders seeking to change their cognitive, emotional, and behavioral patterns:
* Focus - Brief therapies seek change in one pattern at a time, rather than trying to make multiple changes or overhaul entire aspects of personality. Very specific patterns are targeted for change; then the process moves to other patterns if needed. Thus, for example, traders might work first on techniques for reducing anxiety and then later learn skills for changing negative thought patterns.
* Structured Learning - Change begins by learning and rehearsing skills away from problem situations and then progresses through gradual application to real-time stresses. For instance, a trader might learn and rehearse a cognitive method for identifying unrealistic worries, challenging them, and replacing them with more realistic appraisals. First this method would be applied to imagined situations through the use of guided imagery; then it would be applied to progressively more difficult situations at home and in trading.
* Use of Homework - Each skill learned is practiced between meetings until it becomes familiar and automatic. This practice begins with imagined situations and progresses to challenges encountered in daily life. Very often, as part of the focus and structured learning, homework assignments will target very specific aspects of patterns. For instance, a person who is trying to stop smoking might work on not smoking after meals, using techniques to handle cravings that are unique to those situations.
* Mastery - Traders don't work on more difficult aspects of patterns until they have mastered simpler ones. The idea is to create a sense of mastery, so that individuals can once again feel in control of their lives. A skill is first practiced and mastered in the office before it is assigned as homework; it is first applied to situations in imagery before being applied to real life.
From the above, you can see that these are techniques for accelerated learning. Brief therapies are effective because they create powerful learning experiences that are repeated until they are internalized. By working on problem patterns day after day in a structured learning environment, people can change lifetime patterns with remarkable speed.
Bob, The Frustrated Trader
The beauty of these methods is that they readily lend themselves to direct applications to trading. Let's take the example of Bob, a trader who has made little money in the past year after a profitable 2004. As the market has become less volatile, he has found it difficult to adjust his expectations accordingly. Consequently, he finds himself taking overly large risks, then becoming fearful and overly cautious. By the time he sought help, he felt completely out of control, ready to give up entirely.
It turns out that Bob had a mixed relationship with his father, a highly achievement-oriented athlete who encouraged Bob to excel in sports. Bob played a number of sports in high school, but never excelled. He often felt that he did not meet his father's expectations, and he resented his father's efforts to motivate and improve him. As a result, the latter part of Bob's high school career was marked by frequent arguments and one big blowup in which Bob left home and lived with relatives for several weeks.
When I suggested that Bob was still fighting his father--only now it was a "little father in your head"--my observation made sense to him. He realized that he was driving himself in his trading the way his father drove him in sports. His inability to meet his expectations in the past year led him to talk to himself the way his father talked to him. "Do you really want to continue living out your problems with your father?" I asked Bob. "You left home for a reason. Maybe now it's time to leave that little father in your head."
We started with a simple exercise in which Bob simply identified all the times during the day when his internal father took over. This was our focus. It became clear that Bob's negative self talk occurred primarily when he was frustrated with his trading results. As with sports, it occurred during competitive situations in which Bob failed to win. Our structured learning began with mental rehearsals of frustrating situations in trading: missing out on profitable trades, having the market reverse against winning trades, taking losses, ending the day in the red, etc. Each time we vividly imagined the negative scenarios, Bob imagined his father berating him--and then imagined himself refusing to accept the criticism and standing up for himself. We did not assign the mental scenarios as homework until he mastered them in the meetings with me. We also did not tackle visualizations of highly frustrating situations until Bob could keep his cool and control his negative thoughts while imagining less stressful events. Every meeting and each homework assignment was structured to generate experiences of mastery.
Eventually, we took the techniques to real-time, when Bob used his methods for interrupting negative thoughts and challenging his internal father while trading. Dozens of experiences with imagined situations and routine home frustrations helped prepare him for the inevitable frustrations of trading. By the time he applied his new skills and outlook in real time, he had already had many success experiences from our earlier work. This confidence was invaluable in tackling situations that formerly had seemed beyond control.
