Conditioning optimal trader behaviour III

This is the final note on the topic of behavioural conditioning.

In an earlier piece, I discussed the view among readers that using punishment to condition improved trading behaviour was unlikely to be effective. In the piece, I said ‘… 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. So, I will stop venturing further down this potentially dangerous road …’

Michelle B has kindly posted a follow-up comment, providing a clear explanation:

Punishing yourself, especially via bodily pain, constitutes behavioural conditioning. I could be wrong but I think that behavioural conditioning and psychology has gotten a bit of a beating from cognitive psychology. Cognitive psychology changes behaviour by focusing on changing thought and thought patterns. You change the thought, you change the behaviour. Behavioural conditioning to me seems inadequate and ineffective because behaviour which has to be conditioned can become unconditioned through time and through lack of conditioning stimulus, while via cognitive changes, the actual neural connections are modified, therefore effecting a permanent change. To me, psychological conditioning is a quick fix, but not lasting. Cognitive changes are more challenging but certainly not impossible to accomplish, and though they may be more slow acting, the changes are lasting.

Making an analogy with dieting, the best approach is to change your approach to eating/exercise, not adhering or trying to adhere to a restrictive diet or a punishing physical regime, but to learn how to choose the best kind of nourishing food (low calorie, nutrient dense) and the amount of it which you can reasonably eat via greater knowledge of nutrition and energy expenditure via physical exercise. When the pounds come off, they stay off, because you have changed your environment surrounding eating. Same thing with the cognitive approach, you change your mental environment via brain changes.

Thanks Michelle. Your explanation makes perfect, logical sense. I can see why behavioural conditioning is unlikely to have a lasting effect: ‘behaviour which has to be (behaviourally) conditioned can become unconditioned through time and through lack of conditioning stimulus’. So, it’s back to good old, slow-burning will-power.

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5 responses to “Conditioning optimal trader behaviour III

  1. Caravaggio,

    I wish I knew as much about cognitive psych as Michelle but alas, I do not. I would say that by placing such extreme emphasis on punishing negative behaviour you are not working to promote positive behaviour and there’s a danger that you will develop an extreme and unhealthy fixation on your mistakes. If you wish to change, I think you need to shift your focus onto the good behaviour and find ways to reward yourself for that.

    The analogy that comes to my mind is from mountain biking or skiing. If you’re trying to whip down some sketchy trail near your limit you will realize that you must not focus on all of the things you need to avoid. There are simply too many of them and if you ever focus on them you will probably hit them. Instead, you spot your line and you focus on that. It’s like driving – your car will end up drifting towards where your eyes are, even if you’re looking at another car or the edge of the road. Keep your eyes on your destination and think about all of the positive behaviours that you’ll need to follow to get there.

    There are no shortcuts, I’m afraid.

    Keep going like you have been and I think you can do it.

  2. caravvagio: michelle and tyro bring up excellent points…however, another question must be answered by many of us…are we using the market to punish ourselves…the market, itself, may be the “stick”

    gl

  3. Tyro – Thanks for the comment. I am trying to do exactly that: focus on the positive and reward good behaviour. Your analogies are instructive, but I must say I believe that thinking constructively-negative can also be very useful in trading. After reading this article about trading and the mind game in golf (http://www.punt.com/2007/02/negative_though.html), for example, I sympathise with the notion that focussing on the sand traps, or water hazards, can result in the player hitting just what they are trying to avoid. It’s just as you say about driving to where your eyes are focussing. But I think the analogy doesn’t map over to trading very well. I believe it can actually be productive to think through all the bad things that can happen before placing a trade, and to continue to think about the potential disasters that may be lurking around the corner when the trade is live. In this sense, I don’t believe ‘pitfall-thinking’ influences the outcome of the trade in a negative way, but I surely wouldn’t take this approach before setting out on a driving journey, or before I entered in to a sporting contest, because the pay-off would most likely be negative. I realise I am often pre-occupied with negative thoughts when it comes to trading, but I think if they are framed in the right way, and used in a correct context, they can be just as powerful as positive thoughts, which I am also trying to cultivate.

