Rebuilding Your Survival Brain for Probability Management

Articles on Trader Psychology by Rande Howell, Trader Psychologist




“It’s like everything is fine - one moment I’m walking down a hallway and I’m following my rules – in control.  Then it’s like a door automatically opens and sucks me into a time warp.  I don’t see it happening.  Suddenly it’s like an evil twin has taken possession of my trading and I’m not following my rules anymore.  I can’t explain it.  But it keeps happening.  If I could get past this, my trading would be very different.”

This trader has just fallen into a Limbic Learning – his survival instincts have kicked in and he has lost volitional control of his trading mind.  It happens all the time.  There is a great drama going on in your brain every time you risk capital.  And within that drama, you have no idea what is going on.  This is where the struggle between your Thinking Brain and your Emotional Brain takes place – beneath your conscious threshold. 

If you are like most traders, emotionally illiterate, the crashes are only seen after the fact.  And you cannot understand why your trading mind keeps getting emotionally hijacked – you’re trying so hard.  You are clueless about the way the brain makes decisions when exposed to uncertainty, risk, and potential capital loss.  Fully more than 90% of the trading decisions you make are happening below the conscious threshold in the Emotional Brain.  The coveted Thinking Brain does not even show up as part of the decision until after the fact.  Traders fight this invisible enemy because they refuse to adapt the old survival programming of their primal brain for the rigors of managing risk in a world of uncertainty.  This dilemma is why it is so difficult to produce success in trading.  You are asking the brain to do something that it is not designed to do – and yet, you keep forcing the issue, thinking it will be different this time.

Trading forces you to really examine which mindsets work and which don’t work.  And what traders are continually forced to acknowledge is that the brain/mind they brought to trading simply does not manage probability well at all.  It’s nothing personal.  But if you are to become consistently profitable, it is your responsibility to change what nature has given you. Your trading account cuts to the bone.  It shows you, beyond all doubt, if the mind you trade with is working effectively or not in managing uncertainty and probability.  In truth, the reason so many traders fail is because they refuse to adapt, despite the mountain of evidence that demonstrate the old way is not working.

In evolution and in trading, it is not the fittest or strongest (or the most knowledgeable) that make the survival cut.  Wait, didn’t Darwin say that survival belongs to the strongest?  No, he did not.  What evolves and moves on from the challenges of engaging uncertainty is being the most adaptive – this is the crux of creating success in trading.  Failure to adapt is the biggest obstacle that stands between your idea of success and the reality of trading.  People refuse to adapt even when overwhelming evidence indicates the pressure or need for adaptation is real and present.

In trading, extinction is not about a species dying off and disappearing from the gene pool.  Rather it is about your capital being extinguished over time so that you are no longer contributing to the capital risk pool of the markets.  The capital disappears as does the trader – another dead end trail because the trader did not heed the need to adapt.  Adapt or perish.  It’s pretty simply in concept.  So why is it so hard to do?  Well, for starters, the brain you know so little about – your Limbic Brain – it dead set against your attempting to force logic upon it when Logic is not part of the calculus of its operation.


Recognizing the Need for Honest Change

Your performance problems start with the great divide called your Thinking Brain and your Emotional Brain. The Thinking Brain is that part of you that thinks in language.  It’s analytical, rational, and solves abstract problems – like those found in trading.  It also creates narratives – the stories we hear in our heads about us and who we are.  You probably have heard the narrative Self Doubt erupt in your mind when trying to make a trading decision.  The key to understanding this is to accept that you are not having thoughts about Self Doubt.  Instead thoughts (called a narrative) are having you – creating your experience of managing uncertainty.  And most people become so identified with these stories that the Thinking of Left Brain has created, that they believe that the stories are the truth.  It never even occurs to them that these stories need to be examined.  They are not you, but they are happening to you as a Historical Narrative of the way your Limbic Brain learned how (in another time and place) to deal with the short term survival aspects of uncertainty.