How to Follow Bob’s Example
You can create your own brief therapy along the lines of Bob’s experience. The key is forming an image of your problem pattern—the one you identified across the valleys of your sine wave chart—that will energize your attempts to undo the pattern. Bob created a visual image of a miniature father in his head to help him realize that he was doing to himself what his father had done to him. Jack’s strategy was different: he equated his pattern with the loss of control he felt as a child and used that feeling to rebel against his pattern. When alcoholics make life changes in AA, it is because they come to visualize drinking as an obstacle, something that will ruin their lives. This visualization provides them with powerful images that tap into their motivation to change.
Your own brief therapy will work if it taps into a similar motivation. Your image doesn’t have to be negative to be effective. One client of mine years ago had a tendency to beat up on herself. She had been sexually abused as a child and blamed herself for what had happened. Her pattern, not surprisingly, was guilt. After we talked about how her guilt worked for her as a child—it kept her silent so that she would not face the severe physical abuse that her angry brother experienced—but now was holding her back, she decided to hold a funeral for her guilt. She literally buried pictures of her childhood and created the image of her pattern as a part of her that had died and now must be left behind.
Many times brief work is effective because it focuses people on the peaks as well as the valleys: their positive patterns and not just their negative ones. Indeed, figuring out solution patterns often provides insight into what you can try differently when you catch yourself starting to get caught up in an old problem pattern. One person I worked with described peak experiences of great peacefulness: during vacations, while feeling close to others, etc. This gave us the idea of using meditation to create moments of peacefulness when the problem patterns were likely to emerge. By interrupting old patterns and enacting new ones, he eventually made relaxation a positive habit.
Conclusion
All of us have learned to deal with life challenges, and some of the ways of coping that we learned now interfere with our happiness and success. This doesn't mean that we are mentally ill, and it doesn't mean that we cannot regain control over our lives. Just as negative patterns can be learned--and overlearned--we can create intensive learning situations to instill new, more positive patterns. What keeps negative patterns alive is our unwillingness to confront our worst fears. Bob overcame his pattern because he was willing to face frustration again and again--in imagery and real life--until he had completely silenced his father's critical voice.
Facing our greatest sources of fear and distress--but with new skills and a new perspective--is the essence of brief therapy. Typically this is a three-step process: 1) regaining a measure of control; 2) identifying one’s repetitive patterns; and 3) using imagery and learned exercises to disrupt those patterns. If Lance Armstrong can retain his sense of purpose in the face of late-stage cancer and Viktor Frankl can retain control over his life in a concentration camp, no trading situations need dominate our lives. We learn problem patterns, we can unlearn them, and we can learn new, positive patterns. With the help of brief therapy innovations, the unlearning and relearning can happen more quickly than ever.
Brett N. Steenbarger, Ph.D. is Director of Trader Development for Kingstree Trading, LLC in Chicago and Clinical Associate Professor of Psychiatry and Behavioral Sciences at SUNY Upstate Medical University in Syracuse, NY. A clinical psychologist and active trader for the past 20 years, Brett is the author of The Psychology of Trading (Wiley; 2003) and numerous articles on trading psychology for financial publications. His book chapters on brief psychotherapy can be found in such reference works as The Psychologist's Desk Reference (Oxford University Press, 1998) and the Encyclopedia of Psychotherapy (Academic Press, 2002). His newest, coedited book, The Art and Science of the Brief Psychotherapies (American Psychiatric Press, 2005), has been selected as a core training text for psychiatry residency programs.
In July, 2004, Dr. Steenbarger stepped down from his medical school faculty position and began intensive work with traders at Kingstree Trading. He also coordinates their training program for new traders. Drawing upon an intensive research program that began in 1998, he has created a number of unique measures of market trend, momentum, and institutional activity designed to aid short-term traders. These measures--and the trading strategies derived from them--have been chronicled daily since June, 2002 in the Trading Psychology Weblog and on his web site.
Dr. Steenbarger does not offer coaching or other commercial services to traders, but welcomes questions and comments at [email protected].
In this article, I will summarize a few ideas central to brief therapy, a discipline which uses very active techniques to accelerate change processes that might otherwise take months or years. Brief therapies have been subjected to considerable research scrutiny, and the consensus is that they are highly effective in changing emotional and behavioral patterns over a period of weeks, especially among people who do not have chronic, diagnosable mental health problems. A summary of this research, as well as a thorough description of the how-to’s of brief therapies, is included in a text for beginning therapists that I recently co-edited. Applications of brief therapy to trading can be found on my free website and in my book The Psychology of Trading. All of those sources are linked below. This article will focus on ways that traders can serve as their own brief therapists.
