©Trading Research-www.trading-research.com - february 2015 - Author: Dr.Roberto Ambrogi
It is well known that a great psychological trauma, eg. having personally took part in a war, being involved in a terrorist attack, in a big accident, or any other event in which one has risked his own life or even a violent trauma of losing a loved one, a serious illness, etc. leaves a virtually indelible mark on our subconscious mind, and it takes time to learn to live with it and manage it as well as possible.
As a matter of fact, a big trauma even when you think it is "solved" it often resurfaces unexpectedly even with a trigger event that is not directly connected to the original traumatic experience.
Those who have suffered a real trauma are well aware of it and they usually understands very clearly that it is something on which to work on.
A much more "sneaky" issue to identify and definitely a much more common one, especially in the trading environment, is the moderate trauma.
The psychological traumas in trading can be distinguished in:
MAJOR TRAUMA: it is caused by a very big trading loss, disproportionate comparing to the trading capital, it has strongly affected the trader's daily life, debts, inability to pay bills, to support the family, the need to search for another job, etc ...Although this happens to a certain extent, fortunately it is not the majority of cases, instead what happens in varying degrees to almost any trader during his carrier is the:
MODERATE TRAUMA: it is caused by a prolonged exposure to risk/reward situations, for example having suffered a losing streak, the practice of overtrading (in terms of n° of contracts traded and / or n° of trades) etc.. in general the continued exposure to many small repeated traumas, this creates the "moderate trauma" for a trader.
While the major trauma acts clearly on our subconscious level and the person who suffered it, is easily aware of the damage, the moderate trauma is instead processed on a conscious level, and it is believed to be solved at this level when actually easily goes to a subconscious level with the resulting consequences.
The trader who has suffered a quantity of moderate traumas is not aware of their deeper effects and therefore he does not even think about taking corrective measures.
Both the major trauma and the moderate trauma, heavily affect in a strong negative way our trading performance, when the trigger event jump in, (it can be a small loss, or an act that violates the plan, or a little small error, or a missed opportunity etc..) the subconscious make us relive instantly and completely the traumatic original situation/s even if we are now in a much different/safer/easier situation; the consequences are that the subconscious take automatically those remedies which put in place in the first phase of our lives when we experienced our first trauma/s and specifically:
5) sense of failure
6) violent attitudes etc ...
The problem is that while trading these feelings do not certainly help us to act in our best interest .... and actually starting from a little issue (eg. a small loss, or a missed opportunity) we easily end up creating a much bigger one such a losing streak due to impulsive decisions, overtrading, state of denial and consequent adding to a losing position or widening the stop, take unnecessary risks etc ...
This will do nothing but worsen the subconscious trauma, making sure that, if you do not take the appropriate measures to handle and solve it, any time a small "trigger" can show up and have the same deleterious effects, fueling even more the vicious circle.
It is very common that a trader, maybe for months can experience a certain level of success, he trades very well, following the plan, properly managing the risk, and definitely getting very good results, then suddenly for no apparent reason one day he abandons everything and acts like an irresponsible, he does not follow the plan, taking excessive risks, he does not realize that he has exceeded the maximum intraday drawdown etc ..... he can easily ruin the previous month's great results in one or two days; he then goes back, he starts again very small and slowly following the plan he gets some good results, then some more consistency; after a while when everything seems going fine, here again he will experience another crazy day when he abandons all the good habits procuring to himself again some big economic and psychological damages.
It appears that the trader is no longer himself, he does not follow the basics and all the knowledge acquired during years of study and practice seems useless, he becomes inexplicably irresponsible, irrational etc ... this is normally attributed to lack the discipline.... but then, why for the most part of time he was perfectly disciplined ? why the discipline suddenly vanished?
This is actually not a discipline issue at all, the explanation is exactly in the moderate trauma, that's why it is crucial to be aware of it, take the appropriate measures to manage, and "heal" it, and moreover working to make sure that it could not affect any more our trading performance .
We will discuss the necessary steps to do this in an upcoming article.