Change Your Environment, Change Yourself

(Edi­tor’s note: one of the most com­mon ene­mies of get­ting qual­i­ty cog­ni­tive exer­cise is being on “men­tal autopi­lot”. I recent­ly came across an excel­lent new book, titled The Dai­ly Trad­ing Coach: 101 Lessons for Becom­ing Your Own Trad­ing Psy­chol­o­gist, by trad­ing per­for­mance expert Dr. Brett Steen­barg­er, which explic­it­ly calls for address­ing the “men­tal autopi­lot” prob­lem in his Les­son 4. Even for those of us who are not traders, Dr. Steen­barg­er advice pro­vides excel­lent guid­ance for peak cog­ni­tive per­for­mance. Dr. Steen­barg­er gra­cious­ly gave us per­mis­sion to share with you, below, Les­son 4: Change Your Envi­ron­ment, Change Your­self. Enjoy!).

Human beings adapt to their envi­ron­ments. We draw on a range of skills and per­son­al­i­ty traits to fit into var­i­ous set­tings. That is why we can behave one way in a social set­ting and then seem like a total­ly dif­fer­ent human being at work. One of the endur­ing attrac­tions of trav­el is that it takes us out of our native envi­ron­ments and forces us to adapt to new peo­ple, new cul­tures, and new ways. When we make those adap­ta­tions, we dis­cov­er new facets of our­selves. As we’ll see short­ly, dis­crep­an­cy is the moth­er of all change: when we are in the same envi­ron­ments, we tend to draw upon the same, rou­tine modes of thought and behavior.

A few months ago I had an attack of acute appen­dici­tis while stay­ing in a LaGuardia air­port hotel await­ing a return flight to Chica­go. When I went to the near­est emer­gency room at Elmhurst Hos­pi­tal out­side Jack­son Heights, Queens, I found that I was seem­ing­ly the only native Eng­lish speak­er in a sea of peo­ple await­ing med­ical care. After some dif­fi­cul­ty attract­ing atten­tion, I was admit­ted to the hos­pi­tal and spent the next sev­er­al days of recu­per­a­tion nav­i­gat­ing my way through patients and staff of every con­ceiv­able nation­al­i­ty. By the end of the expe­ri­ence, I felt at home there. I’ve since stayed at the same air­port hotel and rou­tine­ly make vis­its into the sur­round­ing neighborhoods—areas I would have nev­er in my wildest dreams ven­tured into pre­vi­ous­ly. In adapt­ing to that envi­ron­ment, I dis­cov­ered hid­den strengths. I also over­came more than a few hid­den prej­u­dices and fears.

The great­est ene­my of change is rou­tine. When we lapse into rou­tine and oper­ate on autopi­lot, we are no longer ful­ly and active­ly con­scious of what we’re doing and why. That is why some of the most fer­tile sit­u­a­tions for per­son­al growth—those that occur with­in new environments—are those that force us to exit our rou­tines and active­ly mas­ter unfa­mil­iar challenges.

In famil­iar envi­ron­ments and rou­tines, we oper­ate on autopi­lot. Noth­ing changes.

When you act as your own trad­ing coach, your chal­lenge is to stay ful­ly con­scious, alert to risk and oppor­tu­ni­ty. One of your great­est threats will be the autopi­lot mode in which you act with­out think­ing, with­out full aware­ness of your sit­u­a­tion. If you shift your trad­ing envi­ron­ment, you push your­self to adapt to new sit­u­a­tions: you break rou­tines. If your envi­ron­ment is always the same, you will find your­self grav­i­tat­ing to the same thoughts, feel­ings, and behav­iors. We are mired in repet­i­tive pat­terns of thought and behav­ior because we are mired in rou­tines: the same emo­tion­al and phys­i­cal envi­ron­ments. Indeed, we repeat the same patterns—for bet­ter or for worse—precisely because those pat­terns are adap­ta­tions to our cur­rent settings.

So how can we change our trad­ing envi­ron­ments? The key is rec­og­niz­ing that our phys­i­cal set­tings are only a part of our sur­round­ings. Here are a few rou­tine-bust­ing activ­i­ties that can alert us to risks and possibilities:

1. Seek Out Diver­gent Views. Con­ver­sa­tions with traders who trade dif­fer­ent­ly from you—different time frames, mar­kets, or styles—can often help cement your views or ques­tion them. Sim­i­lar­ly, read­ing mate­ri­als from fresh per­spec­tives puts your ideas in a dif­fer­ent light and push­es you to ques­tion your assump­tions. I remained rel­a­tive­ly bull­ish on the stock market’s longer-term pic­ture into the final quar­ter of 2007. Only when I pushed myself to read informed views that clashed with my own—and con­sult­ing data that did not fit my framework—did I mod­i­fy my per­spec­tives and avoid sig­nif­i­cant losses.

