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The Artful Trader | Series 3 | Episode 5
About this episode:
Denise Shull leverages neuropsychology and her own experience at the New York Stock Exchange to solve the challenges of mental mistakes and confidence crises – helping slumps for Olympic athletes, Wall Street traders and corporate titans. Denise also consulted on popular US TV show ‘Billions’. We chat to Denise about understanding the ‘how’ and ‘why’ behind emotions, and how you can leverage impulse and intuition to overcome setbacks and drive performance.
Denise Shull is a performance coach who leverages the latest neuroscience and psychological research to help people perform better under market and competitive pressures. Denise is the founder of ReThink Group and author of ‘Market Mind Games: A Radical Psychology of Investing, Trading and Risk’.
Denise Schull: If we respect fear, frustration, disappointment as information, I basically think we can solve any human performance problem, any human psychological problem.
Michael McCarthy: From CMC markets, this is The Artful Trader. And there are lots of opportunities, a hundred point swing on the DOW, we're all going to hit those losing streaks, we're all going to have four or five losing trades in a row, it's inevitable. We just have to acknowledge that it's just part of being human.
Michael McCarthy: Hello and welcome to The Artful Trader. I'm Michael McCarthy, chief market strategist at CMC markets, Asia Pacific. In our third season, we talk to the experts in their own fields to uncover what gives them the confidence to succeed. We uncover confidence, unlocking the secrets behind resilience, preparation and growth and how it can make you a better trader. Denise Schull leverages her training in psychological science to solve the challenges of mental mistakes, confidence, crises and slumps in Olympic athletes, Wall Street traders and corporate titans. Denise began her trading career in 1994 at the Chicago Board Options Exchange. She traded there before moving to New York City to run trading desks on the floor of the New York Stock Exchange. In 2003, she founded the Risks Decision Consultancy, the Rethink Group, and in 2012 she released her book 'Market Mind Games', a radical psychology of investing, trading and risk. It's been described as the best of its genre and the Rosetta Stone of trading psychology. In 2015, Denise consulted on Showtime's drama, Billions and her clients now include portfolio managers, traders, professional Olympic athletes and business innovators. Denis Schull welcome to The Artful Trader.
Denise: Thank you so much for having me.
Michael: Could we start with why did you make the move from Wall Street and the finance world to psychology and performance trading?
Denise: Well, the funny thing is I had just, or I was just finishing a master's degree in neuro psychoanalysis, which was a lot of psychology when my friends who were floor traders went upstairs and convinced me to come with them while I was writing my silly master's thesis as they put it. So it was really a switch from psychoanalysis and neuroscience to trading that meant that fun but expensive master's degree seemed irrelevant and I didn't think I'd ever go back to that.
Denise: But then someone wanted me, wanted to publish that master's thesis in 2003 and they were psychoanalysts and they didn't understand neuroscience, and I said it's got to be updated, you'll look really silly. And so when I went to update it for them, a group of neuroscientists had shown you had to have emotion to make a decision. And I was like well darn, all this trading psychology keeps saying take the emotion out of it, have no emotion, but if you could literally do that, you wouldn't be able to make a trade. And I was sort of like, this is a problem. And I started talking about it and people got interested in it and then that just took on a life of its own. So that degree came back into play and then it seemed like it was all sort of meant to be actually.
Michael: So you've developed your own approach based on your studies in neuroscience and also psychoanalysis. What is the Schull method?
Denise: It's basically looking at the human mind from the perspective that emotions, feelings and senses also, I put those on a spectrum. If you look at human perception judgment decision-making behaviour through that lens, basically everything's fairly easy to understand. So the Schull method is about how do we help people do that for themselves because it's so different than what people have taught, been taught. You know we're taught that our thinking and analytical and cognitive abilities are our greatest abilities. And while they may be in terms of our ability to create, in terms of day-to-day perception judgment decision-making behaviour, it all happens through how we feel, people find that shocking, you know. It makes it easy to explain why people do what they do in ways that, like say behavioural finance does not, and then it's about how do we interact with any given human being who might be resistant or defended against how they feel like it might be scary for them to know how they feel. How do we go about helping them really become more centred in themselves?
Michael: A key question you often asked your clients is "what are you feeling and why"? And you say this is a simple question, but it's not easy to answer. What do you mean by that?
Denise: You know, it seems like a simple question, right? What are you feeling and why are you feeling it? But it's definitely one of those things that people don't really know what they're feeling oftentimes, you know, lifetimes of trying not to feel or trying to use their intellect, overcome their feelings. And usually even if they can get assemblance of WHAT, then the WHY tends to be a little bit superficial, like people will use the first answer. The coaching is about drawing out the WHAT and then helping the client connect the dots for the WHY. And when they're able to do that, first of all, they are usually able to solve longstanding problems, at least understand what needs to happen to solve longstanding, mysterious performance problems. But when you're able to do it for yourself in real-time, you're also able to make the whole dataset that your unconscious is working with to make a decision to make it all conscious. And then you have better odds of choosing between the senses, feelings and emotions that are germane to the decision you're making, and separating that from the census feeling and emotions that may be about something else. You know, even the previous trade or yesterday's P and L or you know, your teenager who got in trouble at school or whatever.