Step One: Regaining A Sense of Control
By the time traders seek help, some are angry and frustrated; others are depressed, anxious, or confused. The common denominator is that they experience the sense of a loss of control over their trading. Think of it this way: If you feel in control of something in your life, there's no way that thing will make you feel depressed or anxious. If I'm in control of my health, an illness will neither depress nor worry me. If I have control over my family budget, an unexpected expense will not prove upsetting. What turns stress into distress is the perception that we no longer control something that is important to our well-being. If I feel that I have lost control over my marriage, my health, or my career, the first result will be anxiety: I will become mired in doubt and uncertainty. If I continue to perceive a lack of control over important aspects of my life, that anxiety will turn to depression. The perception, "I don't think I can handle this" will become "I know I can't handle it."
Our first goal in your turnaround is to regain a measure of control. It won't happen all at once or in all areas of your life, but any movement in the direction of increased control will help you feel more optimistic, more energized. Depression, as psychologist Martin Seligman pointed out, is grounded in learned helplessness: the sense that one is powerless. Any constructive exercise of personal power helps dispel the helpless state.
A step-by-step strategy to regain control is far better than an unfocused, shotgun effort. Many people, fired up to make grand changes at the start of a New Year, tackle large goals--only to find themselves frustrated by their inability to reach these quickly. It is much better to define smaller, achievable goals that you can build upon than grandiose visions that will take months or years to realize. Your effort to take control expresses your fighting spirit: your determination to not let events control you. Even if that effort does not lead to a complete turn-around--and it usually won't--it is an important part of the psychological turnaround that precedes larger life turnarounds.
The research literature in brief therapy tells us that the very first thing to change is not behavior; it is mood. People begin the change process by feeling greater well-being. They become more optimistic, more hopeful. This is because they have taken some concrete measures to regain control over their lives.
Take the example of Lance Armstrong in his book It's Not About the Bike. He describes in detail his reactions to learning that he had testicular cancer just as his cycling career was blooming. Each piece of news seemed worse than the last one: his cancer turned out to be late-stage; it metastasized to his brain. Even the optimistic physicians gave him no better than even odds at survival and most assumed his career would be over, due to the toll that chemotherapy would take on his lungs.
Armstrong first took control by learning everything he could about his disease. He became a partner in the treatment process, not just a passive patient accepting a doctor's advice. The knowledge he gained helped him assemble a team of professionals to assist in his care, including some world-renowned physicians he would never have known about had he not educated himself. When he was faced with a choice of who would ultimately guide his cancer treatment, he selected a physician who understood his patient's love of cycling and took the extra step of finding chemotherapy agents that would not devastate his lungs. During the difficult chemo process, he refused to use the wheelchair offered to him, preferring to walk on his own. When a nurse brought in a lung machine to test his capacity, he angrily blew into it as strongly as possible and told her to never bring the machine into his room again. Staying in control of the small things helped him deal with the big ones—and sustained his fighting spirit.
Finding Your Control
If there is a "cancer" in your life or trading, removing it may be as difficult as it was for Lance, albeit in a different way. The problem isn't going to go away overnight and may require wrenching life changes. Your control, however, like Lance's, will come from your refusal to relinquish control. You can learn everything possible about your trading difficulties the way Lance made himself an expert on cancer, so that you become an active agent in your turnaround. A thorough review of the year's trading results will tell you a great deal about where you made money and where you lost it. Most important, it will reacquaint you with your trading strengths as well as weaknesses. Very often, I've found, such reviews reveal that a relative handful of trading days made the difference between a dismal trading year and a good one. If so, you want to focus your attention on the common denominator within that handful of losing days--that is going to be the first challenge to tackle. Sometimes that common denominator is a time of day or type of market—you’re losing money overtrading markets that become slow Sometimes the common denominator is an emotional state: You’re trading while you’re frustrated or angry. As we’ll see, becoming an observer to your problem patterns is half the battle. When you an observer to a pattern, you are outside the pattern, not lost in it. That provides a measure of control.
