©Trading Research-www.trading-research.com - Marzo 2015 - Autore: Dr.Roberto Ambrogi
Continuing on what has been said on the last article, we can affirm that "Normal Stress Episodes" such as a normal trading loss that meet the trading plan parameters, will be entirely processed on a conscious mind level, any unpleasant emotion will vanish very quickly, judgement capabilities will remain intact, and there won't be any negative effect on our performance.
On the othter hand, "Traumatic Stress Episodes" like Trauma & Moderate Trauma, that bypass the conscious mind level and reach the amygdala, will be processed and internalized with all the emotional components completely intact.
The amygdala is the part of the brain that deals with emotions and especially with fear, it is part of the limbic system, the deepest and oldest part of the human brain which is responsible of the fundamental funcions of survival and conservation of the specie, that's why people who have suffered a Major Trauma such as military veterans, who often experience (PTSD) Post Traumatic Stress Disorder, can relive perfectly vivid/real flashbacks of the original trauma event also after many years from it.
Traumatic stress episodes always generate on the person some conditioned responses that will show up as soon as a trigger event (even not related at all to the original experience) will make him/her relive the original emotions, disassociating the person from the "here and now" and causing unexplained, exaggerated and irrational reactions. Behavior Therapy works to stop, change, or at least manage at best these conditioned responses. In the trading environment the Major Trauma and the most common Moderate Trauma, can be addressed and treated at several levels:
1) Prevention: the first, the most obvious advice is "do not traumatize yourself !!!", the best cure is prevention... Please avoid too heavy risk/reward situations where you risk too much on a single trade or in a single day. Retail traders are inclined to take excessive risk in order to increase their trading capital very quickly, but this behavior first of all reduce their chances of survival, second expose them to "Major Trauma" or at least to "Moderate Trauma" with assured future negative impact on their trading performance if not treated properly.
2) Relaxation: assuming that the vast majority of traders "suffers" from conditioned responses caused at least by Moderate Traumas, the first tool that comes in handy is relaxation.
Without going too much in depth on this, we can simply say that relaxation is practiced putting oneself on a comfortable position in which there is the slightest muscle tension (the better position is lying down on the back on a compact surface) raising the attention to every small muscle district of the body from the toes to the top of the head, all combined with a deep, slow, diaphragmatic breathing. For traders, this type of relaxation is useful not only to reduce general stress and tension, but also to get awareness of their own bodies and their own state of tension.
This way of relaxing is best done when far from trading (eg. at evening) but then it is important to use the same principles of breathing and relaxation immediately before inserting a trade, when in a trade, after a difficult trade that caused tension etc..
Relaxation is not a treatment for traumas but it helps to focus on the here and now, delaying or even avoiding at all some unwanted conditioned responses.
3) Identifying the triggers: the first step proposed by Behavior Therapy is to identify the triggers who activates the undesired conditioned responses. This is a difficult task of self-analysis that everyone must do by himself, looking back to his trading (when was my last episode of lack of discipline, of recklessness, or impulsive action in my trading?? ). Look to the past and identify those situations who may have been the triggering agents, they are sometimes very obvious and evident, other times they can be more subtle to detecet, the most common are:
-Period of great success, euphoria
-Period of loss, frustration
-A big missed opportunity, eg. not having take a very good trade for hesitation or other reasons
-A trading error
everyone has his own triggers, it's good to identify them and give them a score in order of importance.
4) Stress Inoculation: the idea is to virtually expose ourselves to the identified triggers in a controlled and secure environment, in order to learn to handle them and eventually instill new conditioned desired responses. We will start with a 5-10 minutes of deep relaxation in a perfect quiet environment far from trading, then we will start with menthally reharsing each of the individual triggers; the single trigger will be relived on a multi-sensory level, we will analize it in all the details, repeatedly, as realistically as possible, as if it would really happening right now.
Example: trigger=a missed perfect trade – we will visualize ourselves while the market is approaching to our entry point, now we hesitate or we make an input error in the trading platform, or something else, the order is not filled, the market quickly runs away in the desired direction; we are seeing everything, the DOM, the charts, the T&S hitting prices in the desired way, always faster, new supports / resistances levels broken etc... the trade could have been a big win!! at this point we will visualize ourselves perfectly calm, in control of the situation, in no way irritated by the error, patient and calm waiting for the next opportunity, which could also be after some hours, or not be there at all for the whole day, or we could visualize us in the act of moving away from the screen, regaining perfect calm and focus, resuming trading and doing very well, other big opportunities arrive and we easily take advantage of them etc... so basically menthally reharse the trigger and then the desired behavior.
With practice and repetition we will be able to to break the link between triggers and conditioned unwanted responses that we were usually suffering from and moreover we will create new conditioned responses that are wanted and appropriate in those particular circumstances.
5) Exposure: it is the last level, it is realized by putting into practice, while in an enhanced mental state, what has been practiced during the stress inoculation exercise but in a real-time stress situation.
After a couple of minute of meditation, enter in a state of enhanced mental awareness, start trading keeping this mental state for as long as possible, ideally for all the trading session. It won't be easy, it will require some practice and many trials, nevertheless the idea is to gradually expose oneself (first in simulation, then with a small position as small as 1 contract, then gradually increase) to the potentially stressing situations and to the conditioned responses triggers; in this moment we are not trading for profits but simply to reprogram ourselves.
The power of this technique is the direct experience of success in dealing with the triggers that in the past made us act irrationally and relive them in a real-time environment, manage them at best with the new conditioned responses.
For more in depth details on the subject, I strongly recommend the very good book of Dr. Brett N. Steenbarger – "Enhancing Trader Performance" – Wiley Trading - here we can conclude that conditioned responses from "Major Trauma" and "Moderate Trauma" can be really detrimental to our trading performance, knowing the underlying mental mechanisms is already part of the solution, however it is important first of all to work on the prevention side and then doing a lot of practice with the all the techniques seen above.