Sunday, January 28, 2007

Three Steps Toward Improving Your Well-Being

The first posts in this series introduced a questionnaire for traders and explained how the items tapped into subjective well-being: the balance of positive vs. negative emotional experience. My most recent post explained how to interpret the questionnaire results and why it is important to sustain a favorable emotional balance for optimal performance. In this final entry, I will outline a few basic ideas for generating and sustaining a high level of well-being.

1) If you're out of balance, figure out if the problem is specific to trading - The question to ask is whether you feel out of balance in general, or whether those feelings are mostly limited to your trading experience. If the problem is trading-specific, you'll want to identify causes of your frustration and stress. Among the common culprits are: a) trading size that is too large for your account, creating losses and gains that are outsized relative to your total capital; b) normal slumps that occur when markets change and we get strings of losing trades; c) trading patterns that don't truly provide you with a directional edge in the market; and d) trading a time frame, market, and/or style that is not well-suited to your personality and personal needs. Teasing apart the common causes of performance problems will help immensely in exploring possible solutions.

2) If you're out of balance in general, figure out other aspects of life that might be contributing to distress and a relative lack of well-being - We know from research that the quality of interpersonal relations--the depth, not just frequency of contacts--and the experience of mental and physical vitality are crucial to well-being. Many traders so emphasize their work that they neglect these other areas of well-being. Then they wonder why they're not feeling more fulfilled even though they're making money. We also know from research that a sense of autonomy and competence are critical ingredients for well-being. Do the various activities of your life enable you to employ your skills productively, toward goals that are meaningful to you? Many times we become so caught up in low-yield activities and chores that we fail to put time into the priorities that could bring fulfillment. A nice measure is calculating the proportion of each day that you spend doing the things that make you happiest and most satisfied--and then actively structuring your days to maximize that proportion.

3) Consider keeping a diary of your emotional experience, inside and outside of trading - Researchers call it "experience sampling", and it's an excellent way to track the ebb and flow of positive and negative emotions. You want to jot down what you've been doing at the time and how you are feeling, with several readings per day. Examine what specifically you are doing in your trading when you're feeling good about it, and what you're doing when you have a more negative emotional balance. Similarly, keep tabs on good days and not-so-good days: are you doing something different on those good days with respect to work, relationships, exercise, eating? Finally, if your diary shows no relationship between your activites and your mood--and especially if you find yourself chronically out of balance emotionally--consider a medical evaluation. There are many physical problems that can contribute to an absence of well-being, including hormonal imbalances, seasonally-related affective problems, and sleep disorders. Similarly, such factors as anxiety disorders, depression, and drug/alcohol abuse can contribute to a lack of well-being. Your diary can be very helpful in distinguishing when problems are situational vs. chronic.

Perhaps the most important strategy of all is to have activities and interests in your life that sustain you during the inevitable lean times of trading. As I mentioned in my previous post, markets change and those shifts take a toll on our trading performance. Slumps are every bit as real for traders as for athletes. If all your emotional eggs are in the trading basket, you'll be vulnerable--and it will become impossible for you to do the new learning needed to internalize the new market patterns. If, however, you have many facets of life contributing to well-being, problems in trading need not become personal threats and jeopardize your overall sense of happiness and satisfaction. Diversification is a strategy that works both in monetary and personal investments.

7 comments:

b hong said...

Wonderful. Concrete advice that is easy to understand. I hope that everyone reads this post and takes it to heart. I wonder if you might add other life-style issues such as staying up too late, alcohol or other drugs that may adversely affect performance, etc. For instance, in the worker's compensation literature, the three main antecedents (in order of importance) for an on-the-job injury are:

1 A recent fight with a spouse.
2 A recent argument with a supervisor, and
3 Alcohol or other drugs of abuse (AODA)

These could certainly contribute to a diminished sense of well-being. A good proactive step would be to avoid trading for a while if such an event occurred. Obviously, this would require some sense of self-awareness and discipline.

Keep up the good posts. They are really helpful.

Anonymous said...

Great post, Brett. This is an often neglected aspect of being a successful trader.

Brian

Brett Steenbarger, Ph.D. said...

Hi Bruce,

Thanks for the comment and the interesting findings from the Workers Comp literature. I would expect any activity that interferes with alertness and concentration to potentially impair decision-making, especially when those decisions have to be made rapidly, under conditions of risk and uncertainty. Your proactive idea is excellent: if you're not in a good cognitive or emotional state to sustain focus, it makes sense to not put your capital at risk. Now if we could just create the same rule for our medical residents... :-)

Brett

Brett Steenbarger, Ph.D. said...

Hi Brian,

I agree; very few attempts have been made to look at *positive* emotional experience and how that impacts trading performance. We talk a lot about sustaining discipline, but it may be just as important to sustain optimism, satisfaction, and overall well-being. Thanks for the note--

Brett

b hong said...

You're absolutely right. I was trained during the "Iron Man" era where a resident was on call every other day. Potentially, you could be up 24 hours straight every other day. Modern medical training is trying to modify this to reduce stress and improve medical decision-making.

But the stress of such regimens can also be seen in non-trading fields. I am thinking particularly of some (not all) of our police and soldiers in Iraq. These macho organizations do not in any way seem ready to concede the possibility that stress can lead to a reduction of effectiveness and, moreover, to potentially life changing neurobiological changes.

Returning to trading, those who find that trading is stressful and unrewarding, in your personality checklist, may also be setting themselves up for a similar PTSD syndrome.

I hope that your readers of this blog are incorporating your psychological info. I hope that they will be able to avoid burnout and blow-out.

Brett Steenbarger, Ph.D. said...

You're very right, Bruce; I've been witness to many of those emotional blow-outs that you mention. I also think that burnout is more of a factor than many traders recognize, even just during the day. The best traders I've worked with who trade actively take breaks during the day to keep their concentration at a peak. Otherwise, it's easy to get overloaded and dulled. Thanks for the observations--

Brett

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