While you are reviewing your performance, you also want to focus attention on your big winning days: clearly these were occasions when you operated outside the sphere of your problems. What was different in your trading approach on those days? What was different about your state of mind? Sometimes we forget that we enact solution patterns as well as problem ones. Recognizing what you’re doing when you’re trading well—become an observer to success as well as failure—increases the odds that you’ll be able to reproduce these solutions when you need to.
One trader I recently worked with was near despair over his tendency to give back his gains as the trading day wore on. By the time we talked, his risk management was erratic, he was reading market action poorly, and his timing was off. He felt that he had so many trading problems that he would need to find a different occupation. When we carefully reviewed his trading, however, a single pattern emerged: He tended to lose money on trendless days, especially when his mornings started out poorly. He typically raised his size into the afternoon, increasing his risk even as he faced less opportunity. The result was that he would get chopped up with his maximum size. Our initial strategy for gaining control was very simple: We treated the morning and afternoon as separate trading sessions and set a maximum allowable loss for each. This level was large enough to allow him to trade normally, but not so large as to prevent him from recovering from a bad start to the day. Finally, we created a rule that his initial position size could never be raised to his maximum if he was down money. In other words, he could only use maximum size when he was trading well, not when he was in the mood for revenge. I helped him monitor the following of these rules and, before long, they became positive habits. As he stopped the large losing days, he saw the results in his bottom line--and in his enhanced feelings of confidence and control.
This example is not unusual among good traders in slumps. What seems like an overwhelming set of problems is actually a single pattern that recurs in different ways, at different times. If the pattern can be broken, surprising changes can result, because it's the pattern--not basic trading ability--that is the problem. That is why brief therapy works. It does not attempt to change your life. It focuses on specific patterns and changing those. The first step in the change process is regaining the feeling of control by simply figuring the pattern out: learning everything you can about the problem so that, like Lance Armstrong, you can find the right kind of help--and the right helpers. Even if your initial efforts lead to nothing more than stopping what isn't working and focusing on what you're doing well, that will contribute to putting you in the psychological driver's seat. As one trader put it when he began to regain his sense of control, "The problem is my pattern (of overtrading); I've been telling myself that I'm the problem."
Separating you from your problem is the first step toward mastery.
Step Two: Finding the Theme Behind the Pattern
The mere recognition that you don't have many problems--just many manifestations of a single problem pattern--is in itself relieving. It is much easier to change a single pattern than to make multiple changes across a variety of situations. Most patterns are expressions of themes that run through our lives, much like a theme might run through a novel or symphony. Rarely does the pattern only show up in one facet of life, such as trading. More often, it cuts across areas of life, which is why it has so many manifestations and can leave us feeling like we're bundles of problems.
Let's take Jack, a talented young trader who has achieved inconsistent results at his trading firm. Jack grew up as a rebellious teen in a strict Eastern European household. He loves his parents and feels they love him, but he resented their imposition of "old world" values. He resisted their curfews when he was young and recalls with bitterness how they prevented him from having friends when he was a teenager. He later rebelled against their desires that he attend school locally and marry a woman of the same faith and national heritage. Instead, Jack went out of state to college and experienced a varied social life. He experimented with drugs, missed many classes because of fraternity partying, and disappointed his parents with mediocre grades. Jack recalls many battles when he came home during vacations, as he and his father went toe to toe over his "wild" behavior.
What brought Jack to my office initially was not his trading, although that had taken a downturn. He was depressed following the breakup of his first serious relationship. His girlfriend found out that he had cheated on her, and she promptly broke up with him. When he tried to convince her to give him another chance, she confronted him with evidence of multiple cheatings and ended things for good. "I really f***** up, man," Jack explained to me. "I don't know why I do those things. As soon as I have something good, I f*** it up. It's like I'm trying to hurt myself."
"What other ways do you f*** up the good things?" I asked.
You saw what happened yesterday," Jack raised his voice. "I was up in the morning, trading well, and then I just went nuts in the afternoon. I broke every one of my rules and ended up the day losing money. I don't know how many times I pull that s***. Just when I think I'm trading well and doing all the right things, I pull something like this. I have to be the world's biggest f*** up."
