Shrink Rap: What You Aren't Conscious of Can Hurt You

Going on Tilt

Dr. Hendlin: It would be interesting to focus on what makes people (some of them highly skilled at making money) lose everything.

Before I started trading, I used to play a lot of poker -- I found it to be absolutely superb at developing discipline, risk control, objectivity, etc. There is an interesting term in that game called "going on tilt," which is when someone gets annoyed and plays in such a way that will, on average, lose money. They know it will cost them money, but they still do it, which seems completely irrational. I am pretty sure the same phenomenon is responsible for a lot of trading losses. If you can give some insight into what causes people to do that, it would be very useful to a lot of readers.

-- M.D.

Shrink Rap: I like this question because it invites us to delve into seemingly irrational, semiconscious behavior, thus pointing us beyond a logical explanation to a psychological one.

Why would anyone purposely lose everything? How can we explain behavior that seems to court failure and misery? An earlier Shrink Rap column explained how investors will often incur financial pain to avoid emotional pain. Well, they will also incur financial pain in the service of unconscious impulses toward loss and failure. These impulses lay totally outside of our conscious awareness, and may run rampant and dictate our behavior once they are triggered.

A Rogue Email Attachment of the Mind

Here's one way to understand the admittedly abstract concept of the unconscious mind: Imagine that your conscious thoughts and actions are like email messages being delivered to your mind -- except some of these messages have rogue "attachments" that trigger unpredictable psychological events when opened -- just like an email virus triggers unpredictable (and often destructive) events when it's activated.

When a destructive unconscious program is unleashed upon our mental "hard drives," we may do things that we don't feel are in our control, such as striking the wrong keys on the keyboard, resulting in losing trades; foolishly betting on bad cards in poker; missing golf shots on purpose just when it counts most; saying the wrong thing to ruin a business deal or jeopardize a friendship; going into debt on impulse buying; or breaking moral, ethical or legal prohibitions that we claim to uphold.

When it comes to trading, even seemingly naive or ignorant behaviors --being undercapitalized, inadequately trained or simply unsuited for active trading because of personality type -- may sometimes be traced to unconscious programs aimed toward personal failure.

If this still seems too abstract, consider this: The less time you take to make trading decisions, the more likely you are to be affected by unconscious thoughts. So, those traders moving in and out of positions within minutes are more susceptible to unconscious-driven actions than those investors who think more deliberately over longer periods of time. Therefore, it's a good idea to monitor repeated losing trades for any pattern that may reveal semiconscious or unconscious biases.

Self-Talk Clues

One of the reasons many find the concept of the unconscious so challenging is that it's very difficult to determine when our actions are being driven by unconscious impulses. "Self-talk" is what we say to ourselves out loud or what we think silently to ourselves in the form of inner dialogue. We use it to monitor and shape our behavior as well as to stabilize and orient ourselves. For clues as to when something is unconsciously motivated that may be destructive, pay attention to self-talk that sounds negative, blaming, punishing and repetitive, such as:

• "I'm not smart enough to process all this data fast enough to enter a position."
• "I'm afraid of taking on a position this large."
• "My sell decisions are always too soon; my timing is terrible."
• "The market makers are out to get me; I can't win."

Whether you think negative thoughts are coming from the unconscious mind, when you hear yourself thinking these kinds of thoughts, try to neutralize them with positive statements so the negative does not get the upper hand. Otherwise, negative thoughts tend to be reinforced by exactly the behaviors that you are struggling against.

The unconscious has a mind of its own. Disrespecting it, devaluing it or refusing to believe it exists will not make it go away. Ignore it at your own risk.