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  1. You’re a reasonable person, right? And not stupid either – no one could pull the wool over your eyes easily. You work hard at becoming a better trader, think logically about problem solving, and are ready to address any gaps you have in your performance that are holding you back from becoming a professional trader (one that is generating a sustainable and abundant lifestyle), right? If this is true, then what is holding you back from the success you know is possible in your trading? The hard work, the motivation, the mental focus, and the willingness to learn SHOULD open the door to success based on your rational and unfettered calculations. Thinking from an assumption of rational detachment, this SHOULD give you the edge. But it doesn’t, even if you are doing everything right. That much is verifiable based on the health of your trading account – not by the story you keep telling yourself about your trading. BUT, rational evaluation SHOULD give you insight into solving the problem. Yet, another year passes and the pattern of choking in your trading performance still stays stubbornly in place. What gives? What if there were a blind spot in your exquisite mind that blinds you from seeing the problem that keeps you stuck in your current level of competency in trading? Essentially a blind spot in your cognitive perception that keeps you blind to what you are blind to. Well, there is. And what I ask you to notice, as you read this article, is how you analyze the information that is brought forth and what conclusions you draw about this information, me , your approach to trading as a logical and rational human being, and the status of your trading. Blind Spots in Perception Are the Norm – They Just Don’t Seem That Way to the Rational Mind. Mental (or psychological) blind spots are similar to their cousins – physical blind spots. Successfully driving a car requires that you anticipate where these blind spots are, or there will be trouble. Just about everybody knows about the blind spot that occurs when a driver is looking at his driver’s side rear view mirror. It only takes a few close calls for you to anticipate that you cannot see other vehicles in your mirror’s blind spot – and you compensate by either looking over your shoulder before changing lanes or have a concave mirror that expands the observable area accessed by the rear view mirror. That’s a physical blind spot that every driver (hopefully) learns to compensate for – or else. Human beings also have biological blind spots in their biologically derived perception that magicians and card tricksters have been taking advantage of since antiquity. The “sleight of hand” of the card shark is simply taking advantage of gaps in our evolutionary perceptual map even when the trick is being played out right in front of our eyes. Yet, we remain blind to the trick, even when we are shown how the trick works. So not only do you have physical blind spots and perceptional blind spots built into the very fabric of DNA, there are also cognitive blind spots built into the way the mind processes information and forms conclusions. And these cognitive quirks of our sense of self-preservation dominate our psychology and the world view we stridently hold on to – whether it makes sense or not. Social psychologists call this phenomenon Cognitive Dissonance. And once a person (a trader in particular) is settled into a world view, their perceptual cognitive map refuses to see any explanation that is inconsistent with that viewpoint. This cognitive blind spot is called cognitive dissonance. And it is what keeps many a talented trader from growing into the potential trader he could be. The Need for Self Preservation Gives Rise to Self Justification Human beings, traders included, fall into beliefs that support their need to maintain the integrity of their self image. This need is firmly rooted in the biological mandate to survive. For the sake of self (and biological) preservation, the brain will maintain a particular organization of the Self once it is formed, with single-minded purpose. When the brain becomes the mind, the psychology of the self has to be maintained at all costs. It has to maintain the belief that you are a rational being that can decipher the code of successful trading. And the code is “out there” and not in the psychology of perception. From this detached rational perspective, the trader comes to believe that the answer is “out there”. To take a mirror and look at the current psychological organization of the self for success in trading would be an attack on the integrity of current psychological organization. And since the Self Preservation bias of the brain/mind is on auto-pilot with a bias to be right, it will push aside any information or experience to the contrary. And it will make excuses that justify mistakes. This is how strong the bias to be right is – that it would cast aside evidence that the problem is not “out there” in systems, new gurus, new indicators, or new methodologies. After all, the brain and psychology says, we have a perspective to preserve. (i.e. "I’m a reasonable person, so I must be right.") And it creates an explanation that supports the continuance of the current “rightness” of perspective. So what does the mind do? It self-justifies its behaviors, actions, and beliefs – even if it costs money to do so. Let me give you a couple of examples of how this shows up in a trader’s language that supports his unwillingness to change. These are explanations that I hear ALL THE TIME – they are that common. “Yeah, I know that something is wrong in my trading and that I need to work on myself also. And as soon as I find out what is wrong with my trading, I will start working on myself.” “I’m still learning how to leave my emotions out of trading. Someday, when I finally do that, my trading will take off.” “I know that success is near – I can feel it. If I keep pushing, I know I will break through. I wish it would hurry though, I’m almost out of trading capital and may have to start looking for a job soon.” “I know that the problem is with my psychology, but I can’t afford to spend the money on my self-development. Until my trading improves, I simply can’t afford to work on myself.” “This psychology stuff is a bunch of BS. I was successful before and I will conquer trading also. I just don’t understand why it is taking so long” “All I need to do is to produce a purely mechanical trading system, so that my psychology is a non-starter. In theory I know this is right. All I have to do is build the system.” “I know that psychology is important in trading. I read about it and watch videos, but somehow psychology is not working for me. I’ve read enough to know what the mind needs to look like, but I keep waiting for my psychology to change with the knowledge I have.” “I’m going to eventually get to where my mind is right. I just need to work through it and keep working my system.” “Yeah, yeah, yeah – I know I need to do something about my head. I’m consistently losing money and realize that the problem is me. But I keep putting it off, thinking that things will get better. They have to. I can’t afford to go on like this.” Do you see the self-justification of maintaining losing ways and the need for self-preservation as expressed in the explanations that the traders give? It is so strong that the trader justifies his/her continuance of a limiting pattern despite the pain it is causing. This is typical with MOST TRADERS and it keeps them stuck in their self-limiting (but stable) beliefs. By the way, all of the statements above come from traders who are either losing money or are leaving chunks of potential profits on the table – and have been trading for a number of years. These are not newbies who don’t have the experience to know better. Can you also spot the self-justification that allows the trader to continue their self-limiting ways? Yes or no? (This is important.) You may even find the self-justification narrative that you keep repeating to yourself like a mantra. They don’t see the self-justification that blinds them to continued mediocrity. They are blind to what they are blind to. All of them create a narrative that continues their current self image or self organization, even if it is harming their performance in trading. The very rational and logical mind they believe in is causing them to be short sighted in their evolution as a trader. Yet, the “rational mind” they are using to solve their problems keeps them from seeing the very solution they are looking for. It has become the obstacle to their ability to learn. And they are perplexed by their continued lack-luster performance. But , like a repelling force, they cannot even begin to look at their current organization of self as a large part of the problem. If they did, it would produce the discomfort of dissonance. So, to preserve the integrity of the Self as it is currently organized, they stay stuck in beliefs that consistently show they are ineffective in managing the probabilities of uncertainty found in trading, evidenced by the health of their trading account. This is the self-justification of cognitive dissonance. Learning to See What You Are Blind to In Mindfulness, you learn to step back from your thoughts and beliefs and recognize that they are not you. In fact, you and your thoughts, you and your beliefs – are separate. But the Observer of the Self has fallen asleep and you have fused to your thoughts and beliefs as if they were you. And now through the psychological device of cognitive dissonance, you are blinding yourself to explanations that do not fit into your comfort zone. The first step though this is to notice that your rhetoric and your performance do not match up. Performance follows operating beliefs you hold about your capacity to manage uncertainty. If the desired performance is not there (and you can trade successfully in simulation), then become a detective. The detective knows he is missing a piece of the puzzle. And he is looking for what he cannot currently see. You must become the detective. But you are looking for something (beliefs about the Self) that are so ubiquitous, so familiar, that the belief flies underneath the screen of your radar. As a detective, you know it’s there – you just need to learn how to see what you have not been able to see. As a homework assignment for an awakening inquiring mind, I ask you to explore this question to help you break through the complacency of the self-justification of your cognitive dissonance that keeps you stuck in your trading performances, despite all that you have tried. What are the self- justifications that I use to maintain the status quo of my trading performance (that counter the black-and-white evidence found in my trading account)? And do these self-justifications allow for a current organization of the self that can produce an effective trading performance? You can use the explanations (quotes) I gave above as a starting point. The difference between trading and the rest of your life is that trading will not let you get away with ineffective, but well justified, beliefs. The drawdowns and the ticking clock of time eventually force traders out of their stupor. The key is to learn before you run out of capital or out of time. At the bottom a trader has to decide if he has to be right or if he wants to be effective. Letting go of ‘’being right” is uncomfortable at first. But by choosing to become an effective trader, you become humble enough to appreciate that mistakes were made – and you made them. And now you are going to learn from them, rather than justify the continuance of ineffective beliefs. Rande Howell www.tradersstateofmind.com
