by David Rosenblatt.
I’m a psychologist in a hospital for the criminally insane.
You might wonder why I’m writing about financial markets.
Most traders acknowledge there is a “soft” side to trading. Yet it is anecdotal and generally ill-defined. I assert that that soft side is all about how we handle uncertainty in a rapidly changing environment. In other words, stress management.
Traders’ need for stress management surged last year. The plot below shows the price of the S&P 500 and Stress about the S&P 500 expressed in social media (a 500-day average represented by the blue line). Data is provided by the MarketPsych Indices and covers financial social media such as tweets, message boards, and blogs.
Data show that stress about the S&P 500 expressed in social media hit a two-year high last year, despite the bullish environment for stocks.
Working in the hospital environment I became a specialist in stress management. Success required navigating uncertainty, managing risk, and following a plan. In short, making the unpredictable predictable.
And my stress reaction to a patient’s glare is the same – biologically speaking – as a trader’s stress response to investment uncertainty. The reaction can be visceral and distracting. However, predicting the unpredictable is best done with a clear mind.
In this 4-article series I will share what I’ve learned about stress management that can be of benefit to traders. To illustrate this point, I’ll share a story about an incarcerated young man with whom I worked named John.
John came from a broken home and he spent most of his time on the streets where he assaulted numerous people. Once locked up, he had difficulty adjusting. All day he scanned people and the surroundings for danger. All night he was tormented by visions of his maimed victims. Conversation was difficult because his mind was either racing or blank. Once he could trust me, he tried a few simple stress-management techniques.
John learned that to manage his stress. He needed to take control. Being incarcerated, however, he could not control his environment. So, what could he control? Features of his thought process and specific behaviors.
This is also true for traders in the market. Traders cannot control prices, but they can intervene in their thought processes and take specific actions. Domains where they can take control include directing focus, managing downtime, and engaging in deliberate mental exercises.
First, focus needs to be flexible. To help keep the mind loose and limber, vary the eyes’ focal point a few times an hour. Look away from the screen, to the wall near you, then gaze out the window. Setting a periodic alarm as a reminder to look away can be helpful to break unhelpful thought patterns that form during a day of looking at screens.
Second, quality sleep is paramount to health. With constant scanning and thinking, the mind becomes a runaway train. Sleep is a station blown past. A winding-down ritual cues the mind and body that sleep is the destination. To slow that mental momentum, dim the lights, make some herbal tea, and jot down a few light-hearted ideas.
Third, and paradoxically, one way to take control is to let go of control. A clear mind allows one to choose the contents. To create clarity, find a quiet space, close the eyes, and focus on breathing for two minutes.
So, what happened to John? He’s still in prison. But once he learned to manage his mind, he was able to obtain a formal education and get a job. He could read for pleasure. His sleep improved.
You can take control of your psychological well-being to bolster financial success. This article is a brief introduction into taking control. I’ll follow up with three articles that further explore each mental dimension – focus, sleep, and mindfulness.