Mastering the Mind that Over-Trades: Teaching Patient Discipline to Your Inner Alpha

Articles on Trader Psychology by Rande Howell, Trader Psychologist




“To be honest with you, the problem with my trading is that I do not want to admit I have a problem I cannot solve.  I want to be in control and do it myself.  The idea of asking for help simply is hard for me. I want control and I want to be right – call it self-reliant.  Now, my trading is caught between a rock and a hard place. I get in trades I shouldn’t be in and then, out of not wanting to be wrong, I often stay in trades that cost me dearly.  If I can get a handle on this problem, trading would be a very different story. How do I get out of this predicament?”

Your Desire to Win and Achieving a Profitable Mindset Are Different

Sooner or later it comes down to the head game in trading – no matter how hard you may try to insulate yourself from this inevitable reality.  You are motivated to win, and you want to make things happen.  This seems like a good thing.  But, somehow your desire to win seems to become part of the problem. Your trading account keeps pointing out (with no respect for your long held beliefs about winning) what you do not want to see.  Working harder is not working.  And your winning attitude seems to have some glitches in it when trading.  In particular, your desire to win and your ability to actually be consistently profitable seem to be at odds with one another (when you look at the hard facts that your trading account reveals to you).  

You may experience this crack in your logic in the form of crashing accounts, bleeding accounts over time, giving it all back (and more) after periods of profitability, and/or getting stuck (and staying stuck) at a particular level in your trading.  If you desire to be consistently profitable, turning a blind eye to performance problems in your trading is clearly dangerous to the health of your trading account. But it consistently keeps happening despite your best efforts.  So why do you (and other traders) keep doing it? 

The solution lies in first truly recognizing that you are not in control and your desire to fix the problem by yourself is not working.  The missing factor for the motivated trader is acknowledging that you are stuck, and that there is a high likelihood that you are going to stay stuck - no matter how hard you try or how resolved you are to fix your trading on your own.  This is why traders are often their own worst enemies.  This is a milestone that the vast majority of traders do not evolve beyond.  They keep trying harder in a misdirected attempt to correct the problem.  The problem, blinded by their notions of winning, is that they do not know what the problem is. 

Trading confronts the trader with a very different reality than what they have been accustomed to.  The force of will means nothing.  The markets simply do not care.  Whatever mind you bring to the head game of trading and project on the markets, in its disinterested way the markets will simply take away or give you capital based on the quality of the mindset you bring to the performance of your trading.   You may care, but the markets do not.  This is why it is so important to start listening to your trading account very differently.  What is it really telling you?  It is providing you with the information you need to train the brain and mind for the rigors of working with the financial markets. 

A New Understanding of Alpha’s Need to Win

The very desire you have to win – to make things happen and control outcome – is a bias that sets up a whole chain of events that is contrary to the mindset needed for long-term trading success.  How can that be?  To our ancestral relatives, a serious desire to win was necessary for survival.  Whether it was chasing prey, confronting threats, or enhanced mate selection through status – winning brought home food, allowed survival, and moved more desired genes into the species.  Over time these attributes of acquiring food, protecting self and others, and achieving high status in the clan produced the cluster of traits that are commonly called alpha.  Notice that embedded into these survival attributes of the alpha is striving.  Survival (whether in the form of being a successful hunter, protector, or a high status individual in a group) means the successful solutions were wired into the genetic predisposition of future generations. 

The desire to win the game of survival and the striving to survive did not guarantee survival, but it did give the alpha an enhanced edge in an otherwise very dangerous world.  It gave him the illusion of control and that was enough for enhancing survival.  Alphas led their groups and produced the necessary edge in adaptation that allowed these traits to become victors in evolution.  As the mind developed, the alphas began to think of themselves as winners.  The desire to win and the striving to win became entrenched into a personal psychology.  As alphas, they became “winners”.  Best of all, it worked.

With the force of evolution at their back, alphas began to believe they themselves caused winning and control over outcome.  What had been an adaptive edge in survival morphed into a winner who believed he could make things happen and control outcome.  The desire to survive became the desire to win outcome and the striving for survival’s sake became the working “hard-and-smart” of the winner.  Our caveman ancestors had to believe that, by desiring and striving, they could make survival happen – even though it was merely an edge.  The actual desiring and striving was far more important to the goal of survival than actually winning the survival game.  They had no control over winning, but the desire and striving gave them the illusion of controlling destiny.  That was all that mattered. 

The illusion of control, wired into the alphas’ constitution by adaptation, worked just fine.  Until they encountered trading, that is.

An Old Adaptation Meets New Conditions

Most alphas get into trading having experienced success in former endeavors and jobs.  Their winning attitude, their desire for victory, and their hard work produced a formula that gave the alpha ample evidence that he or she could control outcome, knew how to win, and deserved his or her status as an alpha.  It was natural for him (or her) to be in control and to believe he/she would win.  The problem of the desire to control and striving for victory exposed the illusion of control – and not the ability to actually control.  His/her trading account kept defying the deeply held belief of being in control and being right. 