  2. The "Group-Think" of Traders that Blinds Them to What Really Matters Have you ever listened to groups of traders talking about trading? If you have, you’d think (particularly to yourself) that everybody was hitting homeruns and driving in runs. But that’s not the reality. The reality is that they all are covertly participating in a form of group-think called looking good to others. Have you ever noticed that no one talks about the real task of producing sustainable, consistent income from their trading? Instead, they talk shop in a vacuum refusing to address what they are ultimately seeking. The one thing that is most important to the financial health and long term survival of a trader, they do not talk about. Their eye is not on the ball – their eye is being distracted by talking about the minutia of trading, saving face, and the self-deception of looking-good. Meanwhile, another year goes by – and it’s January of another year already. Time is ticking by (do you hear it in your internal clock), chipping away at your capital (sometimes chomping) and your timeline (just how much time can you fritter away before you feel the financial noose tightening?). And, right there, hidden in plain sight, is the answer they you avoid acknowledging. This is the place where the vast majority of traders stay stuck – being blind to their blindness. And the cost of this blindness is their trading success. Their trading performance keep giving the struggling traders feedback about their performances in the form of drawdowns from their trading accounts, underscoring the real problem they are avoiding in their trading -- them. Yet, despite all the evidence, the "wannabe" traders refuse to look within themselves for the source of their performance problems. Instead, they focus on solutions outside of the psychology of performance. That’s not nearly as uncomfortable as acknowledging there is a chink in their armor that allows them to maintain their looking-good even while their trading capital erodes or stays stagnant. And the clock keeps ticking as the trader maintains their self-deception. Meanwhile, they stay where it is safe – they talk around trading as if they (the one who is actually doing the trading) were not a constituent part of their trading. They talk the details of trading and, listening to them, a by-stander might be led to believe that everybody is making money. But what you’ve got is a bunch of really good Monday-morning armchair quarterbacks talking about the game from a spectator’s vantage point rather than from actual performance. Waking Up to the Problem and to the Solution The real question for the life-blood of an evolving trader, “Are you making consistent money?”, is not asked. And, if you are not making consistent money, another question begs to be asked, “How do you diagnose the problem and fix it?”. Once a trader has learned technically how to do his/her business, these are questions that take you to the core of the issue. There is really no risk in the moment of performance to a spectator’s game face – only his looking-good in the fantasy league of fellow retail traders. What you will notice is that traders talk the game of trading, but not their performance in the game of trading. It is so much more self-effacing to talk about the game of trading (as if they were fans of the game, rather than participants), rather than to evaluate their performance as a function of their competence as a trader. This discomfort of evaluating personal performance is so ingrained into traders' thinking that they will avoid dealing with it as long as the capital they bring to trading will allow it - or until they have felt enough prolonged pain and discomfort that they come to the conclusion that they are the problem in their trading. (And they are also the solution to their trading performances.) For most traders to wake up to this pivotal moment, a tremendous amount of time and money may have been squandered needlessly. So much short-term energy was focused on saving face by looking -good that the long-term development of the mind that can embrace and manage ambiguity without a sense of dread of being wrong was never embraced. And this is what is required to become a consistently successful trader. Once this is recognized at a core level, it seems simple, until you realize that your biology and your psychological underpinning conspire against the development of this kind of mind. Your biology and the psychology that arises out of your brain’s survival adaptation to its environment is biased toward the self-preservation of the status quo, rather than developing a higher functioning human being. What Got You Stuck in Performance Limbo in the First Place The power of this primordial drive for self-preservation needs to be understood in a different context from a civilized conception of man’s recent history. The brain builds a self that is adapted to survive in a particular environment. It doesn't care if that self thrives in that environment or not. It cares that the self (the bio-cognitive system that you have been organized into) survives. To the ancient brain that self needs to survive until sexual maturity, prevailing in your environment, and perpetuating the species through your survival success. All successful strategies for dealing with the challenges of survival are hardwired into neural-circuitry as they are learned. Once wired they become an automatic response in the organism’s bio-cognitive repertoire. This means that successful adaptations to survival situations become a reactive dance between the environment and the self. This is called the stress response. And this adaptive response mechanism was essential to our ancestors where danger lurked constantly in their environment. That danger was biological and life threatening. And the stress response, being reactive in nature, allowed our ancestors to have a better chance at surviving in an environment loaded with saber-toothed tigers and other predators. The problem is that this biological system of stress responses was built for another time and another environment than the world that the trader now lives in. Unfortunately for the trader, the ancient brain (the emotional brain where all this stuff is wired), cannot distinguish between a biological threat and the psychological discomfort of uncertainty found in trading. And here is the kicker: When under stress, the brain is going to revert back to old familiar patterns learned long ago for the avoidance of pain. Remember, the emotional brain cannot tell the difference between biological threat (pain) and the psychological discomfort found in the management of uncertainty. The moment that the emotional brain perceives uncertainty (stress or the challenges of living life), it falls back to old familiar reactive patterns that have produced survival success in the brain's formative period. This is what the trader perceives as falling apart in the moment of emotional uncertainty. And an emotional hijacking is triggered instinctively long before the thinking mind can begin to manage the uncertainty of a critical moment, unless the trader re-trains the body and mind to respond differently. The Psychology of the Trader is Railroaded by Primitive Emotional Belief This is where the bio-cognitive system that “you” are (responding instinctively to stress) and the deeply held beliefs about your capacity to manage uncertainty (that give rise to your trading psychology) conspire against you. The Emotional Brain makes a decision and the Thinking Brain produces an explanation to support that decision, no matter how irrational. Your Emotional Brain on stress (managing the uncertainty in a moment of ambiguity in trading) reverts back to primitive stress responses learned long ago. And then, your Thinking Brain (rooted in beliefs learned in your family of origin, culture, and circumstance) demonstrates those beliefs under the stress of the moment. If you are a human being that trades who tries to save face by “looking good” to the outside world, you are operating from a belief system rooted in a sense of inadequacy, not mattering, unworthiness, and/or powerlessness. And as long as you avoid engaging those beliefs head on, your Emotional Brain will continue to hijack your performance mind in the clutch. It will instinctually avoid the danger of not being able to survive in the environment in which it lives. Short term, this strategy works because it avoids the threat - and that is all the Emotional Brain is interested in. Long term, this biologically induced strategy keeps you, the trader, locked in the limbo world of perpetual mediocrity. Toward a New Construction of the Self When a trader learns that self-honesty is the most powerful tool he/she can possess, then the game of performance can change. There is no shame in being a fallible human being. It is our nature. It is also our nature to learn from mistakes. It is this openness to making and learning from mistakes that must be cultivated. Attempting to avoid mistakes simply keeps us stuck in old self-limiting patterns. These patterns were successful solutions when certainty of survival was the driving force. But now, in the brave new world of trading, the trader has to step out of the old comfort zone that has become his prison. And now it is time to embrace self-honesty as a tool and reconstruct the mind that trades. It is your choice – stay stuck in old self-limiting patterns or intentionally and consciously grow new ones, adapted for the world of uncertainty found in trading.
