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Trader's Corner

When It's Good to Feel Bad

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When is it good to feel bad? Maybe when your trading performance declines.

Our trading lives should enhance our times with family and friends, by engaging our minds, providing a sense of fulfillment and hopefully filling the coffers. They should not make us feel tired or dispirited. We should not endure separation anxiety when we're away from our computers, unable to stare at charts, trying to find a way to move the markets the direction we want.

So what do we do when we're feeling bad about our trading lives? We should be assured that our psyches are working as they should. In an article originally written for THE SCIENCES in 1991, Randolph M. Nesse, then associate professor of psychiatry at the University of Michigan in Ann Arbor, proposed that psychic pain might serve a purpose. It might be necessary for us humans to sometimes feel shame, jealousy, anxiety or even depression. Those emotions might be particularly important in our trading lives, helping us to grow as traders, honing in on an appropriate trading style, or even to make the difficult decision that the trading life is best left to others.

Anxiety elicits a fight-or-flight response, obviously helpful when we should be alert to changing conditions in the markets, but widen the argument to consider what this emotion and others mean to our trading lives in general. Each of these negative emotions forces us to take stock of what we're doing in our trading lives. Sitting-straight-up-in-the-middle-of-the-night, heart-pounding anxiety signals that a trader might be risking too much on trades or employing a trading style not suitable to that trader's psychological makeup, for example. Although the explanation sounds simplistic, how many of us persist in trading practices that just aren't working, determined that we're going to make them work? Perhaps it takes something bad to make us stop. Perhaps it takes shame or depression.

That's just what Nesse suggests. Although uncomfortable to experience, shame, sadness or depression can be particularly helpful to all people, and to traders in particular. Nesse refers to these bad feelings as "low mood" emotions and said they serve a concrete purpose. He theorized that these low mood emotions force us to allocate our energies. Depressed people feel too tired to make decisions, too paralyzed to move or take action. While that wouldn't be a good thing if a decision to exit a losing play must be made, it can be a good thing overall. A depressed trader might turn away from the screen, too uncertain to initiate new trades. Nesse's article "What Good Is Feeling Bad?" draws the conclusion that "[l]ow mood withdraws investments from wasted enterprises."

Withdrawing investments--emotional, time or financial--seems an appropriate response to wasted enterprises, especially if those enterprises are losing trades. It's difficult to change the way we do things, Nesse says. We run risks when we change strategies that worked for us in the past, and that's certainly true for traders, too, and may explain why we keep plugging away using the now-failing strategies that worked for us in the past. But neither Nesse nor I would suggest jumping from one strategy to another. Some evidence suggests that we humans tend to be too optimistic, sometimes leading us to take chances that do not prove to be well advised. Depression and other low mood emotions slow us down long enough to evaluate the strategies we have been employing and assess whether changes are necessary. Removing that excessive optimism while we make those assessments would be a good idea, even if we have to suffer some shame to do it. Nesse wasn't referring to market investments, but the conclusion sounds apt to the trading life, too.

If you're feeling anxious, ashamed or depressed about your trading life, don't bury those emotions. Investigate why you're feeling them. Are you investing too much in individual plays? Have you had a long losing streak that's risking your or your family's financial well being? Does the trading strategy you've been employing take so much time that you have no energy, either physical or emotional, left over for your family or fun pursuits?

Nesse advises that it's not wise to make quick or light decisions as to how we invest our energies, and I'd say the same about the way we invest our emotions and funds, too. Lighten positions so that you can sleep through the night. Close out all positions ahead of holidays or vacations if that makes sense to you or your positions. Take a day off, away from the computer, spending that day with loved ones to remind yourself of what's important in life. Evaluate what you want from your trading life and how you can best use that trading life to improve the quality of your real life. If you're ashamed of your trading performance and jealous of someone else's, with jealousy being another sometimes-useful negative emotion, spend some time studying that other person's trading style. Allow that uncomfortable shame- or depression-induced paralysis to force you to make slow and considered decisions. Write down goals. Think it through. Ask the hard questions, too, such as whether you should be trading at all or rather using your gained knowledge to evaluate the skills of an advisor who might handle your finances.

Go ahead and feel bad. It's good for you. And maybe for your trading account.

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