- 1999: Volume 8, No. 4 The Passive Trader

Over the course of five years, Ed had applied his training in math, science, and engineering to create a profitable trading system-which he could not put to use. Why?

Several years ago, Ed attended a three-day seminar that I presented. Judging from his questions and feedback for the first two days at the seminar, I thought of him as an ideal student who was receiving maximum benefit from the seminar. Was I ever wrong! As it turned out, Ed presented me with the greatest challenge of all the traders at the seminar.

At breakfast on third day, Ed presented me a letter detailing how inconsiderate I was towards the needs of the group. First, I did not keep the schedule of breaks and lunch, running over and keeping everyone late. He was unhappy with the fact that I did not serve something for vegetarians on breaks and was also unhappy that the group chose a steak house for one lunch and a seafood restaurant for the second lunch. He also resented the fact that he had not been told in advance that the course required homework and socializing with other participants was necessary to get the work done.

Surprised and grateful for the feedback, I asked the hotel to bring fruit for the breaks and suggested a vegetarian lunch for the group on the third day. Ed was given the responsibility for alerting me at an appropriate place for breaks. I announced to the group that while homework was a part of the seminar, it was OK if they preferred to not do it. Still, Ed was consumed with anger and frustration from the two previous days and continued to look for things to criticize. I received a letter complaining about the air conditioning being set too high and other environmental discomforts he had experienced well after the seminar had ended.

Then, I understood Ed and the problems he was having in his trading. He was a passive trader.

Whatever Happened to Passivity?

In the 1970s, one of the fashions in pop psychology was passive/aggressive/assertive behavior. Classes on assertive behavior and support groups for passive people sprung up around the country in the major metropolitan areas. Public consciousness was raised to recognize the fact that assertive behavior could get you what you wanted without doing harm to yourself or others, while passive and aggressive behavior resulted in self-destructive patterns that created poor results and unhappy relationships.

Like all trends, the focus on passive behavior was replaced with the newest psychological issues: sexual abuse, depression, and attention deficit disorders, to name a few. Although all of these issues are important in understanding the human condition, they, too, are being replaced in the public debate with other, more timely psychological issues with exotic new names that lead to other self-destructive behaviors. But, the fact that certain psychological issues are no longer in vogue does not mean that their diagnosed effects have ceased to influence our lives. In fact, I have recently encountered a significant number of passive traders, although Ed gave one of the best demonstrations of this behavior. The affects of passivity on a trader's performance are like roots of a tree. Spreading out in every direction, under the surface until there is no place else to go except pop right out of the ground.

What is Passivity?

The passive person believes that he is powerless to have his needs, his feelings, and his wants understood and met. Furthermore, he usually believes that he is not really worthy of having his needs, feelings, and wants met. Since he does not have the power to meet his needs, he expects and demands others to meet them. After a childhood of feeling unworthy and unable to have his needs met, a passive person begins to lose the ability to verbalize his needs as they occur, or verbalizes them after the fact. Even more disturbing for a passive person is the fact that he often loses the ability to identify his needs, how he feels, and what he actually wants in a particular situation.

In Ed's case, he was identifying his needs after the fact, but was not revealing to himself or to me his real need: he was not getting the individual attention that he desired. During the first day of the seminar, I gave Ed a great deal of individual attention. He was not happy when he felt I abandoned him to pay attention to the needs of others in the group. He actually wanted the seminar to be a private consultation.

Here are some of the issues that relate to passivity and the costs these issues have for traders:

Control Issues

A passive child is often raised in a highly protective environment where he is never allowed to do for himself. The child is overly dependent upon his parents, who like to have and maintain control. The message is: "You can't do it for yourself. I'll do it for you." Later on, this child looks to others to do things that he should be doing for himself. The problem is that he does not believe that he is able to do things for himself. Although this attitude is inappropriate in an adult, it can still exist under the surface.

The cost? In my experience, traders who feel they are not in control of their lives have a great need to control the markets. This need leads to all manner of trading problems, unrealistic expectations, and frustration.

The Mind-Reader Connection

As a result of this dependent relationship, the focus of a passive person is on the other person. The all-powerful other person who can meet his needs becomes the source of tremendous tension for the passive person. Since the passive person cannot verbalize his needs, he expects the other person to mind-read his needs, his feelings, and his desires. Since there are very few people who are mind-readers and even fewer who want the responsibility of having to mind-read someone else's needs, the passive person is nearly always being disappointed, which is usually translated into anger. So, the passive person tends to build up a lot of anger at others. In fact, the predominant emotional state of a passive person is anger or frustration. Beneath the pleasant, pleasing exterior is often a very irritated person.

The cost? A passive trader is, by definition, out of touch with his own needs, wants and feelings and this lack of awareness is extremely dangerous for a trader. He is liable to undermine his own well being, while waiting for someone to take care of him. He will fail to plan for his goals because he will be unable to formulate them. Or if he formulates them, he won't believe he should really be able to reach them.

The Aggression Trap

The flip side of passivity is aggression. This relationship becomes very clear when you watch a passive person build up so much anger over time until he finally releases all of his frustration and rage in an irrational act of aggression and/or revenge.

