The concept of tilt is one which has been covered extensively elsewhere, but despite the lack of discourse on the Internet to the contrary, this alone doesn't cover the gamut of negative mental states that traders can fall into during the session. In this article, I want to cover the subject of subtle incapacitation from the point of view of a trader, as well as how it could act as a psychological bridge between your generalised level of composure and the tilt state. This topic has been discussed heavily in the context of aviation but I feel that it's also very relevant to traders, and in particular, those whose approach to the markets involves regular, rapid decision-making.
When am I at risk of subtle incapacitation?
As traders, one of the most critical elements of our job is to have a sense of readiness for sudden changes in the world's situation, but simply understanding this fact or believing that we're ready for something to happen might not always be enough. Psychological capital is as finite a resource as any other sort of capital and can be subject to rapid depletion. We simply don't have an unlimited amount of perceptual capacity. A new piece of news surfaces, a figure is revised without prior warning or an unexpected event has occurred. Any of these situations will trigger an immediate increase in perceptual load, but then we need to factor in the further increase in perceptual load which comes as a result of the situation changing rapidly on our screens, particularly if the situation has changed markedly on an existing position. In our minds, the numbers begin to flash just that little bit quicker. The appropriateness of our reactions in this situation can be make-or-break and we must train ourselves to engage with the markets in a professional manner even at the most challenging moments.
What are the effects?
As humans, our instinct in a situation like this is to narrow our focus, and when this happens subconsciously, we can begin to miss vital stimuli and consequently, begin to make ineffective and haphazard decisions. There have been well-documented cases of this happening in the cockpits of aircraft as a consequence of sudden, unexpected increases in pilot workload, including situations where the pilots simply didn't hear audible warnings or see vital changes on the cockpit instruments because their minds had entered this state of fight-or-flight 'anti-focus'. Similarly, when it happens to traders, we can begin to approach the markets with anger or trepidation, becoming either too keen or even unable to pull the trigger or pull the plug on a position when needed. Both of these are direct routes to capital destruction. We already know the reasons why these primordial mechanisms exist in our minds, but as traders, we also know that these fight-or-flight states are not useful to us. Let's face it: how many times have we needed to flee from a pride of lions on the way to our desks recently? Of course, there's a world of difference in reality between a roaring lion charging towards you and Mr Powell saying something unexpected, but our minds react to those things on entirely different levels. That change between the calculating state that we're in while absorbing the press conference and the fight-or-flight state can be no more than a few clicks.
Conclusion
We've all seen or heard stories of people destroying the equipment on their desks when things go wrong, but in the vast majority of cases, becoming tilted in that way is a process, not an event. It starts with less perceptible changes in technique and goes into a spiral of lost control, and poor results. A greater understanding of what increases the tilt-o-meter is what we need to seek. Understanding the destructive cycle on a granular level is what gives us a better chance of breaking it and allowing us to remain professional even at the most difficult of times.
This article was originally published on my LinkedIn profile but I've also republished it here. You can find the original on this page.