In This Episode
- The top book Walter recommends for positive psychology
- Use logic and emotion to become a better trader
- Martin Seligman and positive psychology
Practical Tips to Stop Catastrophizing
Blowing a situation out of proportion is easy to do. Many of us are taught to do it in everyday life and that carries over into our trading.
Learn practical tips for overcoming this natural tendency and find out what we have done.
Read the Transcript:
Hugh: Hi Walter, let's talk a little bit about catastrophizing. When we do this in our everyday lives and how that kind of carries over to our trading.
Walter: One interesting thing and this might help some people. It kind of does and it's true. Did you know that intelligence is negatively correlated with anxiety. So that would mean that if you wanted to act smarter than you really are, just kind of say everything will be alright. It's kind of like the antidote.
I guess there's two ways that I know of for that. You can read the positive psychology guy. He's written a bunch of books but I can't remember his name now. He came out to Sydney and I saw him. Anyway, I'll post it in the show notes. Marty Seligman, that's it.
Hugh: Oh, yeah.
Walter: Martin Seligman. Everyone calls him Marty but he thinks it's weird. He says, he never says for anyone to call him Marty and he doesn't even think of himself as Marty but everyone calls him Marty. I thought that was pretty funny. So for catastrophizing you can adjust it logically.
Say like for example, as a trader, “I've had seven losing trades in a row. Obviously, my system doesn't work. I am never going to make it as a trader. I am going to lose all my accounts and I am going to have to start all over again you know because the strategy doesn't work.” That is like you know a slippery slope sort of catastrophizing thing.
So another way to look at it is go, “Okay, let's go look at my historical data. When I tested this in Forex Tester, did I ever have seven losing trades in a row? Yes. How likely is it to happen?” Well, you can actually work that out.
I'll put the risk calculator for people who want to use that. You can use the risk calculator to see the likelihood of that given your system. We'll put that in show notes too. So what that means is you're using logic to reassess the situation and kind of put it in its place in a different way; that's one way to do it. It is logically and the other thing to do is kind of more of an emotional thing.
What you're doing is you're convincing yourself that you are on the right path. So it's a little bit different to logic. Where logic is kind of like trying to drop a bit of you know antiseptic into the wound and make it heal. Say, “Look, I understand why you're saying that and why you'd feel that but it's actually not reality.”
This is not likely and then the other way to do it is to kind of like focus on the feelings that you had when you discovered your strategy, when you tested your strategy and, when you saw that it worked. Think about what it's going to be like in the future after you've been trading this strategy for a couple of years or whatever. Where will you be at financially and that sort of thing.
So you're kind of trying to use the emotions and you can use hypnotherapy for that or any other of your favorite ways of seeding your subconscious. Those can also help and get you in that you know in that direction but most of the positive psychology research what they do is they give you specific tools.
Like the one that I just talked about which is like you know trying to shift your focus and look at things slightly differently. And say, “You know, what am I looking at here? Is it a normal sort of draw down? Normal sort of losing streak or is this something totally different?” What do you do? What do you use or what have you found?
Hugh: Well one thing I found really helpful was just being more aware about the words that you use. So for example, a lot of times people say, “Oh, I need to go to the store.” Well you don't need to go to the store. I mean, it would be nice if you might know people to make some dinner but you don't need to go to the store and I think that's kind of where the catastrophizing starts.
It is where we pick up these phrases from our friends, our family or whatever and then that kind of gets ingrained. It becomes like, “We need to do this”, “This has to happen.” “Oh, no! That didn't happen. It's terrible. It's the worst thing ever.” Well you know, you lost a few fries. You dropped a basket of fries. I think you'll be okay.
I think that's a really important one too where we have to realize how we speak to ourselves. How we speak to others and how we take in the information from the outside like from the news or from other people also.
Walter: Absolutely. What you're saying is so true. When you have kids it's like I need this toy. I need that and I don't know if you really need it you know.
Hugh: Exactly.
Walter: Same sort of thing. I think you kind of nailed it. It's interesting you know, there's this debate in Psychology whether or not people dream in images or if they dream in language. In words and I had the experience you know.
I spent a lot of time in South America and Central America and I had experience once where I was dreaming in Spanish and so then it just kind of shifted my thinking. I was like maybe I do sort of a dream in words or something you know. It was weird that I had that experience and that my thoughts were in Spanish you know in my dream.
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Walter: To follow up what you're saying, that's exactly what a really good approach would be. What I would call a positive psychology approach, would be to do that. What you're trying to do is reframe the situation because when you catastrophize usually you have negative emotion associated with it.
So it's actually easier for you to fall into the trap of that faulty logic because you just feel so bad. It's like someone who's suicidal and you say, “Oh, cheer up. Let's go you know start a charity” or something like that. Someone who's suicidal is not going to want to start a charity like that's something, you're on a totally different emotional level.
I think part of it is exactly what you said. It is just kind of shifting, just a slight shift up to the next higher emotion and that can come through words for sure. Absolutely and you know the other thing you can do is get another perspective. If you have a trading accountability partner, someone you talk to, you can show them your stuff and say, “Well, what do you think? I think this and this. Do you think I am off base here?”
That's another way you know, just to get another set of eyes and see how someone else looks at it. Who's kind of a little bit more detached from the emotion of the experience of going through that tough time. Which is usually obviously, for traders it's usually a losing streak.
It usually is that. It could be something else. It could be you know relationships and people who don't believe in your trading career you know. It could be a feeling like you're never going to find a system you know, those things can also be the case but normally what happens with traders is we get into a losing streak and that's when we start to think, “Oh, my this is it. This is the end of it. It's all done.” So that's tricky.
Hugh: That's a really good point. I mean, I think the bottom line is that we're a lot harder on ourselves than we are with other people. So if you can get that outside perspective or you can say to yourself, “How would I talk to my good friend about this?” I think those are good perspectives to have also.
Walter: Absolutely.
Hugh: Okay, cool. Thanks, Walter.
Walter: Thanks.
Hugh: All the information in this podcast is for educational and informational purposes only and is not trading or investment advice.
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