By Terry Macartney
“THINGS DO NOT CHANGE, WE CHANGE.” – Henry David Thoreau
Trading is frequently described as one of the most psychologically challenging activities a person can undertake. Why is that, and what does that really imply?
At a fundamental level, a lot of trading actions are counter-intuitive to how we are biologically and neurologically programmed. For example, we are often exhorted to “let our profits run”. However, being in a trade is often a stressful situation.
“Is this trade going to get to my target?”
“Oh no, it’s going against me and is now in the red!”
“Is my stop in an OK place for overnight?”
Stress, like pain, triggers our fight-or-flight responses, and it is “natural” for us to move towards a stress reduction action. In a trading situation, this often leads to exiting a trade much earlier than our trading plan or market conditions would call for, simply to reduce an undercurrent of stress. Unfortunately, this kind of “natural” reaction does not serve us well in trading.
In a learned behaviour context also, it is necessary to challenge cultural norms that have become personal beliefs. For example, we have all grown up in cultures where being a winner is the primary goal in life. From our education systems, which require achieving enough merit points to pass some arbitrary level to “win”, to our sporting focus, which works solely on a winners-and-losers model, to our political systems that are based on people or parties winning or losing, rather than real issues.
Then there’s the advertising hype, constantly proclaiming that you will be a winner in life, if you have …… whatever. We are immersed in a winners/losers cultural world view. Winners, good. Losers, bad.
Yet with trading, we are taking on an activity where losing is an unavoidable part of the whole process. Losing some trades is built into the system. However, with such an accepted cultural (and personal) belief system about the importance of being a winner, it is often not easy to disconnect “losing” (an action) from “being a loser” (a self-identification).
But that’s exactly what we need to do in a trading context. Identifying with being a loser is obviously going to have a huge impact on the way we trade.
“TO CHANGE WHAT YOU GET, YOU MUST CHANGE WHO YOU ARE”- Vernon Howard
To trade more effectively, changes are needed in our world view and in our personal beliefs, even in how we respond to deeply in-built biological responses. Our behaviours can then change to reflect a new understanding of old paradigms.
But as anyone who has tried to start and maintain a weight loss program knows, or who has tried to give up smoking, or even just commit to going to the gym regularly, these behavioral changes are often hard to set in motion and maintain. Changing habits and replacing them with new and more beneficial practices takes dedicated effort. It’s not a one-off action, but rather a process; a transition from something that is comfortable, safe, because it’s known and “natural”, to something a bit uncomfortable, awkward, unknown. Then a consolidation period is needed until the new beliefs and behaviours establish their own level of normalcy.
STAGES OF CHANGE
In his book “Changing for Good”, psychologist James O. Prochaska, Ph.D. outlines 6 major stages of change that operate.
These stages are:
Precontemplation: “It isn’t that they can’t see the solution. It’s that they can’t see the problem.” G. K. Chesterton.
Contemplation: Acknowledgement of a problem and an intention to solve it. Not quite ready to commit to making changes.
Preparation: Planning to take action. Focussing on the solution rather than the problem, but still a bit ambivalent about it.
Action: Commitment of time and action. The very visible stage of change.
Maintenance: Consolidation and embedding of new beliefs and behaviours. A very important stage to avoid relapsing back to old habits.
Termination: New constructive habits or behaviours are now the default way of dealing with the initial problem.
This is a very clear blueprint of how change unfolds. Each stage is an essential part of the transition, and each will have unique change strategies that work best with the dynamics of that stage. It is not very effective to apply a strategy for the Action stage if you are still in the Contemplation stage for example. By identifying the stage we are in, the best and most useful change technique or process can be applied.
In the second of this two part series, we will look at some specific techniques and processes that could be applied to specific change stages in a trading context.
About the Author
Terry Macartney is an FX and indices trader based in northern NSW, Australia. He is an Accountability Coach for traders and has established FXCellence as a coaching platform for working with traders and small businesses. Contact can be made here: FXCellence
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