Kyle has just embarked on a new trading career. He’s excited and he can’t wait to master the markets and make the huge profits he’s been dreaming of. He confides to a friend, “I’m going to live and breath trading. It’s going to be at the centre of my life. If someone were to ask me who I am, I would say, ‘I’m a trader.'” Although many would admire Kyle’s spirited dedication to the trading profession, psychologists would warn against defining oneself in such narrow terms. Research studies have shown that the more multi-faceted one’s self-concept, the better. Make sure that you don’t solely define yourself as “a trader.” You’ll pay a price for it in terms of trading performance.
As much as ambitious over-achievers like to define themselves by their work, it may not be wise. Professor Patricia W. Linville of the Fuqua School of Business at Duke University has conducted a set of studies that illustrate the disadvantage of “putting all your eggs in one basket” when it comes to your self-concept. We can define ourselves in many different ways. We are not just traders, but we are friends, spouses, parents, children, and community leaders. The number of roles is endless.
Each role is part of our self-concept. Dr Linville points out that these different aspects of our self-concept can protect our self-esteem when faced with stressful events. In one study, for example, college students described their self-concept on a set of adjectives. Some participants had one-dimensional self-concepts whereas others had multi-faceted self-concepts. People with multi-faceted self-concepts were better able to cope with stress, depression, and illness. In addition, they were better able to control their emotions. When people have multi-faceted self-concepts, they are less prone to extreme variations in emotions.
Their emotions remain relatively stable, rather than rapidly rising and falling. Why? People with a multi-faceted self-concept have alternative views of themselves, so when failure is encountered in one aspect of their lives, they can find consolation in the fact that another aspect of their life is still going well. For example, a trader facing a severe drawdown may find solace in knowing that he or she is still a loving parent. If one defines oneself as “a full-blown trader,” however, then he or she is likely to feel deeply bothered when the one-dimensional view of oneself is challenged by a setback.
When it comes to trading, emotional control is crucial. One of the best defences against stress and emotions is to have a multi-dimensional self-concept. Cultivate many different roles and views of yourself. Don’t define yourself solely as a trader. If you do, you’ll be prone to wildly uncontrollable emotions. And emotional trading usually means inconsistent profits, and eventually, huge losses.