  3. Work harder. Be dogged after a failure – be persistent and push harder next time until success comes. Never give up. Never show a weakness. Everyone has heard these tried and true axioms of success. And these axioms have proved to be true in other endeavors outside of trading to the point that they have simply become the bedrock of "success" thinking. They seem so self-evident that few question whether they are also effective in the performance of trading. Why? It is natural to assume that attacking a problem by brute force and finally forcing your will upon outcome will work in trading as it has in other endeavors. This approach has great appeal for males with their testosterone-driven perception. Yet after the smoke clears for the umpteenth time, this kind of thinking produces persistent draw-downs in a trader’s account. What’s the disconnect? Stress – Facing the Challenges of Life. First, let’s define stress. For our purposes here, stress can be defined as your response to the challenges of life. Anytime you experience uncertainty, the body/mind is triggered to a stress response and the body and mind are placed on alert for the duration of the stress or challenge. In the not-so-distant past, stressors or challenges were fairly short in duration (but intense) and the body adapted to this. Finally, these short-term adaptations to challenges were so successful that they were burned into our DNA. So they became automatic, reactive biases built into our very nature. While the high alert status of the stress response allowed your ancestors to deal with a particular challenge (being threatened or approaching predators), eventually the body calmed down because the uncertainty - the threat of real predators - was gone. Life was good again. The body and mind then naturally fell back into homeostasis (calm state of mind) until the next challenge appeared in the environment. The take-away for the trader here is that the act of trading produces the very circumstance that triggers the stress response. And the brain/mind built for survival in a world of danger cannot distinguish the difference between the challenge to an uncertain future while being confronted by a saber-tooth tiger and the challenge of an uncertain future that confronts a trader every day. And until the trader can separate the two (biological threat and psychological discomfort), the body is always going to overwhelm the mind when it senses danger. Trading requires the smart management of stress (emotional intelligence) because it is unavoidable. What matters is the skills that the trader brings to the management of uncertainty and the challenges that are inherent in trading. Stress is Your Friend or Enemy – Depending on How You Use It. The relationship between stress and performance has been studied since the early 1900’s. Reduced to a graph, it looks like a bell-shaped curve. And essentially what was discovered is that stress is good up to a point. It keeps you focused, alert, on-task, and concerned about your current situation. It also produces a highly flexible state where the organism (the trader while trading) can respond thoughtfully to changes in the environment. This “good” stress is called eustress and it is the cornerstone of a peak performance mind. Then, after this period of eustress responding to the stressors of life, performance drops off dramatically. However, when stress is prolonged without effective coping skills for its management, the good stress of eustress becomes the bad stress of distress. Concentration levels go down and mistakes go up. The mind becomes confused and reactive. The distress will build (unless effective intervention is made) until burnout occurs and you are no longer capable of performing to the best of your abilities. As you have probably noticed, this scenario is common among traders. Particularly when they are trying to push themselves through the management of uncertainty with brute strength. So up until a point, working harder, being persistent in the face of failure, and never giving up did help. But without the addition of new, more effective, coping skills, this approach leads to distress. And distress leads to compromised thinking that shows up in your trading account as drawdowns. Fundamentally what is required is a new approach to understanding stress and its management. Failure as a Path to Improvement I'm not saying that you should stop being persistent. Instead I’m asking you to come to a new understanding of what persistency is. Persistency is not doing something over and over again until you force your will upon the markets. I know many traders who have tried this approach and have truly traumatized themselves as they keep running into the same brick wall over and over again expecting a different outcome. It doesn’t happen that way. Once you learn how to regulate emotional intensity by breath and relaxation training, you will get to the door of the mind. And it is the mind where you find the beliefs that you are projecting upon the markets. It is these projected beliefs that you produce the results that you see in your trading account. So failure can help you to isolate the belief about your capacity to manage uncertainty that has been holding back your success in trading – if you have the openness to learn from your mistakes. The trait of persistency helps you to find the self-limiting beliefs behind your lack of performance. These are not the beliefs that you talk about. These are the operational beliefs behind your performance in the face of uncertainty. These are two very different things. You can fool yourself and other people, but you cannot fool your trading account for long. After luck runs its course, you discover that the markets don’t care. If you insist on bringing ineffective beliefs to the management of uncertainty, the markets will allow you to burn capital. The more you project ineffective beliefs upon the markets about the management of uncertainty, the more you experience the stress of trading as distress, rather than eustress. It’s not about working harder, working more, trading more, or pushing yourself – it is about the beliefs you bring to the management of uncertainty. Once you realize and truly accept that you have to give up control of the outcome in trading (certainty), trading becomes the microscope to aid you in discovering the operational beliefs behind your performance in the challenges of trading. Mistakes show you the way. You are no longer using persistency as a bull-headed denial of reality. Instead you are using feedback from your failures to point out the beliefs behind performance. Personal performance is the one thing that you can control in the management of uncertainty found in trading. It is here that you find the real beliefs about your capacity to manage uncertainty. This is what you have been avoiding having to face. Yet no matter where you go, there they are. They are waiting for you to discover them and change them so that you can re-organize the mind that you can bring to the challenges of trading. It is here that the worry-based mind of distress in trading is transformed into the concern-based mind of eustress. It is your choice. The markets are not capable of caring. If you insist on bringing ineffective beliefs to the performance of trading and refuse to learn, then so be it. And the new reality is that the mind that you bring to the management of uncertainty is the only thing that you can control. When you begin seeing trading as your teacher, then you have opened the door to learning how to manage stress in trading. Rande Howell
  4. Bear Markets show that investors lack optimism on the strength of the economy and expect asset prices to for the medium to long term. Downtrend are generally defined as when prices continue to make lower highs and lower lows and when this happens in excess relative to the historical averages, markets are said to be in a bearish trend.
  5. This post is an excerpt from my book, Awaking the Mindful Trader: Mastering the Inner Game of Trading. In this series on the Eight Roadblocks to Successful Trading, we are exploring the role of fear in trading. In particular, the way your fears shape your perception and create the results of your trading. What ever you fear, owns you. If you are acting from fear, you will always create self limitation in your trading. As long as you are mindless of your fears or believe that you can ignore your fears while trading, these very beliefs will betray you in your trading. In the example below, a trader has built a large-and-in-charge attitude to mask the face of his fear. He deceives himself (for a while), but not his trading account. Have you ever experienced the fear of missing out and traded impulsively? How much has it cost you? The Fear of Missing Out Getting Control of Impulse Trading “Just a little bit more, just a little bit more – I can milk this one!” whispered Mitchell under his breath. He could feel his excitement build as the trade kept trending upward. “Move your exit point higher – this one’s a homerun,” a thought inside his mind encouraged him. And why not, this one had all the signs of a big one. Mitchell did not like letting the big one, the ones with potential beyond what his trading plan called for, to get away. Instead of taking smaller profits on any of his positions after the first ping, he decided to move his exit and let this one ride. “Another one like this might not come along again in quite awhile,” Mitchell silently reminded himself. The trend continued and he was ready to grab all the profit that it seemed to be offering. He felt energized, his confidence grew – and that confidence began to blind him. Pushing aside his risk management rules because he did not want to miss out on this great opportunity, his trading plan parameters got pushed out of his awareness. The exhilaration of hooking and riding a big one blinded him to the down side of managing risk. In the clutches of greed, he did not notice the historical trend in this trade – it would drop like a brick suddenly. Having abandoned his stops to ride this trade, the deception in his mind caused him to fall hard. Another draw down. Later