T2W Trading Community

Finding Your Control

If there is a "cancer" in your life or trading, removing it may be as difficult as it was for Lance, albeit in a different way.  The problem isn't going to go away overnight and may require wrenching life changes.  Your control, however, like Lance's, will come from your refusal to relinquish control.  You can learn everything possible about your trading difficulties the way Lance made himself an expert on cancer, so that you become an active agent in your turnaround.  A thorough review of the year's trading results will tell you a great deal about where you made money and where you lost it.  Most important, it will reacquaint you with your trading strengths as well as weaknesses.  Very often, I've found, such reviews reveal that a relative handful of trading days made the difference between a dismal trading year and a good one.  If so, you want to focus your attention on the common denominator within that handful of losing days--that is going to be the first challenge to tackle.  Sometimes that common denominator is a time of day or type of market—you’re losing money overtrading markets that become slow   Sometimes the common denominator is an emotional state: You’re trading while you’re frustrated or angry.  As we’ll see, becoming an observer to your problem patterns is half the battle.  When you an observer to a pattern, you are outside the pattern, not lost in it.  That provides a measure of control.

While you are reviewing your performance, you also want to focus attention on your big winning days: clearly these were occasions when you operated outside the sphere of your problems.  What was different in your trading approach on those days?  What was different about your state of mind?  Sometimes we forget that we enact solution patterns as well as problem ones.  Recognizing what you’re doing when you’re trading well—become an observer to success as well as failure—increases the odds that you’ll be able to reproduce these solutions when you need to.

One trader I recently worked with was near despair over his tendency to give back his gains as the trading day wore on.  By the time we talked, his risk management was erratic, he was reading market action poorly, and his timing was off.  He felt that he had so many trading problems that he would need to find a different occupation.  When we carefully reviewed his trading, however, a single pattern emerged: He tended to lose money on trendless days, especially when his mornings started out poorly.  He typically raised his size into the afternoon, increasing his risk even as he faced less opportunity.  The result was that he would get chopped up with his maximum size.  Our initial strategy for gaining control was very simple: We treated the morning and afternoon as separate trading sessions and set a maximum allowable loss for each.  This level was large enough to allow him to trade normally, but not so large as to prevent him from recovering from a bad start to the day.  Finally, we created a rule that his initial position size could never be raised to his maximum if he was down money.  In other words, he could only use maximum size when he was trading well, not when he was in the mood for revenge.  I helped him monitor the following of these rules and, before long, they became positive habits.  As he stopped the large losing days, he saw the results in his bottom line--and in his enhanced feelings of confidence and control.  

This example is not unusual among good traders in slumps.  What seems like an overwhelming set of problems is actually a single pattern that recurs in different ways, at different times.  If the pattern can be broken, surprising changes can result, because it's the pattern--not basic trading ability--that is the problem.  That is why brief therapy works.  It does not attempt to change your life.  It focuses on specific patterns and changing those.  The first step in the change process is regaining the feeling of control by simply figuring the pattern out: learning everything you can about the problem so that, like Lance Armstrong, you can find the right kind of help--and the right helpers.  Even if your initial efforts lead to nothing more than stopping what isn't working and focusing on what you're doing well, that will contribute to putting you in the psychological driver's seat.  As one trader put it when he began to regain his sense of control, "The problem is my pattern (of overtrading); I've been telling myself that I'm the problem." 

Separating you from your problem is the first step toward mastery. 

Step Two: Finding the Theme Behind the Pattern

The mere recognition that you don't have many problems--just many manifestations of a single problem pattern--is in itself relieving. It is much easier to change a single pattern than to make multiple changes across a variety of situations. Most patterns are expressions of themes that run through our lives, much like a theme might run through a novel or symphony. Rarely does the pattern only show up in one facet of life, such as trading. More often, it cuts across areas of life, which is why it has so many manifestations and can leave us feeling like we're bundles of problems.

Let's take Jack, a talented young trader who has achieved inconsistent results at his trading firm. Jack grew up as a rebellious teen in a strict Eastern European household. He loves his parents and feels they love him, but he resented their imposition of "old world" values. He resisted their curfews when he was young and recalls with bitterness how they prevented him from having friends when he was a teenager.  He later rebelled against their desires that he attend school locally and marry a woman of the same faith and national heritage. Instead, Jack went out of state to college and experienced a varied social life. He experimented with drugs, missed many classes because of fraternity partying, and disappointed his parents with mediocre grades. Jack recalls many battles when he came home during vacations, as he and his father went toe to toe over his "wild" behavior.

What brought Jack to my office initially was not his trading, although that had taken a downturn. He was depressed following the breakup of his first serious relationship. His girlfriend found out that he had cheated on her, and she promptly broke up with him. When he tried to convince her to give him another chance, she confronted him with evidence of multiple cheatings and ended things for good. "I really f***** up, man," Jack explained to me. "I don't know why I do those things. As soon as I have something good, I f*** it up. It's like I'm trying to hurt myself."

"What other ways do you f*** up the good things?" I asked.