BarroMetrics Views: GxE for Success? (VIII)
The move from Singapore is taking more of a toll on my time than I anticipated. Books, pieces of furniture etc have to be given away; friendships have to be cemented. So, last week that left no time to blog.
We were at the point where it was appropriate to ask: if we know what to do, why don’t we do it. To recap, traders fail because:
- they either don’t know what to do; or
- don’t do what they know.
To understand the latter phenomenon, we need to know how humans are hard-wired:
- We have a self-preservation instinct
- We tend to move towards pleasure (safety) and away from pain (danger)
- We tend to equate ambiguity and uncertainty with pain; indeed when faced with uncertainty and ambiguity, the same areas in our brain light up as when we experience pain.
- There is some evidence to suggest that there is a feedback loop between success (in men generates testosterone, less so in women – this decreases fear of risk) and failure (in women increases cortisol, less so in men – this decreases appetite for risk).
- Finally, GE creates neural pathways that we revert to, especially under times of stress. These pathways were created in our formative years – they were our responses to perceived threats. The responses became habits; so that unless we make an effort to be aware of them, we are oblivious to their nature. I call these habits our ‘default futures’.
Now, let’s see the elements in the trading environment. For example, let’s say we ‘lose out discipline when we have a series of wins; give back what we have made and more, and then return to discipline’ to start the cycle again. And, let’s assume we know we have a robust method and risk management approach……..
What causes the breach of discipline? How can we stop the cycle from repeating?
The easiest path is to blame our testosterone levels. The remedy is awareness. If this were the only issue, using a checklist before every trade would solve the issue. Unfortunately, as with many trading issues, it’s not that simple.
In my experience, the main cause of many of our discipline issues lies with our ‘default futures’. Our job is to be aware of the influence, note the consequence of our behaviours, and then adopt new behaviours.
The pernicious effect of our default future is highlighted in this real-life story. Many years ago, I attended a seminar with a friend, let’s call him John. Now John had a unique problem. He was very disciplined when it came to trading stocks, but he was totally unruly when it came to trading futures.
One day, we attended a workshop by Ruth Roosevelt.
At the workshop, Ruth conducted an exercise – the exercise didn’t do a thing for me; but for John, it was a whole different story.
With tears streaming down his cheeks, John recalled that his grandfather had lost the family fortune – lost it by trading trading gold futures. He recalls being told early in life that ‘stocks were safe, futures were for gamblers’.
He had forgotten about the memory until Ruth brought it back. His futures trading improved considerably from that day.
In my own coaching, I have found it easier to replace limiting behaviours than to seek to uncover the reasons behind the limiting behaviour. A detailed look at behavioural change is beyond the scope of this series; if you are interested in taking the idea further, one of the better books on the subject is ‘Changeology‘ by Jon C Norcross.
That completes the GXE section. In the next blog, I’ll look at the role of the mentor/coach.