Lance Armstrong and my Cognitive Dissonance.

A sideways look at how correctly resolving your 'Cognitive Dissonance' matters for future success as a trader.

I was extremely disappointed last week when I heard that Lance Armstrong was not going to fight the recent charges brought against him by the US anti-doping agency. Armstrong has long been one of my personal heroes, a man who has fought and overcome a prolonged, and at times near futile, battle with cancer. Against all the odds not only did he survive, but then went on to become the greatest touring cyclist of all time, winning the ‘Tour De France’ an amazing seven times, and becoming a champion of the fight against cancer. – Allegations of using performance enhancing drugs have however dodged Armstrong throughout his career, something which was rife in his sport, yet something which he has always strenuously denied – that is until now. For someone who has spent his life fighting any adversity or opponent, be it death, cancer, the best cyclists in the world, the incredibly tough and demanding cycling events and terrain, and numerous allegations, is quite a statement, and would suggest to me - ‘hands-up, you got me’.

Personally this leaves me in a bit of a bind. Armstrong, as I mentioned, was one of my all-time sporting heroes. I bought into the whole Lance Armstrong thing, perhaps not in a huge way, but nonetheless he was someone I hugely admired and revered. I read his two autobiographical books; ‘It's not about the bike: my journey back to life’ and ‘Every second counts’, I have watched documentaries about the man, read countless articles and followed him on Twitter. For me Armstrong is someone who overcame the most incredible adversity to achieve the near impossible. And yet, there in ‘Black and White’, he is someone who can now be associated a word which I almost have trouble typing in relationto him - ‘Che-t’ (could not quite bring myself to type it). – This is a circle I can not quite square at the moment. – Two weeks ago I was at the Olympic Games for the finals of the men’s 4x100 metres. When the announcer read out the names of the various team members, each name was greeted by the crowd with a roar of appreciation, that was until the name Justin Gaitlin was announced, his name was followed by a mixture of boos and muffled silence. Gaitlin is man who is a ‘Cheat’, he has been found guilty of using performance enhancing drugs; is this the fate that awaits Armstrong?

How and why am I writing this on a blog about trading, and what lessons can this possibly have for traders?

Firstly, I want to explain what is happening for me ‘in my mind’ around this Lance Armstrong issue:- I am suffering from a clash in my belief system, my mind firmly believes one thing, and yet I have an opposing and contrary belief in my mind too.

• Belief 1) Lance Armstrong is one of the all-time great sporting heroes and a living legend, despite the fact that he has now almost certainly been found guilty of using performance enhancing drugs. 

• Belief 2) I despise cheating in sport, including the use of performance enhancing substances.

These two opposing beliefs occurring together in my mind are what are termed a ‘Cognitive Dissonance’. Our minds loathe possession of two opposing and contradictory beliefs running at the same time; it is a very uncomfortable and at times almost painful and unsettling experience. As a consequence we seek resolution of the cognitive dissonance. We achieve this by finding excuses, justifications or narratives which allow us to square the opposing beliefs, even if this means sometimes we have to fool ourselves. In terms of Armstrong, this may take shape of: - ‘I really admire Armstrong for his battle with cancer and for his incredible charity work he has done to help, the battle against cancer, and cancer sufferers’. I could possibly add that ‘Cycling is a sport where cheating through the use of performance enhancing drugs has been rife in the past, and there is a fine-line between what is acceptable and what is not, and perhaps Armstrong inadvertently crossed that line’. – Naïve? Maybe: - Yet that is how I could resolve my ‘cognitive dissonances’ with regard to Armstrong. – And thus Armstrong, in my mind, would still be the legend, who perhaps erred inadvertently in a situation where that is always that risk, as opposed to being someone who consciously cheated.

In trading, there are many occasions where trader’s experience ‘cognitive dissonance’, often the effects are minor and largely immaterial, however there are times where the consequences could have far-reaching affects which can seriously undermine trading performance. - Traders are particularly vulnerable to experiencing ‘cognitive dissonance’ when markets or trends turn, or there is a marked change in the trading environment, or when they adopt a contra-trend approach. At times such as these traders may hold on to their firm beliefs developed in a previous trend or as a trend matures, they then exasperate the situation by deepening their commitment to this belief and may alter their conduct as they try to justify this. This is when a trader can become vulnerable to behaviours such as seeking out people with similar views, favouring news articles, web-pages and blogs which they know support their arguments and beliefs, and avoiding or dismissing opinions and views that disagree with their beliefs; - a behaviour termed ‘confirmation bias’. The result of this is often to entrench their beliefs further and deepen their commitment and resolve. – However, this sort of behaviour, often in the face of overwhelmingly unfavourable price action, can lead to a serious depletion of one’s trading account. Eventually the trader will have to throw ‘the towel in’, however at this point they face two new but related threats:

1. It is extremely hard to abandon a deeply held belief; it takes time for the belief to dissipate and during this time the trader will be prone to placing further trades which reflect the belief. – This can lead to ‘death by a thousand cuts’.
2. A new ‘Cognitive Dissonance’ may form regarding the trader’s ability. This represents a future threat if not effectively dealt with and takes the following form:

• Belief 1) I am a good trader, who has a tried and tested method and approach which over the long-term will bring me success. (Self-belief is a fragile commodity in trading, and it is essential the trader retains their self-belief).
• Belief 2) I screwed up and lost money, - a significant amount of money, which has depleted my account. Perhaps I am not a good trader. (Self-belief is under threat).

As I previously mentioned, cognitive dissonance is uncomfortable for our minds, a kind of mental disharmony. In our heads we feel internal conflict; confused, muddled, anxious and angry, as a consequence we seek to resolve this ‘cognitive dissonance’. We could do this in any number of ways, perhaps seeking self-justification, excuses, or creating a favourable narrative.

Looking at the situation faced by the trader, the question of how they resolve their cognitive dissonance, may affect how they perform moving forward:

• Let’s assume the trader goes down the self-justification and excuses route as they attempt to smooth over the battering and bruising their ego suffered. – This may take the form of refusing to accept that they were wrong, instead claiming that the market was wrong, crazy and totally irrational. I am sure most traders have been at this stage at some time in their life, I know I certainly have. – This self-justification does the job of resolving the dissonance; however it leaves the trader vulnerable. They do not learn from their mistakes, and may continue to hold beliefs in the market which are incompatible with current trading conditions. 

• If the trader however attempts to resolve the dissonance by trying to be honest with themself, which is not always easy, and creating a favourable narrative, then they could emerge from their bruising actually stronger for it. This more constructive approach requires using a little introspection and reflection, setting aside one’s ego, and putting one's actions into perspective. In this case it may take the form of the trader admitting they were wrong, and accepting that trading is a game of risk and probability and there will be times where the market moves contra to one’s views. Further to this the trader could accept that mistakes were made, and that in future they will have to look at applying greater discipline and be willing to seek out and accept opposing views. So long as they stick to their trading approach, which has worked well in the past, and avoid the sort of mistakes recently made, then there is every reason to believe that they will continue to be a successful trader. Thus they will have resolved the dissonance and retained their self-belief, whilst accepting that they made errors, and that losses and being wrong are part of trading.

Where does this leave me with regard to my thoughts on Lance Armstrong? Well that is something for me to deal with? Of course I have the luxury of not having this affect me in any material way, and thus I can continue to believe in my earlier attempt at dissonance resolution. Judging by the numerous articles I have read since Armstrong announced he would not be fighting the claims, I do not think I am alone; he still seems to be held in great esteem, if just a little tarnished.

" 'Confused mind' image courtesy of FreeDigitalPhotos.net"