The alpha wants to believe he is in control, but the trading account busts this illusion of control again and again.  The things the alpha did so well – chase down food, fight for your life and win, and high status – were found to turn against him.    Adding more desire and striving did not change the outcome.  The desire for winning now produced an urgency to enter trades that were not good set-ups, simply in a desire to “make things happen”.  The striving (no giving up) kept him in trades that he needed to close out with a small loss.  The need for status kept him from seeking help when clearly he needed to adapt to new conditions.

The New Alpha Rising

The alpha brings enormous advantages to the table for success in many fields.  But these advantages have to be modified for success in trading.  The desire to win and the urgency to act have to be modified for trading.  The alphas that come into my practice have similar problems.  They impulsively chase trades, they over-trade, and they tend to revenge trade.  Then after major losses, they are scared to trade until they push through their fear.  These are aspects of the very characteristics that makes alphas successful in other endeavors outside of trading.  The desire to win often pushes the trader not to accept losses.  Yet traders have to become very good losers (minimizing the size of losses) in addition to having a desire to win.  Therefore, the desire to win really has to be hybridized to a new construct – the desire to perform effectively. 

What has to be accepted is that the alpha cannot make things happen and force winning to occur.  All that control that is at the core of an alpha’s personality has to be re-channeled. Instead of controlling outcome, he must learn to shift the emphasis to controlling performance.  Here, he/she has to become designer of the new alpha.  The control of performance, not outcome.  The end game is the same – the desire to win – but now the process is focused on performance as the avenue to the probability of winning.  This is a major shift from natural selection where the desire to win, in fact, gives one an advantage in survival.  Now the alpha is moving beyond survival and learning how to develop the mind that thrives in the world of probability, risk, and capital. 

The other trait that has to be modified is the urgency to act.  Alphas are notorious for taking action while others hesitate.  Yet in trading that very trait leads to trouble.  Without a more disciplined and patient approach the urgency to act leads to over-trading and revenge trading.  But what if more discernment were brought to the equation?  It is not the capacity to act that needs to be changed.  Rather, it is the discernment of WHEN to act that needs to be developed in re-training the alpha for trading.

As a way to illustrate this principle, look at the similarities and differences between the African lion and the American cougar.  Both are apex predators in their environments.  Both are the alphas of their worlds.  But they do it differently.  One is not better than the other – they are only different.  Each is adapted to a different environment in much the same way that the alpha human must adapt from the old environment he came from to the new environment of trading.

The African lion stalks and chases in coordinated attacks on open fields.  And lions are very successful in what they do.  They have risen to become the apex predators of their world.  They also absorb a lot of injuries.  They get gored and kicked by big animals, so their losses can be large on an individual level.  But the group survives due to the sheer numbers of the pride.  Yet if you took that same successful apex predator and placed him in the forests of North America as a lone hunter, do you think that that the African lion would have the same success? No.  The world they adapted to is different.  Therefore the ways of the apex predator need to evolve.

Now think of the American cougar.  It is a solitary hunter adapted mostly for the forests of North America.  This is where the American cougar and the trader are very similar.  They are solitary hunters that need to adapt their skills for their environment.  The cougar is not a stalking or chasing predator.  Instead he is an ambush predator.  This is a very different approach than the African lion – but just as lethal in its own world.  The cougar waits patiently in a tree or on a rock ledge for the deer to enter the setup.  The cougar knows the habits of the deer (for the trader, that’s technical analysis).  The cougar knows the high likelihood of his success, but he chooses to wait for the deer to walk into his ambush.  The uncertainty of the strike happens rapidly – there is no drama of the chase.  Instead the cougar either drops the deer almost immediately, or the deer gets away.  And there is little chance of injury for the cougar. (The potential of losses are much smaller for the cougar than the lion.)  If the cougar misses (takes a loss), it is minimal.  He just climbs the tree again, waiting for the next valid setup.

Both these animals evolved into apex predators adapted to particular environments.  The same applies to alphas who become traders – with one major twist.  Humans can design the way they respond to the environment, rather than adapt through natural selection.  There is a great lesson here.

Rarely does an alpha possess the trait of patience when he first engages the uncertainty and risk of trading.  Instead it is all about making things happen.  He adapted his alpha-ness to the environment from which he came.  But now he is in the environment of trading where he cannot control outcome through his desire to win or his urgency to act.  But what he can do is adapt by design.

There is nothing wrong with the traits of the alpha.  Many highly successful people can attest to this.  The question is whether the traits of the alpha are adaptive to the world of trading.  And it is a big question.  Many alphas try to ram the form of alpha that has brought success in the past on to the new endeavor of trading. That particular form, without the added trait of disciplined patience, is not going to work in the new world of trading.  The alpha can still become the apex predator, but it will take on a different form.  Both the African lion and the American cougar are very successful apex predators for the environments for which they have adapted.  And every alpha initially wants to be the African lion when they engage trading.  It’s natural – it’s what they know.  But it doesn’t work. 

The American cougar is a model that works in trading, where money and risk are present.  He is patient.  He is disciplined.  He will wait for the valid setup.  And he will execute.  And if he’s wrong, he gets out without injury.  But the odds are with him in his environment.  And you can develop this apex trader by design.  You can become the designer of the trading mind you bring to engage the markets.  Adapt yourself to the demands of the markets.  Take the power of alpha to the next level, the one that works for trading.  Fortunately, it can be learned.
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