I recently made a recording.
Those of you who know about my efforts to learn the violin may imagine a recording of myself attempting Slavonic Dance No. 8, but I'm not talking about that kind of recording. I'm talking about a recording meant to help manage the emotions engendered by trading.
Here's how the recording came about. I've mentioned many times that I took an uncomfortably large loss last spring. I'm a responsible person who sets and tries to adhere to maximum acceptable loss levels, and that loss knocked a hole in my confidence of myself as a trader. As often as I could this summer and fall, I headed over to Think-or-swim's Trader's Chat on Monday afternoons to listen to Denise Shull's series of webinars on trading psychology. Biographies describe Shull as a writer and motivational speaker, and her own site mentions her Annals of Modern Psychoanalysis article, "The Neurobiology of Freud's Repetition Compulsion" as the "paper that started it all." I've frequently suggested that traders keep a trading journal, so I paid special attention when Shull offered a concrete suggestion for that trading journal during one of those Monday afternoon chats. She suggested that traders use a 1-5 scale to rate how the markets "felt," which I took to mean how organized or efficient they seemed to be, each day, and a separate rating for the trader's own reaction to the markets. On that scale, the 5 represented the most chaotic market conditions and the most fearful reaction to the markets.
On any given day, the markets might be behaving in an ordered way but the trader who might have spent the previous night waiting to hear the results of a relative's trip to the ER might be reacting to that well-ordered market with fear. Conversely, it was possible that the markets were chaotic but the trader who had just had a four-month run of successful trades might be feeling well equipped to handle the market's challenges. The concrete scale would allow me to determine whether it was the market behavior or my own reaction to it that most heightened my emotions. Although those emotions hadn't kept me from closing losing trades in the past, and I didn't expect them to do so in the future, I was afraid of overtrading as a result of what the spring's experience had done to my confidence level. In fact, I had shown some propensity to do just that in the months after that loss.
In "A Different Kind of Coach," Shull espouses the importance of becoming "aware of biases and tendencies that are either escaping your conscious awareness or which you can't shake even though you know they are there." Establishing a rating scale seemed to me to be an objective a way of achieving that awareness. Those of us who came to trading from the disciplines of science, mathematics or engineering do like our concrete numbers, don't we?
Then, a few weeks ago, a counselor on a show or a radio program offered advice to someone dealing with a traumatic situation or a phobia. I unfortunately don't remember exactly where I heard that advice, so can't document it for you. That counselor suggested that one reliable tactic for desensitizing oneself to such a situation was to record, in one's own voice, everything one remembered about the trauma or uncomfortable situation. Then, listen to the recording many times, the counselor suggested, each time using that same 1-5 scale to enumerate the amount of discomfort or fear that listening to the recording engendered.
That's when Shull's suggestion for dealing with our day-to-day reactions to the markets came together with this counselor's advice and my own efforts to eradicate those leftover feelings from last spring's debacle. In current parlance, that's when I had my aha! moment that led to that recording. The television or radio counselor wasn't talking about trading, of course, and I don't want to eradicate all emotions associated with trading, either. I want to be just a little fearful when I enter a $75,000 or $25,000 or even $500 trade. Don't you? I just don't want fear left over from a past trading mistake complicating current trading decisions.
So, I made a recording. For those of you who don't know of this capacity, many Windows-based computers offer the capacity to record one's voice by calling up the start-up menu, looking to "Programs," then "Accessories," and then "Entertainment," followed by "Sound Recorder." Due to my music programs, I have a microphone, as many of you might have, too. You can record your thoughts directly on the recorder on your computer, with some You Tube videos providing more technical information about your computer's recording capabilities than I can. The recordings are short, for example, and require you to copy and paste more seconds if you want a recording longer than the initially offered 60 seconds.
Of course, many of you will choose other methods of recording your voice if you decide to employ this method of desensitizing yourself after a painful loss. What's the idea behind this recording and rating of emotions? An article on the Livestrong site, "4 Ways to Treat Physical Effects of PTSD [Post Traumatic Stress Disorder]," urges readers to "Utilize Multiple-Channel Exposure Therapy," calling this tactic "a complex form of Systematic Desensitization." I'm certainly not comparing my experience losing money to a trauma that someone experiences due to a violent or tragic situation but only drawing from the tactics that have proven helpful in such situations. The idea seems to be that, at first, looking at pictures, watching videos or, in my case, listening to a recording might engender heightened emotions and some of the same physical reactions that accompanied the original trauma. This enables the person who is employing these techniques to "confront" and "conquer" fears, the "4 Effects" article suggests, fears that person may or may not yet have confronted. Relaxation techniques might be employed to help deal with those fears. The hope is that repeated exposures will eventually result in lessened reactions.
In my case, I found that my voice on the recording sounded sad and resigned more than fearful, and my own reaction wasn't very strong, either. My blood pressure and heart rate stayed even. I know that at first I approached trading in a more fearful state of mind after that loss, but maybe I've mostly moved on after all. Still, I'll probably try this a few more times.
I mention this process, not because I'm an expert at any of this or an especially New-Age-y kind of person. However, I think it's important to recognize that we can't completely eliminate the emotions that trading engender. We need to have a concrete way of dealing with them when they get in the way of responsible trading. I used to think I wasn't a good enough trader because I couldn't completely eliminate those emotions. I knew the probabilities associated with trading and I knew quite a bit about options, so I should be able to approach trading as an automaton would, I told myself. I thought I was somehow failing to control my emotions when I couldn't eliminate them.
Shull says this whole premise of eliminating emotions and approaching trading like an automaton isn't a valid approach. The probabilities of trading are more like those of gaming a football game than they like the probabilities of science or mathematics, she says. Judgments will have to be made. This is something that our unconscious mind recognizes as soon as we've entered a trade. Immediately, we start picking up clues that alert us that we have to make some judgment calls when what we want is some rulebook that gives us absolutes each step of the way. The split between what we think trading is--that embodiment of scientific or mathematical probabilities--and what it truly is--like a game of football in which we might be forced to make judgment calls midway through the game--heightens our emotions. Telling ourselves we shouldn't be feeling any emotions is useless, because our brain recognizes that difference even if we don't articulate it. We can't completely squelch our emotions.
We can recognize those emotions, decide whether they're adversely impacting our decisions, and take steps to make sure they don't in the future. Just recognizing how you're feeling may be the first step, Shull suggests. This rating system seems a way of doing so, in my view. Rating how you're reacting to the markets on a daily basis is something some of you might want to try, and you also might want to try recording yourself talking about a particularly tough trading situation when such situations arise, as I am now trying. I could just have easily printed up my P/L chart from that particular period and spent some time looking at it, while rating my reaction, as this would have provided another way of utilizing the multiple-channel exposure therapy suggested in the Livestrong article.
I'm certain that some of you will know the particular terms related to these types of studies. I don't. However, I thought this end-of-year period that arrives at the conclusion of a particularly difficult trading year for many might be a good time to talk about these tactics. Try some if you feel it's time to rid yourself of leftover trading fears and start anew.
Whatever holiday you are celebrating or just finished celebrating in the case of Chanukah, Christmas and perhaps others, I hope your celebration is or was a peaceful and happy one.