I miss the daily posts of Dr. Brett Steenbarger but his words of wisdom live on in his books and archived posts from TraderFeed. I was reading through his book The Daily Trading Coach this morning and I am reminded of a core theme in Dr. Steenbarger’s approach to trading: self awareness. It is vitally important that traders are aware of their thought patterns, perceptions, and emotions and how these can affect their trading. In fact, a trading journal should be designed to help traders chart their awareness, not just their trading strategy. Without proper self awareness (inside) the trader will find it difficult to succeed in the markets (outside).
THE LESSON
In LESSON 52 entitled Use Feeling to Understand Your Thinking, Dr. Steenbarger writes about how automatic thinking can jeopardize our trading. Automatic thinking is a result of “those occasions in which we look back at our behavior with embarrassment, wondering how we could have blown things so out of proportion” and these occasions “are most likely reflections of times in which we were controlled by the automatic thoughts from distorted maps” (167). In other words, our impatient thinking about having to accomplish something right now places us in automated overdrive. We think ‘I must accomplish this right now and if it is not accomplished right now then my whole world will collapse.’ Then our world does not collapse and we look back with embarrassment. We exaggerate, making ‘mountains out of mole hills’. But the secret to reversing this pattern is not by recognizing it after the fact and making a commitment not to let it happen again but to recognize the behavior while it is in the process of happening (i.e. via self-awareness).
So here are the schemas, or the ways we as traders organize our world, that can adversely affect our trading. See if you recognize any of these in your own behavior.
Schemas of JUSTICE: “I put in my work: I should make money.”
Schemas of CATASTROPHE: “It would be terrible if my trade didn’t work out.”
Schemas of SAFETY: “I can’t act: the market is too dangerous.”
Schemas of SELF-WORTH: “I’m a total failure; I can’t make money.”
Schemas of REJECTION: “I’ll look like such a fool if I can’t succeed at this.”
THE QUESTION
Do you notice how these are extreme emotional distortions of reality? So, in the process of trading, as it is happening, is it the market that is responsible for our feelings or is it our own distorted interpretations of events that we choose to place on our trading results? There is a huge difference here and can be the difference between success and failure in the markets. Dr. Steenbarger sums it up this way: “If you find yourself responding to markets with a high degree of threat, then you know that the problem is not the markets themselves or even in your trading, but the interpretations you’ve placed on your trading results.” (168).
THE ANSWER
In carrying out the self awareness assessment we need to think of how we would talk to another trader to make them react in the same irrational way we may be reacting right now. What if we yelled at the trader with the following remarks:
“You’re no good!”
“It’s all your fault!”
“You’re going to lose your money!”
“You can’t win.”
Now, how do we think these words of discouragement would make the other person feel? What kind of emotions are we generating in that other person? This is exactly what we are doing to ourselves with our negative self talk schemas! “If you write down these messages every time you catch yourself in the throes of an extreme emotional response, you’ll come close to duplicating the output from your cognitive schemas. It’s much easier to redraw mental maps when they’re lying open in front of you.” (169)
Drawing mental maps is key to locating the hidden treasure of self-awareness. But in order to open the treasure box you have to perform an assessment in the present, not in the future. Make notes in your journal and add it to the ever growing bounty in your treasure box.
