Friday, December 24, 2010

PSYCHOLOGICAL CAPITAL: The Mind of a "Hopeful" Trader

Being a successful trader requires enduring the absurd and unexplainable! During my academic days, I read The Myth of Sisyphus by French philosopher Albert Camus. It was a poignant depiction of a figure in Greek Mythology named Sisyphus, who was condemned to repeat forever the same meaningless task of pushing a boulder up a mountain, only to see it roll down again. One can conclude that Sisyphus' existence was one of futility; the experience of being chronically ineffective and lacking any measurable success. 

In my daily dialogues with professional traders, I've heard the voice of futility countless times. However, those that found a way to endure the temporary despair of markets rolling over them, seemed to possess important qualities of mind that helped them transform futility into hope and eventually positive returns. In this post, I will highlight a few of the ingredients of how to grow this Psychological Capital called hope. My hope, is that you use the knowledge to inoculate yourself from suffering the fate of a Sisyphus. 

Hope is defined as a positive motivational state where two basic elements - successful feeling of agency (or goal oriented determination) and pathways (a plan to achieve those goals) interact. Cynicism and doubt, the polar opposites to hope, are the usual states of mind that grip traders facing a long series of losses or a neutral or worse, negative equity curve. It's tough to sustain hope when the brutal facts tell you you're a Sisyphus (a trader getting rolled over by the markets again and again...).

Questions to consider 

Are you strong willed? Are you determined to achieve your goals? Do you feel you are in control of your own destiny? Can you go relentlessly for hours, days, or even months until you have accomplished what you set your mind to do? Is it difficult to distract you away from your targeted endeavors?

If your answers are mostly "yes" then you exhibit the willpower component of hope.

However, having such will is necessary, but not sufficient. When the way is blocked, you must also know the pathway and alternative pathways to carry out your willpower. You have to have the willpower and the pathways (i.e., the "way") to have a high level of PsyCap called hope.

Thus, you must also answer affirmatively to questions such as: Do you proactively determine your way to accomplish your goals? Do you tend to figure out and evaluate alternative paths to the same destination? When you're challenged, or when your efforts are frustrated with obstacles, do you invest in tactics that can circumvent the obstacles? Do you engage in deliberative practice routines prior to live trading that grows your psychological flexibility to make rapid adjustments when market conditions 
suddenly change?

If your responses to these general questions were mostly affirmative, you likely have enough hope to endure temporary adversity on your way to profitability. Those less hopeful traders need to work on their inner market components of willpower and/or pathways to action. In my experience, traders prone to hopelessness, cycle negative beliefs linked to historical losses and the poor decisions that guided there outcome. These defeated traders are increasingly prone to engage in superstitious thinking that grows the grip of cynicism and doubt. Thus, they come to dis-believe in their ability and project this apparent truism outward into the market only to have it return confirmation via taking their money over and over; a Sisyphus in the making. 

Successful traders are inherently hopeful as they positively anticipate making more and more money. Over time however, this positive expectancy can deteriorate if they don't manage losses smartly or sustain the belief about themselves that they are a good "manager of risk." The belief "I'm a competent trader." because I make money can shift quickly for some, into "I'm an incompetent trader." because I can't make money consistently. There is tremendous dissonance that occurs when a struggling trader holds two incompatible thoughts side-by-side; a war ensues in the mind that gives rise to distortions of thinking that negatively impairs decison-making and emotional regulation. 

I have witnessed defeated traders align with the beliefs "I just can't make money," "I can't get a break," "No matter what I do, the market just takes more and more." They become desperate, like Sisyphus, seeking to get that boulder to the top, to confirm "I can do it!" At Even Keel, we work with this type of hopelessness in a very delicate, yet direct manner by challenging traders distortions of who they think they are. Our coaching interventions help work through their resistance to accepting a psychologically healthier view of themselves, and gets them to divest interest in being a Sisyphus. Working with a traders belief system is a necessary component to enhancing overall performance. Unfortunately, traders invest to much attention in the outer market of price, volume and time; the result can lead to futility, hopelessness and a waste of time especially when expected returns don't add up. 

So where's a trader to go? 

We suggest, to the inner market of their mind. But the noise of the mind like that of the market needs the right context to make sense of what's happening so they can eventually take advantage of opportunity. Psychological capital is real and needs legitimate focus in the development of serious-minded traders. Markets are put into profiles for a trader to navigate effectively. Similarly, strategic dialogue employed by a trader coach can help contextualize the mind of a trader so they come to see how mental distortions temporarily take them out of the opportunity flow. Without this investment in self-understanding, trading can become a hopeless pursuit just as futile as Sisyphus pushing a boulder up a hill only to have it roll back down again and again...

Remain Hopeful ~ Coach Ken