Michael: What you're saying certainly goes against everything I was taught as a young trader. I think I might be a decade or two older than you, Denise, but nonetheless we were certainly told to stomp on our emotions, but rather you say that, you're saying that people should feel their emotions in as much detail as they can. How do they do that? How could I do that?
Denise: Generically speaking, your psyche wants for you to know these things. So on some level, your subconscious is relieved to be able to communicate with you directly, when you're interested in this key piece of feelings and emotions. I mean everyone develops defence mechanisms against how we feel because that's how we were raised, right? Like to not feel those things. And so you have to engage in somewhat distortions in order to not feel things. So it's a matter of figuring out what those are for anyone person. But I generally think this, if anyone decides that they want to know what they feel and why they feel it and they choose to have the courage to find that out, they will know more than they knew before. And then if they work at it where they're trying to listen to the information their body is giving them, because that's where the feelings are. It's like the path of least resistance for your psyche. And so it's moderately easy to make for most people to make big leaps and bounds in doing it. And they start to find out that like they're just much more centred and less agitated and feel truer to themselves.
Michael: Are all emotions useful to performance generally in trading in particular?
Denise: Well, you got to categorize them as the ones that are information and the ones that are irrelevant or Jennifer Lerner of Harvard would say the ones that are 'incidental', those are the irrelevant ones, are the ones that are integral. Or for traders I use intuitive, which is unconscious pattern recognition and reflective of expertise or impulsive. So that's the trick. It's not only know what you're feeling and why you're feeling it, but then to categorize it and to know which feelings are about your market decisions and which are about something else, and be able to direct that energy, if you will, into the proper bucket.
Denise: So let's say you know you have a losing streak and you feel lousy about it and you're frustrated. And if you're able to identify what that is and why and you know, obviously no one likes losing money, but you can put that into words for exactly what it is, that disconnects it from the next trade, which is, you know, whatever your P and L was yesterday or last week or last month is irrelevant right. And we always say that to ourselves, but if you try to address that problem just with your intellect, just saying that it doesn't matter. It's not as effective as if you work through the emotional paths and make the link between the feelings in the last trade really clear that that ends up clearing your mind so that you can focus on the relevant feelings for the next trade.
Michael: What's the relationship between emotions and behaviour? It sounds like you're saying they can be separated.
Denise: The neuroscience is, you know, quite definitive that you have to have emotion to choose the behaviour and in practicality what that means is you have to feel confident in something to make a choice and do it. But for you know, centuries of history we have misunderstood that energy of emotion that often urges us to do something. We've misunderstood that and said, okay, you have to act on that energy. Well you don't, like you can, you can feel that energy and research and analyse what's going on for you and what does it mean and why, and then assign that energy to its proper category and then choose which of those energies, emotions are relevant to your trade and which ones you want to act on. The better you get at passing all of this, the easier it is to recognize that unconscious pattern recognition that we call intuition that really is expertise and segmented or unravel it from impulse or bias that is not relevant to the trading decision.
Michael: So I understand that this is your business and I'm not asking you to give away business secrets, but how do we separate intuition from impulse?
Denise: Well, so intuition is calm. Like you just have this sense that you see something or you know something, and impulse is agitated. Impulse has got energy and like it makes you want to do, intuition doesn't make you want to do anything. I mean, you may say, Oh, I have this intuition and I should do X. But intuition isn't like isn't urging you to act. If something's really urging you to act in trading, then it's really suspicious.
Michael: So it's a difference between a quiet voice in a storm?
Denise: Yeah, I mean like intuition will urge you to act, you know, if you're about to get hit by a car. And in those cases like it matter, you know, that kind of pattern recognition, it's like okay, you know, jump out of the way of the car or the train. But for people to work with it generally speaking, if they think of in terms of calm versus agitated.
Michael: Is confidence important to trading success in your experience?
Denise: Totally, confidence, I mean confidence by the way, that's that reason we can't make a decision without emotion because you have to have some confidence to make the decision. Like the research that was done on people who have brain damage in such a way that basically they don't feel confident, they can't decide what day to go to the doctor. They can't decide what shirt to wear because they have no physical sense of what's right. So the question is how does one work with their own confidence or lack thereof in an organized systematic way. That's the strategy you want to take that confidence or its variations of confidence is like a thing. It's an actual thing that you can work with. It's just data that's inside of you, you know, not data you're seeing on a screen.
Michael: Denise you work with traders, but you also work with elite athletes. It sounds like this might be one area that both groups have in common?
