Have you ever been through a bad patch in your trading?  Of course you have.  If you trade, you must surely be used to considerable periods of frustration, anxiety, times when every trade you take seems doomed, and every trade you are too afraid to execute is a winner.

Well, for the last few weeks, I’ve been busy with other things, my mind has not been on the job of trading, and I found that I had grown fearful, clumsy, sloppy, and slow to act.  I failed to take trades, or failed to execute properly, and was worn out by the effort of managing them.  I needed a break.  When trading is not a pleasure, when it starts to feel like work to me, I know this as a sure and fatal sign of a real and present danger.  I looked at charts but saw and felt nothing.  Euro’s curves and Swiss Franc’s cheeky smile left me cold.  We used to dance to the same tune, I knew their every move, we read each other and throbbed with one passion, but now they woke before me and had left before I had finished breakfast: I didn’t even miss them.  And as for the American twins, YM and ES, they seemed to have gone off backpacking somewhere in the north without consulting me at all, while I was sure we’d agreed they’d meet me much further south to gaze at the blood-red dawn.…

So I stopped looking at the charts.  I found their siren song no longer tempted me.  I heard numbers on the news, but only the faintest frisson of desire passed through my body.  Would my passion return?  Was I just worn out by the excesses of the spring, or did I need some kind of Viagra for traders, and if so, what was it?  For weeks I stayed away, scarcely caring what the answer was.

Rest is a wonderful thing.  I felt that quickening of the pulse that heralds the pleasure of the chase return this week, and turned the charts back on.  On Monday, I missed a long Corn trade: still a little afraid, but at least I was interested.  On Tuesday, I didn’t see anything that grabbed my attention.  Today, I had a brief break-even tussle with the Euro, which I think refreshed us both and brought colour to her pretty cheeks as she rushed off again while I was having lunch.  Then the ES, who has been a stubborn little thing for some time now, finally rolled over into my arms where she belongs.  I caught her at 1091.50, and just don’t ever want to let her go.  At least, not tonight…

So Denise, as ever, is right.  Take a break.  The biggest part of trading is not trading, staying away from the markets when your psychological capital is low, when you are incapable of seeing who is giving you a real green light and who is just teasing. Of course there was lots of fun to be had when I was out of the market, but had I been there, it would have been like going to a party with a stinking hangover and expecting to have fun.  Go home!  Have an aspirin and get some sleep.  There’s always another party…

Now we take for granted that losing the title at Wimbledon after the longest 5th set played requires some down time to get one’s head “back together”. What on the other hand we don’t take for granted is that trading losses – or the near death experience of your whole trading desk as in the case at MS – requires the same sort of psychological process. A sports psychologist is quoted as “take a day” but the truth is managing your psychological capital takes as long as it takes – and is the single most important task any athlete, trader or even CEO like John Mack has on their plate.

Today’s neuroscience proves that the residual feelings resulting form one event can completely color your beliefs about the next event. It also proves you can’t act – or even make a decision – without emotional inputs. Therefore, managing those inputs – in the way that works – is a singularly profitable (and winning) endeavor.

Step One - Accept and embrace everything you feel about a trade that didn’t work.

Step Two – Put all of those feelings into words – writing, typing, talking, yelling… I don’t care. The key as the brilliant psychoanalyst Hyman Spotnitz said is to “Say everything.” (Note words are JUST words and feelings are JUST feelings and neither one makes your future reality in and of themselves).

Now this sounds easy enough – but in reality it isn’t. The dominance of pop-culture thinking like “The Secret” and Tony Robbins’ NLP make this embrace of ostensibly negative feelings a bit like being accused of spreading H1N1 flu. Like the sports psych said (in so many words) – get over it. Well forgive me but does that work with swine flu? Of course not, you take the drugs, you sleep – you manage your body so that it does indeed get over it – in its own time.

This is the exact same process traders – floor, MS or independents – need to go through to recover from losses. If they do, they will truly, thoroughly and completely get over it and in doing so, see the markets in a clear way – the surest way to judge the optimal amount of risk to take.

P.S. Call us Mack if you want help. I mean after all, why should our neurons recover any faster than our bodies?

“I return from holiday rested and relaxed, to quote Ben Lichtenstein, “I have tasted the sweetest Mediterranean tomatoes brought to me by dusky maidens and washed down with oaky red wine in the shade of orange trees, I have felt real warmth from the sun on my skin again.” Pulling up a chart once more, and looking at the comments to my previous post, I am full of good will. I have set aside my weapons of war and my heart has turned to love.

I do not quite, however, see trading as some kind of sixties group hug, where there’s plenty of weed for everyone. The money has to come from somewhere after all. So where’s the love? There are so many beautiful trades, so little time. How to choose? I should explain that I am truly a romantic. I long for commitment, for a lasting relationship. I enter each trade with the same hopes, the same fervour, the same simple faith that our love might last forever, that we will trend and trend and never look back. Once the first flush of my passion is over and my first target filled, my second half is there for as long as my lovely companion continues to show interest. And I am quick to forget the sins of the past: if I have been hurt by Cupid’s arrows before, I myself have wounded too, and will happily embrace again yesterday’s lover.