that day, as he was reviewing his trades, Mitchell was puzzled. Stroking his chin he was chagrined. He pondered, “What happened? I know better than this. I have no idea why I behaved this way. I started out with the intention of trading my plan, and, somewhere along the way, I got sidetracked and forgot about everything I know. It’s like I fell into a trance and my evil twin started trading.” He chuckled to himself because he had no other explanation. It was confounding to him. He was smart enough, skilled enough, and confident enough to trade well. But there he was, getting into trades that were not the right set ups and then his good sense disappeared like dust in the wind. What Happened to Reason? The fear of missing out urges you to push aside risk management tools that keep a trade within acceptable low risk parameters. The temptation is real. Instead of hitting a safe single or double on a trade, the allure of hitting a homerun or hitting the jack pot (with just a little luck) sweeps good sense off the psychological playing field and leaves the enticement of greed whispering in your ear. Real time temptation. Why not swing for the fences? It feels great when you take all the money on the table. And you get to feel powerful. You get to feel like the hero in a movie. Occasionally when you move your stops and exits, you do win. You also move your trading into the arena of gambling – not risk management. Actuarially a casino knows the odds much better than the gambler – and they are sticking to their trading plan for the gambler. On a few occasions the gambler does win and experiences the thrill of winning the jackpot like a drug. Then he is hooked, much like our friend Mitchell is in the vignette above. What the casino knows is that the gambler will ride his euphoria and never see that the odds are stacked against him. He, like the trader, becomes entranced by the chance of hitting it big. As the greed kicks in, it takes over reason. Once under the ether, the trader becomes mindless and sees only through the eyes of greed. This is what happened to Mitchell. And he wins some – at least on paper. He starts out with the intention of trading to plan. But he is seduced by the allure of greed. Soon, any semblance of an impartial, disciplined state of mind is eroded. Gambler and trader have already lost at this point. Psychological management is really this important. Ultimately he gives back his earnings (and then some) to the house. The casino is playing by the rules of risk management while the gambler sacrifices his sensibility to greed – the house wins consistently and the gambler, though he has a couple of great thrills, loses consistently. Trading in a market can be done from a position of impartial and disciplined risk management (which is what the house is doing) and a trader can win consistently. Or a trader can be sucked in by his fear of missing out of big money and get corrupted by his greed – which is what the gambler does. The only difference is that the casino wins consistently and predictably over time, while the gambler wins sometimes (in the short term). But he gives back his gains and loses capital over time. Greed and fear of missing out, from an evolutionary survival perspective, is a very useful emotion. It pushed our ancestors to consume more than they needed NOW so that they would have the resources to survive in leaner times. Acquiring food on a regular basis could not be depended on. Nor was there an assurance of other supplies needed to survive. So, over countless generations, the capacity for greed was bred into the human genome. At some moment in our biological history, humans developed a psychological self – and this is where greed and fear of missing out got disconnected from their biological roots. Suddenly humans were not only putting on fat for the winter and putting away supplies for leaner times (survival motivations), they were putting away money for a rainy day. Eventually the power to survive and prevail became associated with money. By accumulating money we find external validation for our sense of power, our mattering, our importance, and for our power In trading, if this fear is not recognized and managed, it will blow up your trades and trading account. You have to build the psychological strength and discipline to resist it. In the case presented above, Mitchell does go on to develop the internal strengths to resist the temptations of striking it rich quickly and the euphoric rush that takes over the mind of a trader sucked into a mindset controlled by greed. He had to work on it and re-organize the way he understood success to accomplish this victory. By doing so, he actually achieved the success in the longer term that his greed promised in the short term. This is a classic internal war where a biologically based emotion outlives its usefulness when it takes over psychologically the state of mind of the trader. Untethering Your Sense of Identity from Your Historical Dialog What you are afraid of, owns you. Your fears cloud your thinking and color your perception of circumstance. No where is this more important than in trading. Your historical internal dialog (all those thoughts running around in your head) exposes these very fears – the fears that limit your capacity to trade at a higher level. Go back to the vignette with Mitchell and see if you can spot his internal dialog. It is easy to see how his thinking, so dominated by his greed, set him up for failure. This kind of thinking is not a given. It was his mindlessness of his internal dialog that blinded him to its impact on his trading. This was far more than idle chatter or internal noise in his mind – it was a set up for failure. Without discipline and knowledge of these unseen forces at work in his mind, he is led to slaughter. It is his lack of awareness of the power of the internal dialog that set him up. Unlike your capacity to hide from your insecurities in most of the other domains of your life, trading cuts to the very core of your being – there is no place to hide. Trading exposes the internal dialog that comes forth from your fears. Becoming Mindful of your internal dialog during trading will show you the very fears that you must conquer to become a consistently profitable trader. When you are able to separate your thoughts from your sense of identity, becoming an observer to your interior conversations takes on a different nature. You move from avoiding acknowledging the existence of hidden parts of yourself to becoming a detective solving the mystery of your capacity to trade. You become the author of the story of trading in which you are a participant. And you realize that the character who has been trading is flawed, and you (and only you) are going to have to redevelop the character as a peak performance trader. In developing the capacity to slow the body and mind down so that you can become mindful of the composition of your Internal Dialog, you learn to use the internal dialog to become aware of what you have been hiding from yourself. It is through this practice of mindful introspection that you develop yourself as a trader. You will discover that there is far more to develop within your mind that you ever expected. The tiny discomfort you experience when you begin to be honest with yourself and confronting self limiting beliefs gives way to something new. That something new is the re-invention of the self. There is so much empowerment to be discovered and developed. The historical dialog has blinded you to possibility. Now, with the blinders of fear removed, you are now going to explore how to bring forth the empowered self in your trading. In the next chapter you will be exploring instinctual potentials living within you that have been held hostage by your fears. Now you will learn how to name these elements of self that will empower you to zone into peak performance trading. Rande Howell
  6. This is a new excerpt from my forthcoming book: Mastering Trading Psychology. It is focused on another common fear that limits the capacity of a trader to develop his or her full potential. The set up was there; all Jim had to do now was pull the trigger. His hand hesitated as he felt the clamminess in his finger tapping the key. Jim held his breath. A cacophony of strident thoughts erupted in his mind as his gut tightened. A battle was going on in his mind. “You’re going to lose. What if you lose? You can’t win. Who told you that you could trade? You need to find a safer way to make money.” The battle in Jim’s mind raged on – his hand frozen, his gut in turmoil. This was a battle he went through every day. And it was taking its toll on Jim. He feared pulling the trigger because he feared losing. In his logical mind he knew that traders always lose a percentage of their trades, but Jim could not shake the sense of catastrophe that would happen if he did lose. He did not like admitting this to anyone, but he was trapped by his fear of losing. He grew frantic. “Just pull the trigger so it’ll be over,” commanded a thought in his head, “You’ll feel better.” Jim held his breath in anticipation and pulled the trigger on the trade just to escape the tension. What a relief! He could feel the tension drain from his hands and chest. Then the price took a nose dive. He stopped out. Then his growing sense of despair engulfed him, “What are you doing to yourself? Trading is killing you. Why don’t you give up?”, echoed in his mind. _________________________ Coming Face to Face With Your Self Doubt This is one of the most common fears that traders experience. A trader’s entire dramatic relationship with fear and future possibility are rapped up in his fear to pull the trigger on a trade. It is literally the moment of truth about whether you are emotionally stable enough to be trading at a particular moment in time. And like Jim in the vignette above, it is a time when fear crushes the possibility for a trader to be in a calm, disciplined, and impartial state of mind. It is also one that illuminates the inter-connectedness of body and mind. You can literally experience the body and the mind seized by fear. In this vignette taken from real life, the trader’s