2. Exam­ine the Big Pic­ture. It’s easy to get lost in the market’s short-term pic­ture; how it is trad­ing that minute, that day. I find it impor­tant to peri­od­i­cal­ly zoom out to longer-term charts and place the cur­rent action into con­text. Indeed, some of the best trad­ing ideas start with a big pic­ture view and then pro­ceed to short­er-term exe­cu­tion. I espe­cial­ly find this to be the case when look­ing at longer-term support/resistance, trad­ing ranges, and Mar­ket Pro­file val­ue areas. Often, shift­ing my field of vision will help me avoid an ill-informed, reac­tive trade based on the market’s last few ticks. If some­thing seems obvi­ous in the mar­ket, switch time frames and gen­er­ate an entire­ly new per­spec­tive. What looks obvi­ous from one view may well be obvi­ous­ly wrong from another.

3. Exam­ine Relat­ed Views. Some­times the action of a sin­gle stock or sec­tor will illu­mi­nate what’s hap­pen­ing in the broad­er mar­ket; one cur­ren­cy cross will break out ahead of oth­ers. Are we see­ing a broad fixed income ral­ly, or is the yield curve steep­en­ing or flat­ten­ing? Look­ing across instru­ments and asset class­es keeps us from get­ting locked into ways of think­ing. I find myself track­ing sec­tor ETFs dur­ing the trad­ing day to see if stocks are mov­ing in a sin­gle direc­tion (trend­ing) or are tak­ing dif­fer­ent paths with­in a range. If I see bond traders flee­ing to safe­ty or assum­ing risk, I can antic­i­pate sell­ing or buy­ing stocks. See­ing the entire finan­cial play­ing field helps keep us from becom­ing wed­ded to pre­con­ceived ideas.

4. Take the Break. Just as we take vaca­tions to return to work refreshed, a break from the screen can help us gen­er­ate fresh mar­ket views. It is easy to become focused on what is most dra­mat­ic and salient in mar­kets. Pull back and clear out the head to help you see what’s not obvi­ous and then prof­it by the time it’s rec­og­nized by oth­ers. I find breaks espe­cial­ly help­ful fol­low­ing los­ing trades, enabling us to reflect on the loss­es and what can be learned from them.

In short, it’s the men­tal routines—the men­tal environment—that we most need to change to break unwant­ed and unprof­itable pat­terns of thought and behav­ior. When you’re your own trad­ing coach, you learn to think, but also to think about your think­ing. Incor­po­rate a fresh look at self and mar­kets each day to inspire new ideas, chal­lenge stale ones, and tap sources of ener­gy and inspi­ra­tion that oth­er­wise remain hid­den in rou­tine. As with my adven­ture in Queens, you may find that the most exot­ic changes bring out your finest adaptations.

C O A C H I N G  C U E:

Many times it’s the mar­ket views we most scorn that we need to take most seri­ous­ly, because at some lev­el we’re find­ing them threat­en­ing. Seek out com­men­tary from those you most dis­agree with and ask your­self what you would be see­ing in the mar­kets if that com­men­tary proves to be cor­rect. If you’re quick to dis­miss a mar­ket view, give it a sec­ond look. You wouldn’t need to be so defen­sive if you didn’t sense some­thing plausible—and dangerous—in the views you’re dismissing.

– Brett Steen­barg­er, Ph.D. is Clin­i­cal Asso­ciate Pro­fes­sor of Psy­chi­a­try and Behav­ioral Sci­ences at SUNY Upstate Med­ical Uni­ver­si­ty in Syra­cuse, and the author of The Psy­chol­o­gy of Trad­ing (Wiley, 2003) and Enhanc­ing Trad­er Per­for­mance (Wiley, 2006). His lat­est book is The Dai­ly Trad­ing Coach: 101 Lessons for Becom­ing Your Own Trad­ing Psy­chol­o­gist. A coach of traders and port­fo­lio man­agers at hedge funds, banks, and pro­pri­etary trad­ing firms, Dr. Steen­barg­er blogs at TraderFeed.com