Denise: Yeah, I mean the athletes will say that what they need the most is confidence. There's a lot of sports psychology that works just fine until the pressure is really on, and then it doesn't work so fine and the athletes struggle with their confidence at those moments, I hear that from every athlete.
Michael: And can sports psychology be useful to traders?
Denise: I mean, confidence in general and you know, wanting to be an expert in your craft, certainly in the idea of training and practising, yes. But there's a couple of things that are really different. So in any sports contest, like you know who's winning, you know why they're winning and you know not only when it ends but when it's going to end. You never know that in markets. So first of all it's like a completely different mental problem. The fact that the markets go on forever. I mean think about like if a football game went on forever and if there was no end and like anyone could score again and again and again, like that's a completely different problem. The other thing is, so in sports like, I mean you take football, whether it's American football or you know, Australian football or European football, like generally if the ball goes backwards into the opponent's territory, it's a bad thing. In trading depending on your system, if it goes against you, does it mean you should get out or is it an opportunity? I mean, I have these hedge funds that hold positions for years and so, you know, they're always saying, does this mean we're wrong or does this mean we should be adding more here? So you never know when the game's going to end and you never have that clarity in the market that you do in sports. But worst of all in sports you can make something happen. And the idea that you can make something happen is probably in trading is probably a sure way to lose money.
Michael: With full respect for client confidentiality, would you be able to give us an example of how a trader can turn around using your techniques?
Denise: So, okay, losing streaks are actually relatively easy. So what everyone wants to do is like say, okay, put it behind me, start fresh. You know, that was yesterday or that was last week or last month. A secret to losing streaks is to go back to the trade that got it started and understand what happened there and how, you know maybe you made a mistake or you did, you know what I call, the bet I know better trade. Skip everything in the middle. Go back to the beginning, figure out like what caused that, what you were feeling and why. And let yourself feel bad about it or go through a mourning process of, you know, feeling guilty or feeling stupid or whatever, like just deal with the feelings from that first trade. Process them and get to the point where like you can forgive yourself for that because actually the psyche is trying to use those unpleasant emotions to teach you something and you're trying to override them. And so you think you've overridden them and you've forgotten about it, but you basically, they keep creeping back in trade after trade, after trade. And so the losing streak keeps going because you just, you start to lose confidence in yourself and you start to doubt yourself. And basically all of those unpleasant feelings from the trade that got it started just keep influencing you. And so if you go back and you just, you know, look those demons in the eye, if you will, you can, you can get over that and move on. I mean, my greatest example of that ever is I had a client whose wife had been kidnapped, a great trader, and by the time he started working with me, it had been like eight years maybe, and he was like at a bank and a hedge fund bank manager, and he struggled a lot. And by the time he got to me, and then he told me the story, like no other coach had taken him back to his feelings about his wife getting kidnapped. She was rescued and safe by the way. And when he went back to how he felt responsible, I mean, he wasn't really, but you know, how he felt bad that he couldn't protect her, et cetera and like we worked through that, his like multi-year losing streaks started to resolve itself.
Michael: So can traders be broken by the market. Have you seen some that were beyond repair?
Denise: I mean, the true answer is no, but I think that's like if I, if someone, let's just say someone looks broken, you know, I'm going to know that they have a set of feelings and emotions that probably got started by some mistake they made however long ago. And if we unravel all that or untangle the spaghetti bowl, they can get back to the part of themselves that knows what they're doing. Basically, if we respect fear, frustration, disappointment, and levels of intensity of fear, frustration, disappointment as information and we go back to that understanding, what are we feeling and why, I basically think we can solve any human performance problem, any human psychological problem. I truly do believe that.
Michael: Denise, it's often said that the only constant in markets is change. What do you see is the most significant changes in trading and markets?
Denise: Well, I think it's got to be the amount of money that run via algorithm. I mean, that's just, was not like that when I started in 1994-95. I mean, I have clients who still trade discretionarily and like I'm thinking of one in particular who's in a very much a tape reader, global macro trading all sorts of asset classes all over the world. But he's like, I can tell which parts of the price action are algo driven. But that's you know, that's like an extra layer of skill and sort of an extra layer of an extra layer. It's not like it used to be where like, you know, you'd get momentum going and it would keep on going, keep on going. You know, I have all these algorithms working on reversion to the mean and they jump in and stop the momentum at just the point that it would have taken off 20 years ago.
Michael: Well that sounds like a good note to leave it on Denise. Thank you very much for your time today. I'm very grateful to you for doing this and giving your full schedule.
Denise: Thank you for having me. Michael McCarthy: That was Denise Schull of New York City joining us from Hong Kong. I'm Michael McCarthy and you've been listening to The Artful Trader, Confidence Uncovered. Listen to The Artful Trader on your favourite podcast app or at theartfultraderpodcast.com join us next time.