Originally published June 2000
Alaska is the “flyingest” state in America, having more pilots and airplanes per capita than any other state. Alaska pilots fly through some of the most remote and demanding terrain anywhere in the world. Imagine flying from Boston to Washington, D.C. in a small single engine airplane and crossing a mountain range larger than the Rockies through a remote mountain pass. In addition, the weather can change suddenly and is only reported at Boston, New York and Washington, D.C. Further, there are no roads to follow and the largest population center a pilot flies near is less than 1,000 people. That is a typical day in the life of an Alaska bush pilot.
Flying (like trading) is not in and of itself dangerous. However, flying (like trading) is terribly unforgiving of ineptitude, carelessness or neglect. National Transportation Safety Board accident statistics consistently rank “pilot error” as the primary cause of approximately 95% of all airplane crashes. Further, nearly all forms of “pilot error” can be traced back to some form of an error in judgment. In most cases this is initially a small problem that leads to other problems and ultimately a crash, just as most large trading losses are initially small losses that are ultimately allowed to become large losses.
Unfortunately, airplane crashes have a high probability of being fatal, especially in a remote and hostile environment like much of Alaska. Therefore, it should come as no surprise that being a bush pilot in Alaska can be one of the deadliest endeavors in America if pilots exercise faulty judgment.
Perhaps the worst example of this phenomenon can be found in a place called Merrill Pass. Approximately 200 miles west of Anchorage, Merrill Pass is one of a half-dozen primary routes through the Alaska Range, consisting of mountains between 6,000 and 12,000 feet. What is unique about Merrill Pass is that there is an area not much larger than a football field where lies the remains of nearly a dozen wrecked airplanes.
Why, out of the 532,000 square miles that comprises Alaska, is there such a concentration of airplane crashes in one tiny area? The short answer is that otherwise knowledgeable and competent pilots demonstrate similar errors in judgment by attempting to force a flight through terrain and weather conditions they know are highly adverse and literally die trying in exactly the same place.
How many otherwise knowledgeable and competent traders demonstrate recurring errors in judgment by attempting to force a trade into market conditions and dynamics they know are highly adverse and destroy their equity as a result? At least we can take comfort in knowing that most trading “accidents” are not literally fatal!
As traders, we can learn much from these errors in judgment that have led to the deaths of hundreds of bush pilots over the years. The process of judgment is the same, whether we are making our decisions in an airplane cockpit in the middle of nowhere or at a trading desk in the middle of Manhattan.
Let’s examine one aspect of the judgment process, “The Five Hazardous Attitudes.”
The Five Hazardous Attitudes
Attitude What Someone Possessing This Attitude Might Say
Anti-Authority Don’t tell ME what to do!
Impulsiveness Oh no, this looks wrong. I’ve got to do something RIGHT NOW!
Invulnerability That won’t happen to ME!
Macho It hasn’t been done because I haven’t tried it yet!
Resignation Oh well, I guess it doesn’t matter now.
Each of us possesses one or more of these hazardous attitudes to some degree. It is critical for a trader to identify which of these hazardous attitudes is most prevalent in his or her personality and behaviors.
Look back at some of your worst trades and ask yourself which of the above statements describing the hazardous attitudes best describes what you were thinking at the time. Admittedly, this is not easy to do, as no one likes to examine his or her own errors. However, this exercise is quite enlightening in that we will learn something new about ourselves.
More importantly, completing this exercise and identifying which hazardous attitude(s) we are most likely to exhibit is a prerequisite to learning how to apply the appropriate “antidote,” or correcting behavior. Each of the hazardous attitudes has a specific thought process, or “antidote” designed to replace the defective reasoning which causes the hazardous attitude in the first place.
The Five Antidotes
Attitude Corrective Thought Process
Anti-Authority Follow the rules. They are there for a reason
Impulsiveness STOP. Consider your alternatives – Then act.
Invulnerability It CAN happen to you
Macho Is the potential reward REALLY worth the consequences of failure?
Resignation You are NOT powerless! You CAN make a difference!
While it is good for a trader to know which hazardous attitude he or she is most likely to exhibit and what the “antidote” is, that is only the first step. In order to make a meaningful change in our behavior, each of us needs to take some time to find a simple and practical way to implement the corrective thought process when it is most needed, under stress, in the proverbial heat of battle.
As an example, by reviewing my trades (As well as my actions as a pilot), I learned that the hazardous attitude most likely to affect my actions is impulsiveness, the desire to react quickly, sometimes too quickly. For impulsiveness, the correcting thought process is: STOP. Consider your alternatives – Then act. However, I needed to find a practical way to remind myself of this when I would be under stress and I needed it most.
The idea I found most useful was a one-inch piece of red construction paper cut in the shape of a stop sign with the number “5” written on it. I taped it to the monitor of my computer, just below the screen. It is located so that I cannot help but notice it as I look at my order entry screen. Its purpose is to remind me, as I am about to enter or close out a trade to:
* STOP!
* Take 5. No specific amount of time, just a reminder to pause and think.
* Consider my alternatives. Try to discover 5 alternatives.
* Then act on the best of those alternatives.
This is one example of taking a conceptual idea and converting it into a practical way to help modify behavior when under stress.
In summary, there are many parallels between flying and trading, especially the process of judgment. In this article, we introduced “The Five Hazardous Attitudes,” as well as a way to determine which of these hazardous attitudes apply to each of us individually. We also examined the “antidotes,” or corrective thought processes, which can help each of us to overcome the hazardous attitude(s) that affect our decision-making. Finally, we looked at practical and useful tools to make meaningful changes in our behaviors.
Note: This article is adapted from a publication “Pilot Judgment,” by the Federal Aviation Administration, now out of print.