hand is frozen, and he cannot pull the trigger. Has this ever happened to you? Simultaneously, his mind is plagued by self doubt. Fear has seized the body/mind of Jim – just as it does for many traders. And here we see the closing of possibility for successful trading. Why? Jim’s fear has set up the expectation of loss in his mind. Now the awareness in his mind is focused on loss if he acts. He is literally caught in a catch-22 of his own making. Unfortunately we generally find what we are looking for – or at least what the attention of the mind is focused on. The fear sets up the state of mind, and the state of mind “sees” what is possible based on the force of the emotional state. The mind on fear sees loss which is exactly what happens in Jim’s case – and in many traders’ cases. Fear restricts the possibility that the trader can see. If he were in a calmer more disciplined emotional state, a very different range of possibilities would have been possible. But, locked into a state of mind rooted in fear, he loses his capacity to assess impartially the quality of his set ups. He became the bucking horse in a burning barn. Reacting instinctively, the horse is trying to defend itself from a source of threat – only to be devoured by it. Jim, like the horse, ultimately jumped into a trade impulsively simply to escape his fear. Managing Fear Managing this fear so that it does not hijack the impartial state of mind and the courage to act within the risk management guidelines of a trader’s methodology is a novel idea. Gut level fear is not something that can be talked away or ignored. There is no leaving your emotions at the door in trading – no matter how appealing the concept. But the capacity to manage the fear so that it does not sweep you into reactive patterns can be taught. When trading is simulated, this fear stays in the background of your awareness because there is no possibility of real loss. However, the moment your money is at risk, (and you will most definitely lose money and take draw downs on a percentage of your trades) the primitive emotion that the fear of loss is rooted into stampedes your rational mind. And just like in Jim’s example from above, the rational, left-brained (and well trained) mind of the trader is swept away in a flood of self doubt. To the emotional brain the fear of loss associated with pulling the trigger springs forth from the deeper, darker emotion – the fear of death. The emotional brain simply cannot discern the difference. Threat is threat. And loss is interpreted as a threat by this primitive, emotionally driven, part of our brain and mind. Until its power to hijack the rational, impartial thinking required for successful trading is managed, an anxious state of mind sabotages knowledge every time. Add to this our culture’s obsession with winning as a measure of our worth and importance as a human being. This creates a psychological pressure to perform to a set of expectations that are not realistic, or needed, for success. If you stay mindless to this pressure, you get stuck in the fearful pattern in which our friend Jim is embedded. Regulating the instinctive aspect of this fear of loss is essential. It is by calming down the power of this fear to freeze us from taking calculated risks that we gain access to the state of mind that accepts risk and loss as part of trading. It is this mindset that allows us to stack the risk so that it favors the probability of winning more times than losing. Beyond Calming the Body and Mind When the body and mind are calmed, your capacity to trade from an impartial state of mind becomes possible. Accessing this state of mind that self soothing skill sets requires re-learning how to breathe as a first step. It is your breath that either accelerates the fear that seizes the mind or regulates the emotional state so that you can trade from a calm state of mind. Beyond that though, after the body and mind are calmed, you can access the very emotional intelligence that leads to peak performance states of mind for trading. In the managed calmness, you can learn to call up the impartiality, discipline, patience, and courage required to trade consistently. Calming the emotion is the gateway for building these essential skills. Rande Howell
  7. Your major focus in trading should the softer side of trading, the business and psychological side of it; the harder side which relates more to the technical side is a secondary thought, however in this article I am combining the two because one of my favourite patterns is an ideal pattern for the impatient trader who does not like to hold on to trades for too long. Impatience is not a good trait to have in the markets when trading or investing. It breeds laziness when it comes to research, planning and analysis, it causes some to exit trades too early, and it causes other’s to constantly monitor their positions. To add to this, trades that linger on can incur costs such as time premium erosion for options traders, and interest costs for CFD traders or stock traders using margin, to name a couple. Weaknesses are a part of human nature; your job is to ‘manage’ them, not to try and eliminate them or even turn them into strengths. We were brought up to take our weaknesses and try and turn them into strengths which I believe is the wrong approach. Build on your strengths and manage your weaknesses is the best motto I ever heard. Some traders who don’t like to be in trades for too long will use an exit strategy that will force them out of the trade if the particular stock or market consolidates and moves sideways for a few days, which is a good strategy. Let’s look at an entry technique which is the trading pattern for the impatient trader. This pattern signals a turning of the market. It does not necessarily signal a top or bottom, it will sometimes just signal a correction, either way; it tells you that a swift and sharp move the other way is imminent, and usually enough to give a good reward to risk. The emphasis here is ‘swift and sharp’, because this is what the impatient trader is looking for. The pattern unfolds in 5 waves with the highs and lows of the waves overlapping each other to the point where the 5th wave ends in a spike. Here is a diagram showing what to expect at the end of a run up, and the end of a run down. This is what you need to see and how to trade it: 1. You join the highs of wave 1 and 3 together, and the lows of wave 2 and 4 together if in an up market, and these lines need to converge [or lows of waves 1 and 3, and highs of waves 2 and 4 if in a down market]. 2. You want the high of wave 5 to break the upper line and spike [low of wave 5 to break lower line and spike]. 3. The break of the lower line is your entry [the break of upper line is your entry]. 4. Your stop goes on the other side of the 5th wave. 5. You want your exit or your first profit target to be within the range between the low of wave 1 and wave 2. 6. You shouldn’t take the trade if this range does not offer you at least a reward to risk ratio of 1:1, however this is obviously a personal choice This is an example that occurred on the SP500 index in July 2008 on a 30 minute chart. Elliott Wave users will be familiar with this pattern, known as an ending, leading and 5th wave diagonal; others may know it as three drives pattern, and others may just say it’s a wedge pattern. The point I wanted to make in this article, so as to benefit you is that when these patterns occur they produce swift and sharp moves and this is an obvious benefit to those who don’t like spending too much time in the markets, whether it’s due to being impatient or because of trading instruments that are time sensitive. Dean Whittingham
  8. "Dale grew up in a hard working farm family in Arkansas. His parents, while growing up during the Great Depression, had nearly lost their farm. That experience really changed them. They hoarded what little money they had and came to believe bad things can happen if you can’t be certain about the future. And Dale was born into this legacy. Leaving the farm for greater opportunity, Dale became a banker in a trust department of a bank where he protected the value of assets placed under his care. He was a natural at his job of maintaining certainty in the face of threats to his clients' capital. As time went on, the bank was gobbled up and Dale was fed up. In a career change, he moved into day trading. He learned a proven methodology to control risk well and was prepared to trade. What he was not prepared for over the next several years was the hesitation and anxiety he experienced, and could not overcome, when he risked capital." ________________________________________ The brain, memory, pattern, and the unconscious mind make unlikely partners to your trading methodology. Like Dale in the case study above, after investing a number of years learning and tweaking a methodology that should provide an edge, traders often discover that something is still missing that limits their success. It’s not their methodology, they conclude – it’s them. Though they strive for success, they keep falling into the same self-limiting patterns over and over again. No matter what they try, who they train with, or who they listen to – they stay stuck and they do not know why. If they want to make money and are willing to invest the time and energy into learning, you would think that they would achieve their goal, even only by perseverance. It is as if something seizes control of their mind and their capacity to dispassionately trade their plan is hijacked. After the smoke clears, and they come to their right mind, most traders feel as if their bodies and minds were kidnapped by unseen forces. If you have ever thought this – you are not alone. What Really Drives Your Perception of Money In a capitalistic culture such as ours, our sense of personal worth, adequacy, meaning, and power get woven into our perception of money. As an example, a trader (who has not been successful for several years) is at a cocktail party. He strikes up a general conversation with an unfamiliar man. And the man asks, “What do you do?” Right there, the trader’s identity is tied to trading. The next