On my return, I found that the languid Euro (I always see her as French don’t you?), has invited me to join her for the afternoon. Charmed, I accept her invitation, but find her at first quarrelsome then sleepy. I take what pleasure I can, but as she dozes, I notice the door push open and her pretty blond cousin from Switzerland winking at me and beckoning to join her. Perhaps all that mountain air gives her more energy, but I am pleasantly surprised by her enthusiasm while Euro sleeps, and even more so when she introduces me to a young American friend she has made, a certain Mini Dow from Chicago, who is eager for me to help her with her extraordinarily tight shorts. Naturally, we have met before. From the window I see that the fickle Miss Soy Bean has made other friends while I was away, and seems to have had a fine old time after kicking me out of her bed just before I left for my holiday. But I forgive her already. I love them all, and I know that despite our occasional tiffs, we will always make up.

Before I let my imagination go too far, or grossly offend anyone, I should perhaps say two things: first, I would like to assure you that I am neither a psychopathic killer nor a serial philanderer. This is all part of a game to engage the psyche with the human side of trading, to connect the flickering numbers and bouncing price bars with some of the real human feeling that this strange activity has such a capacity to generate. And yes, perhaps trading does touch on the darker side of our psyches. By acknowledging this I believe there is a chance we will become better traders.

Secondly, there are of course many metaphors for trading, and I certainly don’t see combat as the only one. I have found helpful comparisons with sailing (attention to currents, the tide, the strength of the wind etc), viticulture (trading is like harvesting a crop, a stroll through a vineyard in search of the ripest and juiciest grapes, much is wasted, but the wine at the end is worth it), skiing, paragliding, the list goes on. I am sure there are many ways of visualising the process, and each trader must find what rings his or her bell. Ultimately, trading is the Lottery of Babylon in Borges’s story – it is like life itself, filled with perverse rewards and punishments, a labyrinth of both startling simplicity and complexity. Recently, though, with Denise’s help, I have come to see a particular reality in metaphors that recognise the traders on the other side of my trade, and my attention to detail, my ability to use judgement to enter or exit a trade at the right moment is linked to that sense of my enemy’s strength or weakness, or of my lover’s enthusiasm or languor.

Now, you’ll have to excuse me, but I must go and get some flowers for Euro before she wakes up.”

Trader K

It differs from the ubiquitous common approaches to helping others by avoiding the inescapable self-consciousness created by the process of setting goals and standards and then attempting to enforce them. These techniques tend to make clients feel guilty or “wrong” if (or when) they hit the inevitable snags in the process. They rely on the desire to please and to be a “good” student with a strong work ethic to achieve any sort of progress.

By contrast, Modern Psychoanalysis is a systematic exploration of the client’s resistances to improvement and success. This exploration is conducted through the use of? “object-oriented questions? or questions that use the word YOU. Investigating this way protects the client’s self-esteem. Object-oriented questions painlessly allow a client to ferret out the issues underlying any repetitive failure, or block to peak performance.

Further, this Socratic analytic method provides a safe environment for the experience and understanding of the many emotions that are so much a part of every human endeavor. Feelings, which in other types of learning and problem-solving can be difficult and at times impossible to tolerate and understand, are now recognized as an invaluable aspect of the rich tapestry of human experience and indispensible in the pursuit of realizing ones own potential; an integral aspect of everything we do, and all decisions we make.

Modern analytic exploration is exciting, creative, in itself a source of motivation to better oneself, and adds an element of wonderment to the process of understanding ourselves for the purpose of greater achievements and furthering success.

The weekend edition of the WSJ included Zweig’s column on fighting the herd mentality. In many ways it is good article… but it does what all articles and commentary seem to do… in the end it says “get rational”. The problem with this is when you feel terrified it is extremely hard to use your analytical mind to overcome that.

The trick is the counter-intuitive and ironic one of allowing yourself to feel what you feel.

Just remember that feeling afraid doesn’t dictate you take an action. If you listen to the panic it will actually allow you to think more clearly as the act of listening alone will calm what your psyche is doing to you.

I know it goes against conventional wisdom but let me ask you to try it. Try it with anything – something that makes you feel a little nervous. See what happens when you say “Okay Denise you are really nervous about…..”

… just sit there for a few minutes (or longer) and explore the feeling inside of you. Ask where it is coming from. You will find that using this approach is the fastest and most effective way to induce a greater sense of calm as you will realize that you are most likely unconsciously imagining total disaster and chances are that is not really the situation. Once you realize that, you have automatically got a more reasoned perspective on whatever is inducing the panic – public speaking or plunging markets.

and oh btw, this fits with what we know about emotions firing before thought… “anticipatory affect” is what they call it in the labs. Learning to use this tendency of the brain can be to your great advantage.

Richard Bookstabber in Demons of our Design had it right when he described how interconnected all trading and all markets are…. the only part he didn’t really cover in detail is this:

it is NOT fear and greed – it is fear and fear2. Fear2 is the fear of missing out….and this matters because fear of missing out drives lots of trades. Now today that probably made you money – but we don’t get 90% days very often. … well wait, maybe that isn’t true. we sure have had lots of them lately.

In either case, it pays to understand the emotional backdrop to every trade – there ALWAYS is one… not matter how many people have told you there isn’t or shouldn’t be. They don’t know what the neuroecon guys know!

… and in the comfort food department… a grand up sure feels good for a change! now if i could just remember if it was Petula Clark or Nancy Sinatra who sang “up up and away in my beautiful balloon?” …. it sure wasn’t Alice Cooper…. Pink Floyd? … no that was “Money” …. okay – a little giddiness going on here on the shores of the East River (tidal estuary).

now October madness.... soon we will be using country names