Master Yourself – Master Trading

Articles on Trader Psychology by Rande Howell, Trader Psychologist




Unlocking Your Potential

            Sooner or later traders discover they are the problem that haunts their trading.  Placing blame outside of the self simply keeps you powerless to create the change you seek.  And a deeper truth becomes apparent. Though trading knowledge is necessary, trading success is about emotional self-mastery.   When a trader truly owns that moment, the trader discovers that he/she is totally unprepared emotionally for the rigors of trading and continues to self-deceive himself into believing that success is just right around the corner - in a fix “out there”.  He has no idea what he is stepping into as he is seduced by the promises that trading can deliver – financial and personal freedom. 

            By not understanding their emotional nature, particularly what they bring into trading from their evolutionary psychology, traders continually run into a brick wall that is painted to look like a pathway to an achievable future.  But because of their self-serving confirmation bias (evolutionary psychology) they mistake the brick wall to be the pathway to the future over and over again.  This is the emotional self-deception that lies at the heart of trading failure.  And few master it because they do not know to look for it.  They look outside themselves for the answer, while the problem is hidden in plain sight right in front of them.  Instead they continue to bang their heads against the wall of their mindlessness until they bleed their capital dry.

            The success skills that you assumed you brought with you to trading will turn against you.  Those winning attitude skills that brought you considerable success in another profession, for some unknown reason seem to get you into trouble when applied to trading.  Even reason, that antidote to emotion, turns out to be emotionally motivated and works against you under the stress of dealing with uncertainty and money on the line.  In truth, the Thinking Brain rationalizes (does not reason) whatever the Emotional Brain has already decided.  It’s called motivated reasoning.  While you believe with all your mind that you are reasoning (without emotion), you are actually rationalizing your emotional response to uncertainty based on the beliefs that you project onto the markets. Those beliefs, out of the awareness of the Thinking Brain, cause you to twist facts so they appear to be logical when they are not.  Instead, they are emotionally driven reactions designed for short-term survival to suit hardwired survival instinct-based emotional programs rather than the higher thinking required for probability-based thinking. 

            Here are some examples of this twisted logic.  The desire to win (that served you so well in the past) causes you to over trade and then revenge trade (trying to get back what you lost when trying hard to win).  At the time of doing it (of being hijacked emotionally) your actions made perfect sense – if you understand that this was a case of motivated reasoning.  The motivation to not lose keeps you out of trades that in hindsight were good valid set-ups. And this leaves you on the sidelines with a growing urgency to get back in.  Can you hear the logic, or the second guessing, that kept you out of the trade in the first place?  Then, the urgency to act (more Caveman Brain from evolutionary psychology), supplies the fuel to find a trade (not in your plan) as a way of not losing the opportunity of making money.  And after the dust settles from the emotional hijacking, you ask yourself, “What was I thinking?”  Another case of motivated reasoning. 

            The motivation to make things happen (achieve your goals) backfires and causes you to toss your carefully crafted trading plan and jump into trades that, later, make no sense.  All the knowledge that you accumulate comes to naught without the emotional discipline to maintain order of the mind as it engages uncertainty and the patience to wait for the market to come to you.  Often the need for emotional self-control is not evident (or at least not acknowledged) until a trader is confronted by the paradoxes of trading. 

Round 1: Reason vs. Emotion

            Mike Tyson, the champion boxer, once observed:  Everybody has a plan until you get hit in the mouth.  Then everything short circuits.  That can be said about emotions and reason also.  The hotwired, survival-based emotional responses to perceived danger or opportunity occur in nano-seconds (.003 seconds) – that’s less time that it takes to blink an eye.  That circuit activates the fight/flight response and turns into the electro-chemistry of an emotional response long before thinking can get started.  In other words, you are already acting in response to a perceived threat or have the urgency to act on perceived opportunity WITHOUT input from your thinking brain.  This is called an emotional hijacking.  Meanwhile, the same sensory data (if it is sent to the Thinking Brain at all) takes micro-seconds (at least .25 seconds) to get to the Thinking Brain for deliberation.  Even there, motivated reasoning takes over and biases the interpretation of the information.  So the Thinking Brain cannot be trusted under the kinds of pressure it experiences when challenged by managing uncertainty and risk in very short time intervals. 