question is, “Can you really make money at trading?” Though the trader has yet to be able to support his family on his earnings from trading, he answers, “Yes.” Then the trader proceeds to create a fiction that paints a rosy picture of his life as a trader. Actually the trader feels shame erupt and he feels “less than”, so he lies to cover up his embarrassment. The trader’s notion of being a successful human being and his sense of mattering in the world is so tied up to how much money he should be making that he finds himself lying. His worth, his importance, and his social standing are tied up in his relationship to money. Money has become the yardstick by which he measures his value as a human being. And as long as his perception of money is the measuring unit by which he gauges his worth, he will continue to struggle with finding success in trading. External validation by performance in trading becomes the judge of his character. His ability to make money in trading moves from competency of performance in a certain domain (where mistakes point out where he needs to learn in order to become better) to judgment of his worth as a human being. Where does this come from? We Are Born Into a Money Script Go back to the case study of Dale. Dale is born into a certain history and his brain adapts him to the conditions of that environment. His parents had been devastated financially by the Great Depression. Life had become very uncertain for his family’s financial survival. They were scared that they would not have enough money to put food on the table and a roof over their heads. Money was scarce, and they could not afford to lose anymore. This was the mantra by which they lived. Like many of their generation, they became savers and avoided risk at almost all costs. They were risk-averse and had developed a way of seeing the world as a dangerous place where things that could go wrong - and did, in fact, go wrong. This became their mindset. And it governed the way they saw life. Their mindset for managing the uncertainty of life was that of a victim of circumstance beyond their control. And into this mindset their son Dale arrived. He was born into this perceptual amalgam of risk, money, inadequacy, powerlessness, and possibility. His brain adapted him to this circumstance. No one noticed that this way of seeing the world had taken over their perception. It was like water to a fish. It was a set of assumptions that had become so familiar, so true, that they were never questioned. And these assumptions of risk, capital, power, and worth became woven into the neuro-circuitry of Dale’s brain and mind – and became his beliefs. This is the money narrative. The Money Narrative All Grown Up Like many people who eventually become traders, Dale grew up and came to trading as a second career. He, like other traders, physically left home and never realized that he was taking the money narrative rooted in this history with him into his adulthood (think about the first career he drifted into). And into his trading. Most traders, just like our friend Dale, have never questioned their beliefs about money – the money narrative. Understand, you do not have a money narrative – rather, a money narrative has you. It is not yours – you belong to it. In particular, traders rarely ask themselves, “What is money to me? What does money mean to me? And where do these beliefs about money come from?” Money will form a certain symbolic representation that connects your sense of power/powerlessness, your sense of adequacy/inadequacy, your sense of mattering/not mattering, and your sense of personal worth/worthlessness into your personal money narrative. And all at the pulling of the trigger where capital is put at risk. In Dale’s example money was connected to his sense of power/powerlessness and to his sense of adequacy/inadequacy. He had avoided confronting these carefully hidden self-limiting beliefs about himself until he started trading. He came face to face with this money narrative (what money and risk means) every time he attempted to pull the trigger on a trade. His money conversation of losing everything and being powerless (that he was born into and adapted to without his knowledge or consent) came rushing into the forefront of his awareness like a ton of bricks every time he attempted to pull the trigger. By becoming aware of this hidden money narrative, he began to alter it. The biggest problem with traders is when they resist acknowledging the presence of the power of their personal money narrative. Most traders are not so fortunate as to be born into a thriving money narrative that balances capital with risk management. Most grow up in families that attempt to avoid uncertainty and risk by not making mistakes. Yet, a money narrative that incorporates management of the risk of uncertainty is vital to successful trading. Finding the Hidden Money Narrative What’s your historical money narrative? One of the most effective ways of discovering the assumptions that have become self limiting beliefs that drive your trading is to ask two simple questions: First - what personal assessments, criticisms, and judgments do you have when you beat yourself up after a loss? This will tell you how your worth, mattering, power, and sense of adequacy is connected to money. Second - observe your personal assessments of yourself when you are on the winning end of a trade. Notice how your performance becomes a yardstick to measure your worth, your sense of value as a human being, or your personal sense of power. Money has become a symbolic representation of who you are. (Confusing net worth with self worth.) The problem is that this narrative has you, you belong to it – and you are its captive. Enormous freedom becomes possible as you learn to be mindful of your financial narrative. It no longer has to control the way you connect money, performance, value, and adequacy as you begin to de-construct the narrative to which you were born. The most powerful part is that at this moment, you can begin constructing a much more empowering narrative about money, worth, meaning, power, and possibility. And your trading just becomes a performance to assess and improve, rather than a judgment of your being. Rande Howell
  9. by J .Rande Howell http://www.tradersstateofmind.com ___________________________ “I have finally concluded that the reason my trading is not progressing is because of what is going on in my head, and nothing at all with what is happening in the markets.” AS, Dallas TX ________________________ What Keeps You Stuck in Trading Purgatory? After a number of years of training yourself to trade, most traders find themselves stuck in the same predicament as the above trader. Inconsistent results follow no matter how much their trading system is tweaked or changed to create external discipline. Finally the trader comes to the uncomfortable conclusion that the problem is not in their methodology, their system, or the markets (these all work well in simulation) – the problem is in the 5 inches between their ears. Traders read about expert traders who seem to be born with the right attributes for trading. These expert traders trade dispassionately with a powerful discipline that allows them to park their emotions at the door. And students of trading, who read about these characteristics of successful traders, often try to emulate the emotional control and state of mind they read about. They, like Dorothy in the Wizard of Oz, click their heels and magically imagine themselves to have the “right” emotional and mental traits. They may even watch a trader psychology DVD, listen to a guided meditation, mess around with their brain waves, or learn some NLP tricks in hopes of an easy fix. Try as they might though, the emotional roller coaster ride of their trading persists. The mistake the student of trading makes is that they compare themselves with these rare people who are born with a genetic predisposition and emotional temperament that is well suited for trading. Though they are rare, many aspiring traders set these off-the-shelf exceptional traders up as the psychological model for their trading. The problem is these rarified traders come equipped with a very different emotional and mental predisposition than the vast majority of people who enter trading. Individuals may come equipped with a certain genetic inheritance that, under the right conditions, are expressed in such a way that it gives a person an advantage in certain domains. Taken to an extreme, you also see this genetic engineering in breeding dogs for certain traits. This kind of genetic engineering is simply not possible in humans. This does not mean that trait selection is not used to enhance performance though. Though humans are far more complex, the Russian and Chinese have used trait expression to steer young people with athletic promise to great advantage. And some traders win the genetic trait lottery for trading. The vast majority do not. They have to learn to develop a psychology built for trading. Nature vs. Nurture No matter how much they read about what the mind is supposed to look like to trade well, little is spoken about how the trader goes about building the very emotional and mental skills and attitudes necessary for successful trading. Just because nature did not equip you with the “right stuff” for your trading mind does not mean that you can not nurture your psychology so that you build the state of mind needed to successfully execute your methodology. Nurture is far more importance in developing a mindset than nature. Nature may give potential, but it is the individual that must develop that potential in order for it to become a talent. This means, even if you did not win the gene pool lottery, you can train your emotional and mental predisposition to your advantage in trading. Problematic emotional biases about money, worth, risk, and uncertainty are genetically handed down from one generation to the next. They are not deterministic traits. They are learned patterns that become wired into your brain/mind as habits. It's not genetics, but it is adaptation to circumstance. This is how the money narrative to which