The online trading game paradox

May 27, 2010

The obsession with keeping score suggests an interesting paradox: While the whole game of equity trading is focused on earning a solid return, limiting losses, and preserving capital, at the same time being too fixated on keeping score hampers our ability to treat trading more as the serious game that it is.

This is exacerbated by online trading program screens, where we may view an ongoing, real-time tally of our bottom line at any minute. Nice to have it when you want it¡ªbut also a built-in recipe for fixation.

An obsession with keeping score blocks finding ways to creatively play the game¡ªways that might very well result in exactly what we’re trying to accomplish. So, how is it possible to be surrounded by continually flashing numbers that represent real money being made and lost but not treat our actions as if real money is on the line?

I use the word game in the following senses: that there is an amusing, exciting, playlike aspect to electronic trading that encourages a lighter, rather than heavier, hand on the keyboard; that we are, despite all the discipline we can muster, still engaging in an activity of some chance to gain something of value; and in the sense of showing no fear when faced with something difficult, dangerous, or unknown.

It is this last meaning of the word game that is most relevant to balancing greed and fear. To the degree we can think and act as if we’re playing a game, fear and greed may be diminished and at least kept in check. How might you include an aspect of playfulness into your trading that would make it less of a grind? It will be different for everyone. What might it be for you?

Playing with the Paradox: Personal Examples

Sometimes to keep things from getting too heavy, I will watch the flashing quotes and make some guesses as to what’s going to happen next in the movement of a stock or the market as a whole. Or I will guess what the effect of a piece of news hitting the market will have on the indices.

I do this without taking a position in the stock, only to play with my hunches as to the way things are moving. This keeps me interested, alert, and often leads to an inner chuckle when I predict correctly, and to a mental shrug of “oh well” when I don’t. It helps me stay balanced, keeping in mind that the impact of no one piece of news, economic report, analyst downgrade, or anything else is going to last forever.

Of course, there is something more going on here. I am playfully trying to understand the movement of the stock, learning broad rhythms of movement as I make my casual guesses. I begin to see daily cycles that certain stocks repeat at certain times of the session.

The objective is to get to the point where I can feel the same playfulness when money is on the line as I do when it isn’t. While I can do this reasonably well when things are going my way, it is unquestionably more challenging when the stock is heading in the wrong direction.

If you’ve worked long and hard to accumulate your investing capital, you’re not going to find it easy to be lighthearted about money that has taken so much effort to earn. From a psychological standpoint, that’s what makes the paradox of the trading game interesting. And especially as it relates to trying to balance fear and greed. We have so much of value riding on the line (and online) and yet we need to act is if we don’t.

Another way I try to stay balanced while scanning the monitor is to sometimes turn on music or watch a bit of a light-hearted TV show. I want just enough distracting input from other sources to maintain my mental equilibrium so that I don’t fall into the black hole of constant score-keeping. In addition, as mentioned earlier, I get up from the computer and take periodic breaks to stretch and re-focus my vision and attention.

I also use these intended distractions to help ensure I’m not unduly influenced by the talking heads on CNBC, whom I listen to during selected segments and mute the rest of the time. I have not found that distracting myself in these ways gets in the way of attending to the numbers when I need to.

I should be clear that my style of trading is not that of scalping fractions of a point with dozens of trades per day. That said, I still spend as much time watching quotes and doing market analysis as would a conscientious day trader¡ªand much more than those traders who don’t do research.

I’m at the computer every morning from 5:30, A.M., one hour before the market opens on the west coast, to market close, unless I’m seeing patients, in which case it’s only for five hours in the morning. I conduct my psychotherapy practice at a separate office from my home study. I don’t have a computer at my office, for the most part keeping the activities of following the market and writing separate from clinical practice. I do, however, carry a laptop to the office when I may need to respond urgently to e-mail IPO confirmation requests.

While I follow the market closely enough to be an active trader, I actually don’t do anywhere near the same number of trades as most day or position traders do. Many days go by successively when I make no trades at all. So, I give myself the freedom to turn away from the quotes and other data any time I wish.

I spend time in the evening reading online market analysis and company-related news, managing my portfolio, writing and answering e-mail, researching stocks, and reading and sometimes posting to online stock-related bulletin boards. Off-line, I read a number of market-related magazines that I subscribe to, in addition to psychological journals.

When unsuspecting people find out that I watch the market so closely, spending ungodly amounts of time looking at streaming quotes, they look at me incredulously. Some ask why I spend so much time watching quotes flickering by and doing research when I don’t really do all that much trading. I answer, “So I can manage my portfolio skillfully.”

But the truth is that I began doing it because I was interested in knowing more about this whole new game of online investing. And when I become really interested in something, I tend to thoroughly explore it. My interest led to the discovery that there were many important psychological and emotional issues related to this new technology of investing that no one had as yet discussed.