            The brain’s interpretation system is based on biases and assumptions built for control over environment (control over outcome), feeling the certainty of being right (even if it is a reassuring lie), and finding actionable patterns that lead to favorable outcomes.  It is biased to do this.  Even if it has to defy logic to make the case, it will alter the facts to fit the beliefs that drive limbic response to emerging circumstance.  And once the emotion takes over (and it will), the Thinking Brain’s reason is bent to serve the belief behind the emotional response to uncertainty.  This is your biology and evolutionary psychology ganging up on your capacity for thinking clearly and in a disciplined fashion, which is needed for a probability-based trading mind.  The brain you brought to trading is simply not the one that can bring success in trading.  The brain you brought to trading is built for short-term success with an aim to survive the moment, when faced with the danger of uncertainty.  While the mind needed for trading is probability-based when faced with uncertainty.  That mind has to be built.  And fortunately, it can be. 


Mastering the Self

            Trading self-development is about training your emotional nature to interact with the perceived danger of uncertainty.  You come stocked with a number of biases that shade your reasoning in the heat of the moment so that your reasoning is unavailable to you under pressure.  These are hardwired circuits that are triggered by your beliefs about your capacity to manage uncertainty.  It is these fundamental beliefs that have to be sought and changed.  You are constantly projecting your beliefs upon your charts and screens – and on the greater markets.  And you are getting feedback on their effectiveness from your trading account.  The trading account will reveal those beliefs if you know what to look for. 

            First and foremost, you have to give up trying to control something you have no control over – whether you win or lose.  It does not matter in the overall scheme of things.  It is the way you perform in the Moment of performance that matters.  If you truly have an edge in your trading system, the money will take care itself.  You can learn how to control that.  That is why it matters.  Yet traders want to be winners, and not losers.  And they try to force winning and not losing – as if they could control winning and losing.  If they win, they want to win more.  If they lose, they want to at least get back to even.  As if they could control making up for prior losses.  But looking more deeply, what does your need to win and not lose say about you? 

            What are your beliefs about YOU as a winner or a loser?  Those beliefs are about your power to control, your mattering, your sense of worth, your adequacy, and your fear that you will be labeled as a loser.  These are the core beliefs that drive inconsistent performances in the heat of the moment (under stress).  It is also these fundamental beliefs that have to be transformed in order for your performances in trading to improve.  This is mastering the Self that trades and engages the challenges of life.  And you will have to change those beliefs and fears (revealed by your trading account) the old fashioned way – by turning toward them and mastering them.

            Your biology and your evolutionary psychology are dead set against you changing what has been successful from a survival perspective.  It is what got you, and us, here.  You, and we, prevailed in the evolutionary struggle for survival.  Saying a few affirmations and conjuring up a few visualizations of success are no match for the power of limbic pattern to maintain itself.  You have to become designer of the Self that engages the uncertainty of trading.  It will never happen if you wait for it to magically change by itself.  It was a successful adaptation – that is why it is a habituated pattern now. 

            Mastering the Self is about reconstructing the beliefs with which you engage uncertainty.  Accessing the courage to stare down our dark side (where your demons dwell) is the start to this mastery.  Self-mastery is simply the path to victory.  You never had control of the outcome, but you have always had the capacity to master the beliefs that you bring to the engagement of uncertainty, probability, and possibility.   Now is the time for self-honesty.  You were born to carry this load and to transform what history gave you into the potential you can be.  It starts by standing up and delivering.  Self mastery lives in the totality of your potential.  It is time you seized the moment of self-mastery.  Your trading account will be your truth meter.  Learn from it rather than fearing it or wishing it would change magically.

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