you adapted shows up in your trading. It is transmitted through the generations and your brain’s adaptation to circumstance. And fear-based habits and beliefs can be de-constructed and re-organized into a much more trader-friendly perceptual map. Deconstructing the Fusion of Uncertainty and Worry Most of us grew up in environments that exerted pressure on our developing brain that organized us to "not make mistakes" and to focus on certainty rather than the management of ambiguity. It is from this constantly adapting brain that our “mind”, the way we interpret reality, emerges. For the vast majority of traders, by the time that a brain has approached maturity it is biased to seek certainty and avoid uncertainty. This is simply a biological bias of the human brain that has been amplified by what we are taught about risk and uncertainty. This is an organization of the mind that is not going to work well in trading. That particular adaptation can work well in other domains, but not in trading, where the emphasis is on embracing the management of uncertainty and risk. Your brain fused uncertainty and the fear of death into a single construct (very appropriate for physical survival in a dangerous world), but was never prepared for trading markets. This particular organization of our perceptual map has to be de-constructed, de-fused, and re-organized from a fear-based interpretation of uncertainty to a probability and risk management based perception of uncertainty. This is the mindset that works in trading. The problem is that the uncertainty/fear construct has become the historical narrative that guides your perception of the markets. It is at this point that the assumptions about fear and risk to which your brain adapted you become embedded as unexamined self-limiting beliefs. They sink into the background of your awareness and contaminate effective perception without your ever knowing it. Out of Theory and Into the Trading Room What does all this theory look like in trading? Let’s take a look. Jim is a trader who is literally a rocket scientist. He has a deep working knowledge of computer systems, aeronautics, and mechanical engineering – and now he is an attorney who practices intellectual property law. In simulation his trading reflects the clear thinking and impartial state of mind that you would expect out of a person with this kind of training and experience. However, when he trades and risk enters the picture he does not “see” all of the options and patterns that are reflected in his charts and indicators. His training is highly biased towards certainty (remember people’s lives and expensive equipment were at stake based on his calculations) rather than the management of risk and uncertainty. He was trained that losing was not an option. This training became habitual and went into the background of his awareness. Now it is an unexamined bias that colors the perceptual world he sees. (Uncertainty = Fear of being wrong.) This assumption that uncertainty must be eliminated, now a belief embedded in the neuro-circuitry of his brain, became the unexamined belief (or historical narrative) that he brought with him into trading. This belief was highly effective for him both as a rocket scientist and as a patent attorney where a high value was placed on certainty. However this same thinking, so successful in one domain, was producing near panic for him while he was in a trade. As a result, he got out of trades too soon and he took his profits too quickly – long before he reached his target. Once in a trade, nothing was certain. Managing the trade was an exercise in the management of uncertainty in terms of probability rather than certainty. Uncertainty, still fused to fear, triggered and his rational and clear thinking mind was contaminated by fear. From this fear-based state of mind, options that would have appeared to him while in an impartial state of mind were swept away and replaced by the negative anticipation of worry. This is the impact of your historical narrative on your trading. And, of course, when the trading day is over and he reviews his trades, he cannot comprehend why he missed so many signals and patterns. All he knows is that, yet again, he made bad trading decisions resulting in more draw-downs. Changing the Historical Narrative of Uncertainty and Fear into Probability Like the trader quoted at the start of this article, most traders come to realize that their historical narrative, now embedded in their neuro-circuitry of belief, is what has to be changed. There are no tricks or magic bullets. Most traders muddle through years of desensitization (of their fears and self limiting beliefs) before finding consistent success in trading. This process rewires beliefs about self and uncertainty that eventually open the possibility of trading on a new level. Fortunately, this re-organization of the trader’s mind can become more streamlined when we begin to understand how meaning is organized in the brain/mind. There is no single organization of the self. There is no final “me” “Me” is simply the current organization of self beliefs that you hold as true. We do not see reality, we see shadows cast -- and there is always an observer interpreting what it is experiencing. Traders come to hold certain assumptions about the market. Some of these assumptions have been worked out and have become an effective way of dancing with the market. Yet, the market does not care what assumptions you attempt to place on it, nor does it have awareness of the "truths" placed upon it by men. Before traders recognize that they are the problem, they usually have traded for a number of years and are successful in simulated trading. They know HOW to trade a methodology that works in a classroom. It is when risk of capital is put in play that their "truths" about the market are challenged. It is at this point that the trader is not separating uncertainty from worry or fear. This situation is highly trainable. The assumptions of self that have become hardwired as self-limiting beliefs (their unexamined truths) are not failing because they don't know how to trade, but because they are not trained to operate in an environment of uncertainty. They will have to re-organize their beliefs about operating in an environment of uncertainty and their skill to manage it, which can be accomplished if the trader accepts full responsibility for the outcome. Fundamentally, traders need to learn a set of skills and tools by which they do brain surgery on their belief system. Trading becomes a great place to see "up front and close" the trader's beliefs about self in action. There is no hiding from the "truth" as it has been organized within the self. Yet most find that their "truths" are only unexamined assumptions about the world that drive their perception. It is at this moment that the assumptions behind the self limiting beliefs can be observed and re-constructed. Building your beliefs into managing risk rather than avoiding risk is then possible. Anxiety at this point can be regulated and listened to, not from an avoidant observer, but from a disciplined and impartial observer - with very different outcomes. The "truth" they see allows them to be present in their trading very differently. The gap between simulated trading and live trading narrows as they train their state of mind to embrace uncertainty from a perspective of discipline, patience, courage, and impartiality. A far cry from the anxious state of mind that had them hesitating or trading impulsively as fear swept their thinking capacity away. Very few brain/minds have been shaped to trade well. Getting to the impartiality and discipline necessary for trading is like trying to tell a horse in a burning barn to remain calm and simply walk out of the barn by carefully considering its options. Fortunately, belief can be changed. It begins with learning emotional regulation skills so that fear and greed do not sweep away your capacity to think from a disciplined and impartial state of mind. Then the trader must begin really examining themselves. This is done by developing the capacity to become mindful. Mindfulness, in essence, is the capacity to observe the coming and going of thought and to recognize that thought is not who you are. Thoughts, through the observation of mindfulness, become the voices of your beliefs that drive your trading. This is where the door to change opens. The observer that we bring to uncertainty is what allows the trader to see what they see. A really good trader, as a trained observer of market phenomena, is seeing distinctions through his skill and an impartial mindset that a fear-based trader does not see, much like the rocket scientist turned trader was experiencing...very different observers of uncertainty with very different outcomes. There is a great Zen koan that goes like this. “Things are not always what they seem to be -- nor are they any other way.” Becoming Architect of the Self that Trades Applying mindfulness as a tool to your trading allows you to bring the self limiting beliefs that sabotage your trading into your awareness where they can be worked with. Instead of drifting on the currents of unseen self-limiting beliefs that limit the way you manage uncertainty and risk, you become the architect of the narrative you bring to trading. Uncertainty becomes decoupled from worry and fear. And you develop inner resources that allow you to bring forth into your awareness the discipline, patience, courage, and impartiality that live as possibilities in the totality of your being. In the face of uncertainty, you no longer have to be compelled by your fears to produce inconsistent results. Instead, you bring a state of mind to the uncertainty that creates the probability of successful trading. Trading is a journey into the possibility of who you can be. The “you” that you brought to trading is rarely the “you” that will bring you success in trading. Emotional regulation and mindfulness are the cornerstones of re-organizing the “self” that trades. It is your passion that gives you the motivation to learn and use these tools to become who you need to be for consistently successful trading.