The average person listening to Jack would conclude that he has several problems: conflicts with his family, relationship problems, and lack of discipline in his trading. Indeed, the sense that every important part of his life is messed up is a big part of why Jack feels depressed. He feels out of control, unable to stop himself from self-destruction. In reality, however, he has one pattern that shows up in several spheres of life: he experiences expectations as limitations on his freedom and threats to his independence. He saw his parents' rules as punitive constraints, and he experienced commitment in a relationship similarly. And his trading rules? At an emotional level, they were no different from his parents' rules--which is why he periodically rebelled against them, to the detriment of his P/L.
Most of our themes, like Jack's, begin during an earlier period of life in which there was conflict. Indeed, the themes usually begin as attempted solutions to those conflicts. Jack's parents really did limit his freedom during his growing up years, and his rebellion was his way of trying to find a balance. Although it generated arguments at home, it worked for him: he made friends, broke away from his small community, and gained experience with a broader slice of life. The problem was that this strategy became overlearned, which made it automatic and patterned. His way of dealing with constraints at home, through rebellious assertions of independence, became his way of dealing with all constraints--even the ones that he knew were good for him, such as monogamy in a serious relationship. What he knew and how he told himself he should act--and what he experienced emotionally--were very different things. He thinks he has f****** up his life, but in fact he is simply repeating a pattern that had worked for him in the past.
The problem is that he has outgrown that pattern. It no longer brings him freedom.
An Exercise for Finding Your Themes
It is very difficult to change your patterns if you don't know what they are. As we’ve seen, becoming aware of your patterns--and separating yourself from them--are essential first steps in the change process. But it can also be difficult to locate your themes when you are immersed in them. They occur so automatically--and feel so much like parts of ourselves--that we're generally oblivious to their existence, much like a fish must have little awareness of water.
One exercise I ask people to do is create a set of sine waves on a blank sheet of paper. The waves have multiple peaks and valleys. I then ask traders like Jack to write down on the peaks all the best experiences of their lives. On the valleys are written the worst life experiences. Afterward, as we look across the peaks and valleys, the themes jump out at us. Jack felt best when he felt free, when he was doing his own thing. He felt worst when he was tied down and after he unsuccessfully fought against the feeling of being tied down.
If Jack were to create separate sine wave charts for his family, relationship, and trading lives, the correlations would be enormous. The same feelings, the same situations recur. And recur. And recur. Freedom and constraint…happiness and angry rebellion.
I invite you to try an exercise and create your own sine wave chart. Include at least seven peaks and seven valleys. Carefully go through your life and identify the best experiences you’ve had and the worst: the times you’ve been happiest and most fulfilled and the times you’ve been most miserable. If there are very special happy times, draw those peaks higher; if you’ve had some real low periods in your life, make those valleys deep. You don’t need to have one peak per valley and vice versa. At good periods in your life there might be many peaks; at other times multiple valleys.
Once you’ve completed the chart, focus your attention horizontally. Look across the peaks and across the valleys. Try to find a single theme or common ingredient for most or all your entries. You’ll notice that many of the manifestations of a theme appear different on the surface, but are united by the same feelings and similar behavior patterns. Someone who grew up feeling inferior as a child now compares himself to other traders and feels inadequate; a person who unsuccessfully tried everything to please an alcoholic parent now finds herself overwhelmed by perfectionistic expectations that can't be met in trading. To find your theme, look for a common emotional state and a characteristic way of handling that emotion. Most of our themes are old, outmoded coping patterns.
Jack, I'm pleased to report, was able to extricate himself from his pattern. It actually happened in a funny way. During one meeting, he became convinced that the pattern was controlling him and he rebelled against it! By pretending that his pattern was a set of tyrannical parents, he found it easy to summon his motivation to not fall into the pattern. He followed his trading rules, not because he learned to love rules, but because he saw trading well as an exercise of choice and free will--and saw rule-breaking as a return to the control of his past.
His first step of change, however, was to understand himself and why he was doing what he was doing. He wasn't self-defeating. He was simply doing what he had (over)learned to do during a difficult developmental period. The good news from the sine wave chart exercise is that you have positive patterns as well as negative ones. Our job is to tip that balance and create more peaks than valleys.
