Sunday, March 14, 2010

How Many Traders Want to Lose Money?

Unless you know the mythology of the therapy culture you will be somewhat taken aback by the idea that traders who are losing money really, really want to lose it. Today, the idea comes to us from Janice Dorn, a trading coach whose method has much to recommend it.

Which is why I was puzzled to see her making the following statement: "It is estimated that some 50% of traders have a subconscious desire to lose." Link here.

You may not recognize the thought, but it is recycled Freud. It used to be called the death instinct, an instinct toward self-destruction. Freud promoted it as the ultimate answer to the question of why his psychoanalytic patients were not getting better. They were not getting better because they were prey to an unconscious desire to self-destruct. In other terms, they really, really wanted to stay sick.

The concept tries to explain everything; in the end it explains nothing. It shows Freud, at the end of his career, throwing his hands up in the air and saying: I give up.

It might have occurred to Freud that his patients were not getting better because his theory was wrong or because the famous self-destructive instinct is really a counsel of terminal despair.

Hubris being what it is, it didn't. We are all the worse for it.

Meantime, back to Janice Dorn. How can anyone know that 50% of traders have an unconscious desire to lose money? Who made the estimate? On what basis? How do you have access to anyone's unconscious mind?

Perhaps the estimators have assumed that traders who are losing money must want to lose money?

Surely, it is easier than to think that some traders are losing money because they do not have the aptitude to trade, or because they are not working hard enough, or because they lack discipline, or because they have developed bad trading habits.

Most of those explanations allow for repair. A trader can retire from the fray, work harder, or develop discipline. These are the techniques that a trading coach like Janice Dorn will, I am confident, teach her clients.

So, why does she bother to say that so many traders are wedded to the impulse to lose money?

A trained physician, Dorn explains that she discovered her own desire to lose when she first started trading. In her words: "I was attempting to use the same type of thinking that had brought me success as a medical doctor (trying to heal everyone and make it all better) to make money in the markets."

This too is a strange remark. Do you really believe that medical technique can be explained by the idea that a doctor is trying to "make it all better."

Dorn errs in imagining that state of mind or attitude is what makes a physician successful. What would have happened if she had applied the same diagnostic method, the same treatment discipline, the same hard work... to her trading activities?

Also, why is applying a technique that had produced success elsewhere a sign of a desire to lose money? If she had wanted to succeed at trading, she might well have begun her trading career by applying lessons she had been shown to work in another job.

She might have misapplied the lessons of medical practice to trading. Or she might have simply been mistaken about their applicability. In no case can we conclude from this evidence that she was being sabotaged by a desire to lose.

Even if we leave all of that aside, what is the value of learning that your trading is being sabotaged by an unconscious desire to lose? What are you going to do with that gem of wisdom?

If Dorn truly believed that a demon was forcing her to make bad decisions and to lose money, then perhaps it was telling her to quit trading and go back to medicine.

Learning that you are doing what your unconscious mind is directing you to do serves only one purpose. It makes it make sense that you are losing money. But if that is true, making money would not make sense. Given the choice, what would you choose: an activity that made sense or one that did not make sense.

Do you really believe that awareness of this self-destructive impulse, considered by Freud to be nearly omnipotent, is going to set you on a better and more productive track?

Moreover, when Dorn says, correctly, that people should take responsibility for their mistakes, and should vow not to repeat them... isn't she saying that traders should consider themselves to be winners, people for whom losing is unacceptable because it does not make sense in terms of their character.

Besides, how can you take responsibility for your losses when you are going to scapegoat your unconscious mind?

Dorn does not seem to distinguish between being a winner or loser and wanting to win or lose. Who you are is not the same as what you want; only the latter is influenced by your so-called unconscious desires.

It would make more sense for Dorn to think that she brought certain habits from medicine into trading, and that, however well they worked for her in medicine, they did not work in trading.

Good habits became bad habits, and her approach, as she describes it, involves developing good trading habits.

The disciplined approach that she and other trading coaches recommend does not involve soul-searching. It does not counsel introspection or an internal struggle with your demons. It does involve developing good trading habits, like keeping a trading journal.

If you are being told to write everything down, to examine the record of your trades and your thoughts objectively and dispassionately, doesn't this say that you should not be introspecting and should not trust your memory?

But then, what about the other 50%? What about the people who gain some trading success and become convinced that they have an unconscious desire to win or that they are especially well suited to trading? How many of them end up losing money because they feel that their overwhelmingly strong desire to win is sufficient to make them win, or who refuse to accept their losses because they believe that their desire to win is such that it is going to save them?

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