  10. “We create the possibility of our future based on the way we interpret our world. Becoming a new observer of our world opens the door to new ways of being in the world.” Between the Crosshairs of Emotion and Trading Hesitation gripped Jack’s tensed hand. He couldn’t decide when to enter this trade. His trading plan said he had really gone past the entry point he should have taken. But he had hesitated – what if he was wrong? He decided to wait and track it just a little longer – just to be safe. This was the story of his trading life – waiting on the sideline frozen by his fear of uncertainty. “If I stay on the sideline, I’ll be safe,” he consoled himself. He watched the price go higher and higher. Still he hesitated. Ex-banker that he was – he wanted to be sure. But as he hesitated on the sideline pondering this trade, Jack also began to fear he was missing out on a profitable trade – he wanted in. He felt the urgency build. “Just a little more proof”, his tentative side whispered in his ear. “Get in this trade before it’s too late!” urged another impulse, “Sitting on the sideline isn’t getting you anywhere. You’ve got to get in to win.” This internal struggle in Jack’s mind escalated. Finally, to prove he had the courage to face his fears, he jumped in. The impulse to get in on the trade finally trumped his fear of uncertainty. In a matter of moments, however, the price began to tank and hit his stop. Because of his hesitation, Jack bought beyond the higher end of his entry range. He had missed the opportunity of profit. Instead, he took a small loss. Hesitation was fatal. Why Jack Can’t Trade An emotional roller coaster ride is not what Jack imagined trading was going to be like. Before he started investing in trader training, he studied the opportunity. With his deep institutional investing experience, Jack reasoned active trading was a skill set that he could learn and develop successfully. It was going to require practice and training – he was prepared for that. What he was not prepared for, however, was the role emotions play in trading – and the need to manage them. None of this was mentioned, or he did not hear it, before he committed himself to learning how to trade. No one told him that 90% of trading was in his head – putting himself literally on the line really fired up his stress level. After investing in a solid trading system and training to develop a methodology and trading plan, he was finding that he had a difficult time sticking to and executing his trading plan. And, it was the moment that he moved from simulation trading to having his money in the game that things changed. After all, this was his money he was risking now! In this new world, he seemed to be pulled emotionally in various directions at once. Fear and self doubt collided with a child-like impulsivity that left Jack stressed out and making poor trading decisions. Jack had spent a lifetime pushing emotions away like a nuisance. Now he felt emotional chaos and did not know how to get it under control. Whether it was getting into a trade or getting out of a trade, Jack was often confounded by a mixture of self doubt fueled by his fear of uncertainty or impulsiveness egged on by his fear of missing out. Caught in the crosshairs of these two emotional positions, his winning percentage was dismal. What he knew is that if he did not get a handle on his emotional nature soon, his trading account was not going to survive his learning curve. Thinking Hijacked by Fear A trader’s emotional state determines how he will interpret the market and what he sees as possible in the market. This is because all thinking is emotional state dependent. What does this mean for the trader? Everything – because we trade our psychology. And emotion drives psychology. In the example above, Jack was being pulled in different directions by competing fears. Initially his thinking was contaminated by a fear of uncertainty that kept him tentatively on the sidelines of trading. As he sat out watching the price climb, a fear of missing out on a profitable trade fueled an impulsive entry into a trade. And with no understanding of how to manage them, he sabotaged his trading plan and himself. Without a capacity to manage his emotional states, Jack’s thinking historically fell into self doubt and caution. When he was in the corporate world, this was never a problem. He was always able to steer clear of having to deal with the messiness of having to deal with emotions. In business, there was little need for introspection and he could always hold other peoples’ behavior responsible for the way he felt. It did not work this way in trading. There was no one responsible for his trading but Jack. In taking full responsibility for his trading successes and failures, he discovered that he had developed a habit of avoiding emotional discomfort. The breakdown for Jack, and many traders, is that there is no room to avoid the fears and self doubt in trading. They had to be dealt with head on – a talent he had never developed. Its time had come. Distinguishing Biological Fear from Psychological Discomfort To help him identify and resolve issues that affected his trading performance, Jack found a trading coach. By taking responsibility for his profitability, Jack came to recognize that he could develop himself into the trader he needed to be. The first thing that he learned to do was to separate biological fear from psychological discomfort. This is critical. The brain cannot distinguish between a real threat to life and psychological distress. Jack’s biological fight-or-flight system had been triggering him to avoid risk because the body interprets all risk as a threat to life. His brain’s hardwired motivation to avoid uncertainty (biological risk) put Jack on the sideline. But risking capital is not a biological threat – it does produce psychological discomfort though. When we are faced with the trials and tribulations found in life (particularly trading), our motivation needs to shift from avoidance of the threat for short term gain (biological fear) to approaching the source of the discomfort (it is not going to kill and eat us) in an emotional state of calmness, curiosity, and impartialness. It is in these emotional states that we become capable of long term problem solving. By learning how to calm his body and mind down so that fear did not sweep his thinking into negative appraisal and catastrophic thinking, Jack was able to learn how to take biological fear (and its avoidance motivation) off line before it swept him into reactive behavior. And he was able to replace it with the confidence of a risk manager. A risk manager knows that there will be losses – but there will also be a higher ratio of gains. His job was to reasonably manage risk over a larger number of trades. He had to develop a longer term view rather than a biologically driven, emotional, and short-term knee-jerk reaction to risk. Before, Jack placed life or death significance on each and every trade. With training he was using his psychological discomfort as a reminder that he needed to trade from a calm and impartial state of mind. His ability to take a step back from his automatic fear response into a calm state of mind allowed him to develop the qualities of a successful trader. Freed from habitual triggering to fear and dread allowed him to access inner resources within himself. By cultivating these aspects of his psychology, Jack developed his inner game of trading to a new level. Creating and Managing Peak Performance States of Mind He now mentally rehearsed his trading day, rather than just allowing it to hit him with full force. He used breathing and relaxation to calm his body and mind so that accessing calmness, discipline, patience, courage, and impartialness became a possibility – he achieved emotional state management. And with a disciplined daily practice of keeping the body and mind calm and mental rehearsal of calm assertive states of mind, he was prepared for the trading day. His inner game was in the zone. Developing this part of his inner game of trading led him deeper into his ability to manage his emotions and his states of mind – and it positively impacted many other areas of his life. He had come a long way from being stuck on the sidelines by his fear of uncertainty and then impulsively entering trades out of a fear of missing out. Jack’s decision to take responsibility for his states of mind and to learn to manage them created a very different trader. As a result a very different psychology of the self was deciding when to enter and exit trades – calm, relaxed, impartial states of mind rather states of mind rooted in fear. J. Rande Howell, MEd, LPC http://www.tradersstateofmind.com
  11. A Time for Self Reflection: Why do so many traders stay stuck in painful self limiting patterns rooted in fear and self doubt? It's not like your trading account will allow you to live in comfortable denial for long. Hold this question in your mind. The trader can see that what they are currently doing is not working. They acknowledge they need to do something about their fear-based trading - "they talk the talk" - but they, for some reason, can not push themselves into "walking the walk" of actually doing something about the power fear has over their trading. What's at work here? I asked a very successful trader and teacher this question, and his reply was: "Because the trader has not suffered enough pain." What!? I asked him to go on. "It takes tremendous pain for a trader to seek help and decide to change his ways. It was the same way for me. I'd been trading for 7 years before I finally cried out "UNCLE "- I've had enough and sought help for the psychology I was bringing to the trading room - I had blown out several large trading accounts, had declared personal bankruptcy, and was staring at my family starting to fall apart. That is what did it for me." "Until then, I had way too much pride to admit that I was the problem - not something outside of me. It just wasn't me I was destroying - it was my family. That was rock bottom for me. I couldn't allow that - the pain was just too great. Finally, I knew I had to do something. Avoiding my pain wasn't worth it anymore. It was just a short term fix anyway. The fear kept coming back. In getting beneath the hood of my mind, I found the courage, plus the skills and tools, to face what I had spent my entire life avoiding. I know now that my fear of not measuring up created a bigger than life personna that tried to protect me from feeling my wrong-headed sense of unworthiness. " "What's crazy is why it took me so long. I was really invested in "looking good". I much prefer who I am now than the trader I used to be. Losing is not longer a statement about me anymore. Anyone who trades professionally trains themselves to emotionally think in terms of having an edge in probabilies as they approach the uncertainty of a trade. Over time they are going to have more winners than losers and the winners will be much bigger than the losers. Calm, detached, confident, and humble. Losing or winning is no longer emotionaly charged. Confronting my fears allowed me to separate fear from uncertainty. This psychological freedom is what has allowed me to develop the trader I am today. But I had to experience pain beyond my threshold before I was willing to push through my denial and face the demons roaring like a hungry lion in my mind. Once did that, I wondered why it took me so long to do something so simple." What can you learn from this trader's journey into financial success and personal growth? What I want you to notice about this trader's story is how long he stayed in the denial that continued his march into pain. I also want you to notice the enormous pain he shouldered. What was the cost of his not acting to master his fear? Hundreds of thousands of dollars for sure. But you, as a trader, know the cost of not confronting and mastering your fear is much greater that dollars alone. It is the loss of your potential as a human being that is really robbed. The tragic part is that it is not the market that robs you. It is nothing outside of you. It is your fear that robs you of the potential that trading offers. This is what keeps the unsuccessful trader locked in the comfort zone of his self limiting beliefs. How do you or how have you broken out of this biologically-wired spell fear has entranced you? Where are you at in the evolution of the trader in you? Rande Howell
  12. You are invited to a free webinar where you will learn to name the fear that keeps you from peak performance trading. More than that, though, is that you will learn how you can conquer your fears that lock you into self limiting beliefs that manifest in your trading. If you know HOW to trade, but your emotions keep hijacking your discipline and impartiality needed to trade consistently, this one hour webinar will open your eyes to what stops you from achieving your potential. This webinar from Traders State of Mind is Monday, Dec. 7th at 8 PM EST. Click here for details and registration.
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