Step Three: Accelerating The Change of Problem Patterns
Years ago, it was assumed that problem patterns would take a long time to change, given that they had formed over a period of years. As I mentioned at the start of this article, a collection of methods known as brief therapies has shown that a wide range of patterns can be changed in a matter of days or weeks. One element common to these therapies is that they rely on experience and learned skills rather than talk with a therapist in the creation of change. Indeed, one reason that they can accelerate change is that they exploit hands-on techniques that can be practiced from day to day.
Several elements of brief therapies are helpful to traders seeking to change their cognitive, emotional, and behavioral patterns:
* Focus - Brief therapies seek change in one pattern at a time, rather than trying to make multiple changes or overhaul entire aspects of personality. Very specific patterns are targeted for change; then the process moves to other patterns if needed. Thus, for example, traders might work first on techniques for reducing anxiety and then later learn skills for changing negative thought patterns.
* Structured Learning - Change begins by learning and rehearsing skills away from problem situations and then progresses through gradual application to real-time stresses. For instance, a trader might learn and rehearse a cognitive method for identifying unrealistic worries, challenging them, and replacing them with more realistic appraisals. First this method would be applied to imagined situations through the use of guided imagery; then it would be applied to progressively more difficult situations at home and in trading.
* Use of Homework - Each skill learned is practiced between meetings until it becomes familiar and automatic. This practice begins with imagined situations and progresses to challenges encountered in daily life. Very often, as part of the focus and structured learning, homework assignments will target very specific aspects of patterns. For instance, a person who is trying to stop smoking might work on not smoking after meals, using techniques to handle cravings that are unique to those situations.
* Mastery - Traders don't work on more difficult aspects of patterns until they have mastered simpler ones. The idea is to create a sense of mastery, so that individuals can once again feel in control of their lives. A skill is first practiced and mastered in the office before it is assigned as homework; it is first applied to situations in imagery before being applied to real life.
From the above, you can see that these are techniques for accelerated learning. Brief therapies are effective because they create powerful learning experiences that are repeated until they are internalized. By working on problem patterns day after day in a structured learning environment, people can change lifetime patterns with remarkable speed.
Bob, The Frustrated Trader
The beauty of these methods is that they readily lend themselves to direct applications to trading. Let's take the example of Bob, a trader who has made little money in the past year after a profitable 2004. As the market has become less volatile, he has found it difficult to adjust his expectations accordingly. Consequently, he finds himself taking overly large risks, then becoming fearful and overly cautious. By the time he sought help, he felt completely out of control, ready to give up entirely.
It turns out that Bob had a mixed relationship with his father, a highly achievement-oriented athlete who encouraged Bob to excel in sports. Bob played a number of sports in high school, but never excelled. He often felt that he did not meet his father's expectations, and he resented his father's efforts to motivate and improve him. As a result, the latter part of Bob's high school career was marked by frequent arguments and one big blowup in which Bob left home and lived with relatives for several weeks.
When I suggested that Bob was still fighting his father--only now it was a "little father in your head"--my observation made sense to him. He realized that he was driving himself in his trading the way his father drove him in sports. His inability to meet his expectations in the past year led him to talk to himself the way his father talked to him. "Do you really want to continue living out your problems with your father?" I asked Bob. "You left home for a reason. Maybe now it's time to leave that little father in your head."
We started with a simple exercise in which Bob simply identified all the times during the day when his internal father took over. This was our focus. It became clear that Bob's negative self talk occurred primarily when he was frustrated with his trading results. As with sports, it occurred during competitive situations in which Bob failed to win. Our structured learning began with mental rehearsals of frustrating situations in trading: missing out on profitable trades, having the market reverse against winning trades, taking losses, ending the day in the red, etc. Each time we vividly imagined the negative scenarios, Bob imagined his father berating him--and then imagined himself refusing to accept the criticism and standing up for himself. We did not assign the mental scenarios as homework until he mastered them in the meetings with me. We also did not tackle visualizations of highly frustrating situations until Bob could keep his cool and control his negative thoughts while imagining less stressful events. Every meeting and each homework assignment was structured to generate experiences of mastery.