    If there is an obvious flaw in my thinking, please tell me, so I can take it on board.

    John – That brings to mind the cryptic comment from Ed Seykota that everyone gets what they want from the market. Previously, I’ve projected a low sense of self-worth on to the market, and used it as a tool for self-harm. I think it’s important to really ask ‘why’ we are trading. Brett Steebarger has also talked about using the market to seek validation (in life) versus using it to make money.

  4. Caravaggio,

    There’s also the other aspect to focusing on your failings rather than on your successes which I might not have made clear. To paraphrase Tolstoy, all successful traders are successful in the same way, but failures each fail differently. There are very few paths to success, but millions of ways to fail. You cannot hope to enumerate all of the mistakes you can make and so hope to avoid them; rather list the one way that you wish to succeed and focus on sticking to this path.

    I’m reminded of a would-be landlord that I met while looking for apartments. He had a list of rules that he expected us to follow which included things like “don’t flush towels or other objects other than toilet paper down the toilet.” Apparently an earlier tenant had gotten drunk and accidentally flushed a facecloth down the toilet which caused it to back up, so now there’s a rule.

    It doesn’t take a Bart Simpson to see that you will always be able to find ways of destroying the house while still following the rules. “But you didn’t say that we couldn’t plug the drains and fill the bathroom with water,” “But you didn’t say that we couldn’t fill the bathtub with 50L of dishsoap to make a Mega Bubble Bath.”

    If there’s a single mistake which you make over and over, like pulling stops or trading out of boredom or generally not following your trading plan then you may have to find means of dealing with it. These are often issues stemming from our personalities and punishment will just make us feel bad about ourselves. Instead you could seek to understand why these issues occur and find means to avoid it (placing stops before your order, walking away from the computer during slow times, adding in mechanical trading steps).

    As a last comparison, people dealing with addiction don’t obsess over what terrible people they are, rather acknowledge the drive and deal with it. If you treat yourself as a bad person, then you will live like a bad person (and continue the bad behaviour). Treat yourself like a good person, and you will try to act like one. I think that you’ve mentioned this several times when you say you’ve used the market for self-harm.

    Good luck.

  5. Thanks for taking the time to provide these insights Tyro. These passages are particularly relevant for their truth:

    ‘all successful traders are successful in the same way, but failures each fail differently. There are very few paths to success, but millions of ways to fail. You cannot hope to enumerate all of the mistakes you can make and so hope to avoid them; rather list the one way that you wish to succeed and focus on sticking to this path.’

    ‘If you treat yourself as a bad person, then you will live like a bad person (and continue the bad behaviour). Treat yourself like a good person, and you will try to act like one.’

    This is a very constructive way of looking at trading, or indeed any endeavour in life. Reading books of the Market Wizards variety taught me there are many ways to succeed in the market, but at the same time, the Wizards all seemed to share a common core, especially regarding their respect for risk. My own personal darkness came when I suffered a horrendous drawdown – before I started this blog – and since then I have put a lot of energy in trying to work through the negatives. However, in doing so I think I have all too often got myself lost in a forest of darkness, and even though I have been constructive in working through it, I now realise I need to rebalance my energies and devote more time to what the positive, to what works. It’s no good fighting the demons if you don’t plan on ever leaving their lair.

    Your last point about treating yourself like a good person also really hit home. I’ll admit that, at times, I have suffered from a low sense of self-worth. This has manifested itself, in part, in a semi-conscious decision to wallow in the mire. But you are right, if I spend my energy thinking ‘I don’t deserve better’, I will end up not deserving better. I am getting better on this front, but your reminder is valuable. I think it was Aristotle (or another classic Greek) who said ‘we are what what we repeatedly do’. It was certainly Niles (in the series ‘Frasier’) who said ‘he who acts like the barbarian, becomes the barbarian.’

    I’ll be adding ‘focus on path to success’ and ‘Be positive, be good’ to my road map.

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