Perfectionism and System Development Part 2

My research suggests that the problems people have in developing a trading system fall into five different categories.

The first three areas prevent traders from ever starting (or finishing) the development of a trading system. These include computer/technology phobia, procrastination, and being overwhelmed by the whole process. The last two problems tend to prevent the trader from coming up with a workable system: perfectionism and judgmental biases in your thinking.

In earlier articles we’ve covered procrastination and the feeling of being overwhelmed. This week let’s look at perfectionism.

PERFECTIONISM

Perfectionism, in contrast to what some might expect, has an extremely negative impact on performance. People often strive to be perfect in what they do because their parents demanded they be perfect as children. Unfortunately, these lofty standards sometimes keep them from ever coming close to achieving them. Perfectionists waste time with unnecessary tasks. Businessmen make less effective decisions, traders make less money, and athletes perform poorly—all because of the high standards they set for themselves.

But the vicious problem perfectionists have is not just created by lofty standards. You can have lofty standards without being a perfectionist. Instead, perfectionism means those standards are tied into your self-esteem. If you don’t achieve those standards (and for most perfectionists, those standards are all‑or‑none), then you feel like less of a person. The perfectionist has trouble tolerating a mistake or handling a distraction. Perfectionists tend to have all‑or‑none thinking; so everyday little setbacks lead them into a world of despair.

Here is how the perfectionist mind- set can create lowered performance—the opposite of the desired result. The likelihood of a person achieving any outcome depends on two primary beliefs: 1) the belief that the behavior attempted will produce the outcome and 2) a belief that you are capable of producing the necessary behavior. The perfectionist has extremely high standards, by definition, which suggests their outcome may not be directly obtainable as a result of the behavior. More importantly, the perfectionist tends to be his or her own worst critic when these high standards are not achieved. At first, the perfectionist’s criticism drives him forward towards his goals. But as he repeatedly fails to achieve them, the self‑criticism gets much stronger and the person begins to create a wall around himself making the task impossible. As a result, the desired result of nearly impossible standards frequently creates below‑average performance.

Let’s take a look at Elmer:

Elmer was a perfectionist who was trying to develop a trading system that would win in nine out of ten trades and would make five times as much money as he was risking on any given trade. When he first tried to develop the system, it was just profitable after commissions and slippage. But when he saw the results—only a 2% gain each year—he wanted to beat his head into the wall. “How could you be so stupid to think that an approach like that would work?” he wailed. After three failed attempts, he was beside himself. His family found him hard to live with—he was uncivil and didn’t spend any time with them. He just locked himself in his computer room doing more testing and feeling more and more unsatisfied with himself. Normally, Elmer would have just given up after about six months. But in trading, he was exceptionally committed to find something that would meet his standards. He’d abandon a lot of good ideas before testing them because of his self‑criticism. Those he did test, no matter how well they turned out, would not meet his criteria for acceptance. Eventually, Elmer’s wife left him and Elmer found himself broke, without a family, or even a trading system that met his standards.

Poor performance among perfectionists is well documented in many fields. Psychologist David Burns, for example, found that perfectionist insurance agents, those who linked their achievement to their self‑worth, earned on the average $15,000 a year less than their non-perfectionistic counterparts.

Similarly, highly successful athletes tend to show a lack of perfectionist tendencies. For example, elite male gymnasts who qualified for Olympic competition tended to give much less importance to past poor performance than did a group of highly talented gymnasts who failed to qualify. The latter group, in fact, would rouse themselves into near panic states by dwelling on the images of past failure and turning those failures into excessive self-doubt and thoughts of impending tragedy. Think about it—the best baseball hitter in any given year will only get a hit about 3.5 times out of ten. If that player dwelled on the 6.5 times he didn’t get a hit, his chances of getting exceptional performance would be slim.

Perfectionists tend to find themselves under a great deal of emotional stress. They drive themselves hard, while at the same time, being their own worst critic. For example, when a perfectionist falls short of a goal, he or she is probably screaming criticisms at themselves for not meeting his/her own lofty standards.

Joe was a trader on a diet. One day he ate a tablespoon of ice cream and scolded himself by saying, “I shouldn’t have done that. I’m a pig.” His self-critique so upset him that he went on to eat the entire quart of ice cream. And, of course, by the time the quart was finished, he’d berated himself so much that the whole idea of a diet seemed hopeless.

How does this cycle of lofty standards tie into a person’s self esteem development? One theory holds that perfectionism develops when a child is regularly rewarded with love and approval for outstanding performance, but severely criticized for substandard performance. The child, in order to gain parental acceptance, begins to take on the parent’s high standards. And, in order to avoid criticism from the parents, the child begins to criticize him/herself. Soon the young child begins to anticipate mistakes that will lead to a loss of acceptance and starts criticizing himself for the slightest mistake. The logic is, “If I criticize myself, I’ll do better and then my parents will love me more”. But, of course, self‑criticism leads to feeling bad and then even poorer performance. And suddenly, the vicious cycle of high standards leading to poor performance, common to almost all people with this trait, ensues. A perfectionist has started down the road to ruin.

Getting out of the perfectionist trap. The best solution to getting out of perfectionism is probably to seek professional help to get rid of the perfectionist decisions that you made some time in the past. However, there is a five-step program you can do on your own to help you make progress.

First, make a list of the advantages and disadvantages of being perfectionist with respect to your trading (or in anything for that matter). Once you have the list, notice how the advantages may not be as great as the disadvantages. This should give you some insights about your standards and what you are doing to yourself.

Second, since your perfectionism comes from all‑or‑none standards, spend a day investigating how well the world can be evaluated by such all‑or‑none standards. For example, notice what happens when you decide that food must either be terrific or awful. What happens when you decide that a room is either totally clean or totally messy? What happens when you decide that a person is either beautiful or ugly? Intelligent or stupid? Or fat or thin? And, of course, as you are doing this notice how distorted all-or-none thinking is and then think about your perfectionist standards.

Third, keep a daily written record of self-critical statements you make. You might notice how irrational some of these thoughts are, even though they may seem quite plausible when you think them. Give yourself a reward for being able to write down at least 50 such thoughts in a day. Your reward, of course, is for your self‑awareness—not the negative thoughts. At the end of the day, examine what you’ve written down and notice the distortions in the thinking.

Fourth, for several days keep a record of the activities you do. Before you undertake each activity, estimate how satisfying you think the activity will be. When you finish the activity, record how satisfying you felt it actually was and how effectively you performed. What will happen is that you will notice your personal satisfaction is not necessarily correlated with superior performance. When you learn to move toward what gives you satisfaction, rather than superior performance, you will be on the road toward making your life work. And quite often-superior performance will follow.

Lastly, each day while you are developing a trading system, set behavioral standards that are about 10% of what you would normally expect of yourself. When you accomplish those new standards, agree to be proud of your performance and congratulate yourself. If you achieve more than that, fine! But always celebrate when you achieve your new standards. If necessary, get help from someone close who is not a perfectionist in setting your standards. Most people, when doing this exercise, find that the lower they set their standards, the higher their productivity suddenly becomes.

About Van Tharp: Trading coach, and author Dr. Van K Tharp, is widely recognized for his best-selling book Trade Your Way to Financial Fre-edom and his outstanding Peak Performance Home Study program - a highly regarded classic that is suitable for all levels of traders and investors. You can learn more about Van Tharp at www.iitm.com