Eventually, we took the techniques to real-time, when Bob used his methods for interrupting negative thoughts and challenging his internal father while trading. Dozens of experiences with imagined situations and routine home frustrations helped prepare him for the inevitable frustrations of trading. By the time he applied his new skills and outlook in real time, he had already had many success experiences from our earlier work. This confidence was invaluable in tackling situations that formerly had seemed beyond control.
How to Follow Bob’s Example
You can create your own brief therapy along the lines of Bob’s experience. The key is forming an image of your problem pattern—the one you identified across the valleys of your sine wave chart—that will energize your attempts to undo the pattern. Bob created a visual image of a miniature father in his head to help him realize that he was doing to himself what his father had done to him. Jack’s strategy was different: he equated his pattern with the loss of control he felt as a child and used that feeling to rebel against his pattern. When alcoholics make life changes in AA, it is because they come to visualize drinking as an obstacle, something that will ruin their lives. This visualization provides them with powerful images that tap into their motivation to change.
Your own brief therapy will work if it taps into a similar motivation. Your image doesn’t have to be negative to be effective. One client of mine years ago had a tendency to beat up on herself. She had been sexually abused as a child and blamed herself for what had happened. Her pattern, not surprisingly, was guilt. After we talked about how her guilt worked for her as a child—it kept her silent so that she would not face the severe physical abuse that her angry brother experienced—but now was holding her back, she decided to hold a funeral for her guilt. She literally buried pictures of her childhood and created the image of her pattern as a part of her that had died and now must be left behind.
Many times brief work is effective because it focuses people on the peaks as well as the valleys: their positive patterns and not just their negative ones. Indeed, figuring out solution patterns often provides insight into what you can try differently when you catch yourself starting to get caught up in an old problem pattern. One person I worked with described peak experiences of great peacefulness: during vacations, while feeling close to others, etc. This gave us the idea of using meditation to create moments of peacefulness when the problem patterns were likely to emerge. By interrupting old patterns and enacting new ones, he eventually made relaxation a positive habit.
Conclusion
All of us have learned to deal with life challenges, and some of the ways of coping that we learned now interfere with our happiness and success. This doesn't mean that we are mentally ill, and it doesn't mean that we cannot regain control over our lives. Just as negative patterns can be learned--and overlearned--we can create intensive learning situations to instill new, more positive patterns. What keeps negative patterns alive is our unwillingness to confront our worst fears. Bob overcame his pattern because he was willing to face frustration again and again--in imagery and real life--until he had completely silenced his father's critical voice.
Facing our greatest sources of fear and distress--but with new skills and a new perspective--is the essence of brief therapy. Typically this is a three-step process: 1) regaining a measure of control; 2) identifying one’s repetitive patterns; and 3) using imagery and learned exercises to disrupt those patterns. If Lance Armstrong can retain his sense of purpose in the face of late-stage cancer and Viktor Frankl can retain control over his life in a concentration camp, no trading situations need dominate our lives. We learn problem patterns, we can unlearn them, and we can learn new, positive patterns. With the help of brief therapy innovations, the unlearning and relearning can happen more quickly than ever.
Brett N. Steenbarger, Ph.D. is Director of Trader Development for Kingstree Trading, LLC in Chicago and Clinical Associate Professor of Psychiatry and Behavioral Sciences at SUNY Upstate Medical University in Syracuse, NY. A clinical psychologist and active trader for the past 20 years, Brett is the author of The Psychology of Trading (Wiley; 2003) and numerous articles on trading psychology for financial publications. His book chapters on brief psychotherapy can be found in such reference works as The Psychologist's Desk Reference (Oxford University Press, 1998) and the Encyclopedia of Psychotherapy (Academic Press, 2002). His newest, coedited book, The Art and Science of the Brief Psychotherapies (American Psychiatric Press, 2005), has been selected as a core training text for psychiatry residency programs.
In July, 2004, Dr. Steenbarger stepped down from his medical school faculty position and began intensive work with traders at Kingstree Trading. He also coordinates their training program for new traders. Drawing upon an intensive research program that began in 1998, he has created a number of unique measures of market trend, momentum, and institutional activity designed to aid short-term traders. These measures--and the trading strategies derived from them--have been chronicled daily since June, 2002 in the Trading Psychology Weblog and on his web site.
Dr. Steenbarger does not offer coaching or other commercial services to traders, but welcomes questions and comments at [email protected].
