Trading Psychology 2.0. Steenbarger Brett N.
as I alluded earlier, is to create a bridge between present and future. What's the one thing holding the couple together? Their love for and commitment to their children. Will they work on their marriage if that would feel like taking time away from the kids? Of course not. Without a bridge, they remain stuck in the present: They won't trade a known priority for an uncertain one. So we need a way to pursue the future while holding onto present commitments. We are most likely to change if our efforts feel evolutionary, not revolutionary.
I turned the conversation with the couple toward the absence of positives between them and how they thought that the absence affected their children. “What are you role-modeling?” I pointedly asked Gina and Chris. “If the children don't see you having fun, loving each other – being special to each other – what does that teach them about relationships? What kind of relationships would that influence them to seek out?”
I could see that the couple had never contemplated this. I wasn't telling them that they needed to have good times together to be a happy couple. Rather, I suggested that the relationship they had with each other would create a template for their children's relationship expectations. To truly be good parents for their older children, they needed to role model being a good couple. What they would do to enhance and sustain their marriage was one and the same with what they needed to do to role model the next phase of their children's development.
“Of course,” I suggested gently, “if you genuinely don't feel positive things for each other, there's no sense creating a pretense for the kids. You'd probably be better off splitting up and finding good relationships that the children could come to appreciate and internalize.”
Well, that was the last thing Chris and Gina wanted to hear! They could contemplate being in a marriage that wasn't working, but not working as parents? Never! The bridge was clear: The new definition of being a good parent now included being a good spouse. Their mandate was to pave the way for their children's next phase of development, not blindly repeat the parenting of the past.
So we began looking for those exception situations in which Gina and Chris were already role-modeling good things in their marriage: caring, trust, cooperation, and communication. Clearly there were a number of positives; the conversation picked up. There were no awkward interruptions. It was Gina who hit on the idea of bringing the children to see their grandparents and using the occasion to take an overnight trip as a couple. It would be family time and romantic time. Chris loved the idea and the two of them became animated as they planned their overnight excursion. I suggested that the energy they were displaying with each other in my office would not be lost on the children. If parents are excited and in love with each other, the home environment feels exciting and loving. What more could a parent bequeath a child?
This made huge sense for Chris and Gina.
Chris had come from a troubled, alcoholic family.
Gina had been sexually abused as a child.
They found each other and vowed that they would never hurt their children the way they were hurt. They would never take their issues out on their children.
Only when romantic love felt like part of their family commitment could they find a bridge to their future. They weren't willing to change, but they were very open to finding a better way of being who they wanted to be.
No amount of work on problems would have helped Gina and Chris. They needed to find the solution that was there all along.
So it is with many, many traders who find the future leaving them behind. They need to find the bridges that link old commitments to new, energizing directions.
The Rebuilding of Maxwell
I mentioned in the foreword that the immediate catalyst for this book was a review of ten of the top traders and portfolio managers I had worked with in the last decade. In a sense, this was my own solution-focused therapy. Performance coaches working with participants in financial markets encounter so much talk of failure, frustration, and shortcoming that it's necessary to occasionally step back and reconnect with all that is possible.
Maxwell was one of the top ten traders I had identified. For years he had been very successful trading intraday patterns in the S&P 500 e-mini (ES) futures market. His frequent refrain was that other traders were “idiots.” They chased markets, put their stops at obvious levels, and otherwise replicated behaviors that provided Maxwell with a trading edge. I wouldn't describe Maxwell as particularly intellectual, but he was very intelligent – and unusually shrewd. He was an avid gambler and had an uncanny ability to figure out the other players at the poker table. He seemed to know when others were bluffing, when they were on tilt, and when they held the nuts. While he knew the probabilities attached to various hands, it was his keen perception of his opponents that enabled him to bluff, fold, or go all in.
Maxwell contended that the players in the ES futures were like rookies at the poker table. That's what made them idiots. One of Maxwell's key trading patterns was fading “pukes.” When he saw the market breaking key support and traders baling out of their positions, he knew that fear was driving the trade – and that there would soon be an opportunity to take the other side. “The market doesn't reward idiots,” Maxwell once explained. By fading the fearful herd, he knew he could make a good living.
When I had the opportunity to watch Maxwell trade live, I realized how he was so consistent in his performance. He sat and sat and sat for good amounts of time, waiting for the market to “set up.” During this period, he would observe the flow of volume at various price levels. Watching a depth-of-market screen, he could tell when buyers were coming in or exiting at a particular level. If buyers couldn't take out a prior high or sellers a previous low, he would quickly take the other side. To no small degree, his trading was predicated on figuring out when traders were wrong before they figured it out.
Maxwell loved busy markets: The greater the order flow, the greater the opportunity to find those occasions when bulls and bears were caught in bad positions. Most of his sitting occurred during slow market periods. “There's no one in there,” he would shrug. An important part of his edge was not trading when he perceived no advantage in the marketplace.
The bull market ground on, VIX moved steadily lower, and the average daily ranges shrunk. Maxwell found himself with fewer opportunities. To make matters worse, individual traders were becoming less dominant in the market, as daytrading lost its appeal to the public in the aftermath of 2000 and proprietary trading began its descent in the wake of automated market making. With fewer idiots trading, Maxwell's profitability began a slow, steady decline. Gradually he began to wonder if he was the idiot. With larger trading firms increasingly relying on execution algorithms to get best price, prices moved differently than in the past. More than once, he lamented that the old ways of gauging buy and sell levels no longer worked.
Maxwell's risk management was good, so he wasn't losing much money. He also wasn't making much, however.
Not many peaks.
Not many valleys.
The passion ebbing.
Just like Chris and Gina – committed to what worked in the past, unable to find a bridge to the future.
You don't just wake up one morning and discover your edge is gone. Rather, as with those Kuhnian paradigms, negative evidence accumulates gradually until it is no longer possible to ignore. The restaurant owner who sold to Emil did not suddenly come to work and find no customers. The erosion occurred over time, during which he did everything possible to boost traffic: Change menu items more frequently, lower prices, run specials, and so on. All of these were changes within the same paradigm, however: They were rearrangements of deck seating on a sinking ship. Incremental changes don't work when qualitative change is necessary. For the restaurant owner, qualitative change was a bridge too far and he sold to Emil.
How many years did Gina and Chris plod forward in a marriage losing its compass before the contradictions accumulated and it was no longer possible to ignore the absence of closeness in the close home they were committed to building? An object in motion, not acted on by any outside force, remains in motion – and people are no different. We are wired to conserve energy: Constant