Common problems affecting traders
- Medical issues – e.g. hormone imbalance, attention deficit disorder, tiredness
- Traders bringing their past into the present – looking for self-validation in trading,
- Situational problem – changing market conditions create confusion/challenge
These then lead to psychological issues, which in turn impact on the trader’s performance.
There needs to be a diagnosis of where the problem comes from. This helps tremendously in addressing the issues/problems.
Approaches for addressing symptoms
Behavioral approach – e.g. objective is to become relaxed – lower level of arousal (this was in a recent blog post of his that I had made notes about) Stg1 – relaxed environment Stg2 – imagine executing a trade, in quiet market. Breathe deeply, slowly, sitting still, staying calm. In Stg2 consider different market conditions, different cumulative p/l conditions, trade management scenarios, different setups. Go through this exercise dozens of times a day. Learning a new response pattern to a previous situation. Exposure method – very good for anxiety issues.
Cognitive Therapy – thinking about thinking. Challenging negative thought patterns. Eg how am I thinking about losing trades. => Self-Awareness. Negative mood negatively impacts trading performance. Identifying and intercepting thought patterns. Journal of our thinking – 4 columns. Situation/how am I thinking about this situation/consequence/desired thought pattern. As an example, how would you talk to a new traders in that situation – you would use a constructive attitude – you would not call them an idiot! Repetition – becomes natural – will catch yourself in real-time. Interruption of negative thought patterns as they occur.
Solution-focused methods. This focuses on phases when I am doing things correctly. What am I doing right/correctly during those phases? Identify and then do more of that. Is it because I am more connected to the bigger picture? Eg where trading is put in the context of life as a whole. (use photos from family members). Journalling everything that I am doing right. How am I generating good ideas? Trading in and out of a position? How am I managing risk well? Preparation, adequate sleep, taking a break – are these things leading me to trade better.
With all of these approaches – it’s important to do these all the time. A lot. These way new patterns become internalized. Prevents ‘relapse’. New habits are created.
Additional thoughts/notes from Q&A
Retail traders often learn about trading whilst they are actually trading – this creates further psychological issues. Having a structured learning programs would avoid some of these issues.
Prop Traders – often to get the job at a fund, traders need to provide an established track record, meaning that they probably already resolved a lot of these issues – hence there is a survivorship bias in place for hedge fund traders.
Performance anxiety triggering over-complication of information – rather than keeping the setup simple. What is the minimum information setup when taking winning trades. What things are looked at on a regular basis?
Don’t see losing trades as failure – instead, see them as ‘paying for information’ – and use the information in a constructive manner. Seeing the trades as ‘new information’ reduces stress associated with losers.
Best way to take stress out of losers – is to get other meaningful things in your life. If something is all important – than the pressure and stress simply becomes too great. You are setting yourself up to fail.
Look for patterns in the data – that often indicates what needs to be worked on.