Conditioning optimal trader behaviour II


Thank you to everyone who commented on ‘Conditioning optimal trader behaviour’. You have given me much to think about.

In this earlier post, I discussed how I have tried to use will-power to make behavioural improvements and discussed the possibility of accelerating this development process by incorporating possible carrot-and-stick techniques of rewarding good behaviour and punishing bad behaviour. What came as a surprise was the number of people who commented that punishing bad behaviour may not be very effective. Here are some snippets of comments from readers, along with my responses:

Chris G – Until you can excise the idea of “punishment” for failing to adhere to your market rules, you will continue to make the same mistakes. I know, because I continually punish myself and I never get better.

My first response to Chris G was: “Surely the carrot and stick approach can help to condition improved behavioural responses over time? It works with animals, and with children. I just think I need a big enough stick and a tasty carrot, to really make the incentives work properly. What kind of punishment do you use?”. But after more readers chimed in, I had second thoughts: “Chris G – It looks like many readers agree with your idea that self-punishment is not the way forward. I thought it was perfectly logical, but it looks like I may be mistaken. Time for a rethink…” 

Chris Czirnich (Globetrader) – Don’t go head’s on against your mistakes. You make them for a reason. Punishment won’t rid you of your problems in trading, it will make you only stronger, so you will continue to make the errors despite the punishment.

Think of you split in 2 persons and now you as external observer would look over your shoulder while you were trading. Take this concept a step further. After you made a mistake, take the time and try to analyze in a discussion between yourself and your external observer what you were thinking in the trade. What the real reasons were, why you made the trading error. Maybe you will find, that something totally irrelevant to trading caused the trading error. (eg. You had a pressing chore to do, but you could not stop trading). Chris expands on his view over on his blog.

My response: “Chris Czirnich (Globetrader) – Many thanks for your advice. You are the second person to say that self-punishment won’t work, and I am starting to think there is something to this. Reading your post, I imagine you are a very rational trader. Personally, I find the ‘external observer’ exercise extremely useful in decision making. I also find a variation of this technique helpful: instead of creating an external observer, I project myself forward in time and look back the decisions I am making. I used this technique when I decided to leave my old job. However, I find that it’s all too easy to get lost in the moment when I am trading, and it is at these times that the gremlins come out to wreak havoc. Because I think I am weaker than you on this front, I believe I need to take more drastic action to modify behaviours and kick compulsive habits and other gremlins.”

Chris also makes the insightful comment that “I found that I cannot trade against myself.” This is going in to my trove of trading quotes. Thanks.

nonadamas – I am my own best diagnostician…I think you should be even-handed in your response to errors because you also need to keep your ‘animal spirits’ alive.

My response: “Nonadamas – I also believe I am my best diagnostician but I realise I am also vulnerable to moments of weakness, and I need to eliminate and become stronger. Also, your point on keeping the ‘animal spirits’ alive is noted. I think it is important to ‘cultivate’ the right emotions.”

The next comment is from an anonymous reader. It is a touching, honest account:

A reader – I have the similar situation, I believe yours is not unique. I have been struggling with it for 5 years full time and had my account wiped out many times, but these negative behaviours persisted. I know what they are, I have committed to correct them, including trying various forms of self punishment, but to no avail. I stopped trading since January 2006 and went to work for others, while continue to work on these issues, one of the things I do is to listen to Mark Douglas’s “Trading In The Zone” several hours a day, it was not easy but I on it, the “broken record” gradually sank deeply in my subconscious. It took me over 6 months of daily listening to the “broken record” until I started change, I still made mistakes, but I am improving bit by bit, one day at a time.

Just thought that I share this with you and your readers. I have not find the solutions yet and “Trading In The Zone” didn’t cure my problem, it helped.

My response: “A reader – Many thanks for sharing. Your journey of five years of full-time trading is something to behold. I congratulate you on your efforts, and on your decision to decide to leave trading, at least for the moment. Your daily listening ‘Trading in the Zone’ resonates with my own focus and pre-occupation with this road-map of mine. I use meditation to help the advice and reminders of the road map sink in, but I think I need to dedicate even more (time) to it. All the best, Caravaggio.”

Michelle B – In addition, developing the internal observer is very effective–you divert the mental/emotional energy from the gremlin realm to the internal observer’s–that’s what’s called self-empowerment.

You do not need to punish yourself to achieve any of this. And regarding your wanting to speed up the process, despite the fact that you have done very well with your road map and tripling your account in about a half of year, you want to speed it up even more?

The reality that you may need to earn income another way is just that, reality. That possibility does not warrant derailing your progress by wanting to speed it up in time so you can keep trading.

In addition, your gremlins are punishing you. You want more than what they are dishing out?

My response: “Michelle – Good to hear from you again. Your contributions always give me something to think about. I like your point about diverting energy from the gremlin to the observer within. I do find it difficult to stay removed from the ‘present’ action at times, but I will try harder. It is important – I never thought about it in terms of an emotional energy transfer from the negative to the positive. You are the third person to say that I do not need to punish myself. I take this on board, although I must admit I still don’t really understand why this approach won’t work. Also, your point about wanting to speed up my account growth is valid. I am content with the returns, but what I am not happy with is the behavioural difficulties I have encountered. Whether I succeed or fail in terms of my account growth, I want to be able to say I gave it my best from a behavioural perspective. That way, I can fail and succeed at the same time. It’s true that the gremlins themselves are punishing, but I do feel that I need to attack them from every possible angle.”

When I started this blog, my journey evolved in to one centered around following the advice of readers, and in this case, even though I’ll admit I still don’t really appreciate why punishment won’t work, there is an overwhelming consensus from experienced readers that it is not the way forward. Indeed, not one reader seems to have found it useful. So, I will stop venturing further down this potentially dangerous road, and I thank readers for their comments.

I will continue to work on a system of rewarding positive behaviour, however, because this seems to have limited downside and it could promote my general well being. So far, I have decided that I will only reward myself if I achieve a behavioural road map scoring of between 8 and 10 for following my road map. If my behaviour translates in to a trading profit, I will scale up the reward accordingly. However, I have decided to reward myself even if I turn a loss, because the aim is to reward correct behaviour and I realise that the correct behaviour will not always produce profit. This last point reflects my belief that a significant portion of traders do everything right but still end up as P+L losers.

One response to “Conditioning optimal trader behaviour II

  1. Pingback: Conditioning optimal trader behaviour III « the 3500

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