Almost every single day of trading, I start off as a whiz-kid. I make oodles of dough in the AM but way too many times, like 3-4 days a week, I give most of it back. I just don’t get it. Clearly I know what I am doing – or at least I do in the morning. What happens to me? My CIO/mentor and CRO have about had it. It’s becoming crystal clear, through their tone and their body language, that I am on a very short leash.
—The Morning Guy
Ugh! Very very frustrating problem. But guess what? Believe it or not, this is incredibly common. And better yet, there are two antidotes you can administer immediately.
Psychological science research recently identified something called “decision fatigue.” It’s now considered a proven fact that our brains get tired. We can’t make a bunch of good decisions in a row, particularly in an environment as fundamentally uncertain as the global markets.
Most shops think it’s a good idea to keep their PM’s and traders “fighting for every tick” but they couldn’t be more wrong. They are giving up lots of alpha with this gladiator mentality. The shop that starts encouraging people to leave, workout and, yes, even nap (!) in the middle of the day is the shop where returns will go up a few percentage points.
Alas, I know it won’t be easy immediately proving this to "the powers that be," so in the meantime, let’s work the psych angle.
When have you previously, in say college or high school, snatched defeat from the jaws of victory? How many interceptions did you throw at the end of games when your team was about to win? Or maybe your pattern is to say just the wrong thing the moment a new chick is about to agree to go back to your apartment? What I want you to do is think about those old, albeit preferably forgotten, memories. I’d bet your next winning morning that the feelings you have now when you’ve blown another day feel exactly like the time(s) you blew the game or the girl.
Yeah, yeah I know – every trader is afraid of this stuff. Don’t be. Matching up the constellations of emotions from the two seemingly very different situations and then articulating the fear of a repeat as it is happening, is fairly close to a miraculous tonic for circumventing the problem.
So think about what you're afraid will happen ("If I screw up another afternoon, I'll be let go, lose my apartment, and my wife will leave me...") and write those fears down. Articulating these fears – in the moment – will actually give you a path around them. Even just saying your fears aloud – NO EDITING – can oftentimes be enough to dissipate some of the psychological energy that causes our problems to repeat.
Your Late Game Cheerleader,
Readers are invited to write to trading coach Denise Shull, a recognized expert in risk psychology and author of Market Mind Games. Send questions to firstname.lastname@example.org.
See also: Trading coach: Newly-minted PM asks “What’s the point?”