A class on passive behavior was given to pre-release inmates at a prison in North Carolina who had been imprisoned for murder, armed robbery, and other violent acts. At the end of the class, nearly all of these inmates approached the instructors to say that they realized how passive they had been all of their lives.

The cost? A passive trader is likely to build up anger and frustration and seek an aggressive outlet for these pent-up feelings by getting back at the markets.

Ralph was a passive trader who threw his computer across the room in a fit of rage. He was unable to salvage his computer and lost considerable time not to mention the expense of replacing his expensive computer. This episode was not his only act of aggression in the throes of anger and frustration.

Hurting Themselves and Others

Because a passive person will not speak up for his needs, feelings, or wants, he sacrifices himself for the needs, wants, and feelings of others.

The cost? A passive trader will have difficulty maintaining a happy personal life. His relationships with others must always bring him tension and frustration unless he is as lucky as Ed was to find a mate who was willing and able to intuit and anticipate his needs. Many passive traders feel thwarted and misunderstood by the significant others in their lives. Since they cannot stick up for their needs, they are often put upon, or feel that way. This anger poisons their relationships, eroding the emotional support they need to trade well.

In the case of Ed, the passive trader, he was suffering from not having his nutritional needs satisfied and would not speak up. The result was that he hurt himself. When the passive person absorbs too much frustration and anger from not having his needs addressed, he explodes into aggressive behavior, thus hurting others by trampling on their needs, wants, and feelings. Either set of responses is inappropriate, unbalanced, and unskillful.

Low Self-Esteem

Although the passive person can be a high-achiever, he will still have a very poor self-image. At heart, passive people do not believe they are worthy. Usually this belief comes from the criticism, rejection, control, and dependency-issues from relationships with his parents, teachers, and important people in his life. The childhood of a passive person is often filled with overt or subtle messages that they cannot have what they want. Eventually, they often believe that they cannot have what they want because they do not deserve it.

The cost? Harold, a passive trader with low self-esteem, was unable to use the potential of his system because he continually sabotaged his results. It turned out that Harold's passivity was based on a deeply held belief that he was unworthy of having anything good in life. His parents had told him this repeatedly whenever he asked for anything that required more effort or money from them. As a result, he was unable to create wealth for himself as a trader.

The Victim Complex

A passive adult fails to take responsibility for expressing his needs, wants, and feelings. Instead, he lays the responsibility onto the shoulders of those around him. Then, when he discovers that others cannot mind-read what he is thinking, he becomes angry. He sees everyone around him as the cause of his own unhappiness. Hence, he is always the victim. This posture is not simply unappealing and non-responsible, it is a handicap for someone who wants to reach their greatest potential and enjoy the fruits of a happy life.

The cost? A passive trader is unable to take full responsibility for the things that happen to him. Unhappy events, such as losses, are always the result of someone else's behaviors. This failure to take responsibility means that a trader cannot take a hard look at his own methods and actions in order to improve them.

In addition, a passive trader who feels like a victim, at the mercy of the people and forces around him, finds it difficult to be proactive. Instead, he tends to react to situations because he feels powerless and needs to wait to see what others do to him or for him. To be successful, a trader needs to take a proactive posture towards the influences around him. He needs to feel that he is responsible, in control of his life, and able to take charge. With this psychology behind him, he is able to plan, to anticipate, and to take action.

Emotional Swings

A passive adult is at the mercy of his emotions because he veers between sadness at not being able to get what he wants and anger because he feels victimized. Unfortunately, he is rarely able to get a handle on these states because he does not understand where these feelings are coming from.

The cost? Because a passive trader is out of touch with his feelings, he is unable to identify them and is more likely to be at their mercy. Unfortunately, emotion can undermine any trading system no matter how good it is.

The Undisciplined Adult

One of the by-products of passivity is the inability to maintain the balanced life that leads to discipline. It is difficult to be disciplined when you do not feel responsible for your well-being, when you are waiting for others to determine your needs and provide for them, and when you do not even know what it is you want.

The cost? A passive trader has difficulty maintaining his self-discipline. Discipline arises from a high level of self-value, from a deep passion for trading, from a set of goals, and from a healthy psychology. A passive trader has difficulty developing the plan that is needed to create the goals and business plan for a successful trading business. He finds it difficult to identify his needs and so setting goals is a complicated task for him. In addition, his lack of self-worth makes it hard for him to stick to a plan that would ultimately bring him success.

There are so many more areas of trading that are affected by passivity that I cannot list them all. Nevertheless, it should be clear from the preceding list that passivity can be the cause of many self-destructive patterns in trading.

Conclusion

A life-long pattern of taking the passive road is a difficult one to give up. However, it is possible when a person is able to admit that he has passive behaviors and is willing to give up the belief that there is nothing that he can do about it. For a trader, this position is a very destructive one. The underlying attitudes and beliefs that characterize passivity make it very difficult for a trader to reach his full earnings potential. If he has a successful run, he is more likely than not to sabotage his results from feelings of unworthiness. As difficult as it is to face the problem, the cost is much higher than the cure.