And that is the exact problem with trading.  Because your trading account forces you (eventually) to start examining the stories that you are telling yourself about who you are.  Many of the stories that traders tell themselves simply are not consistent with the unbiased news that their trading account keeps revealing to them.  Typical stories are:  “I’m a disciplined trader” (yet your trading account shows a lot of undisciplined behavior); “I’m a successful trader” (yet your trading account reveals a lack of success); “I’m a patient trader” (yet your trading account shows a lot of erratic and impulsive moments); “I only take trades that fit my rules” (yet your trading account shows that you take trades outside of your rules).  The narrative and stories go on.  These are only a few that show the inconsistency between the narrative produced by the Thinking Brain and its desire to be a winner and the clarity that the trading account reveals about the story that the Left Brain has created.

What we see is that the story that the Left Brain creates and keeps telling itself (and you) often does not measure up to the evidence that the trading account reveals.  But the trader is really invested in the narrative and feels uncomfortable and vulnerable when the narrative is disputed by evidence.  Humans prefer the fiction created by the Left Brain over the inconvenient truth revealed by the trading account.  Or as Groucho Marx once quipped, “Who you gonna believe? – your lyin’ eyes, or me?”

The brain simply does not want to let go of an organization of the Self that has already been constructed and feels true – even if it is not working in managing Probability.  This is where the natural selection power of evolution will produce extinction if the trader resists change.  What traders miss is realizing that the Left Brain has only created a narrative that supports what the Emotional Brain has already decided.  Not only is the narrative a rationalization, or alibi, that the Left Brain has created to support the Limbic Learning (unconscious) of the Emotional Brain, but also the quality of thinking that comes out of the Left Brain is emotional-state-dependent.  Rational thinking is not independent of emotion.  It is deeply influenced by emotional meaning.  This is the watershed moment that separates elite traders from the rest of the pack that struggle. 

The Thinking Brain is a servant to the Emotional Brain.  It is not independent.  Nor is it in charge – it only looks that way in a trader’s mindlessness.  The conscious, language heavy, Thinking Brain really does not run the show – though it tells a story that it does.  It is the Emotional Brain, that ancient brain that all social mammalians share, that dictates how you as a trader engage the uncertainty as revealed in trading.  And until you master your emotional nature, you will find success in trading to be a roller coaster ride.  Your Emotional and Thinking Brain have to work together.  This is the elephant in the room that everyone denies is really there.  It is also what keeps you stuck in present performance patterns.

Understanding Your Emotional Brain on Trading   

Your Emotional Brain is primitive and primal.  It does not perceive the way the Thinking Brain does.  It is built to scan the environments for threats, risk, and safety factors.  It does this from a short term survival perspective – literally survival in the moment.  It does not think or evaluate.  Information comes into the brain and based on history and what has been successful in the past, a lighting decision is made about how to react to the factor in the environment.  As a trader you experience this primitive decision tree every time you feel fear of potential loss when looking at trade entry points.  You also experience this survival, instinct-driven decision-making every time you experience a trade going against you and you feel the fear and anger which leads to revenge trading. 

None of this involves thinking and evaluation on a logical level.  Rational thinking and logic are way down the pecking order in decision-making under stress.  Thinking and evaluation simply got pushed out of the way once fear, anger, or impulse blossomed into emotional force.  Thinking then followed the emotion that triggered and then took over the mind.  You also experience this sequence every time you feel FOMO – take the profit before it is taken away from you!  The urgency to protect the skinny profit by the survival instincts of the Emotional Brain blows the Thinking Brain’s desire to see that trade reach its target.  Thinking comes in late to create an alibi for what the survival instincts of the primitive emotional brain already decided. There’s that fiction, or storytelling, aspect of the Thinking Brain in action – late to the party but with a good excuse. 

Under the stress of risking capital, this is how an untrained mind behaves.  It is focused on survival in the moment, controlling outcome, being right, and not losing.  The problem with trading (compared with other endeavors) is that the trader has to acknowledge his lack of control over outcome, that he is often wrong, and that he is going to lose often.  When the brain is forced into accepting this new reality, “something’s gotta give” – and what “gives” is impartial thinking.  Fight/flight triggers because the uncertainty over the outcome has triggered the trader’s brain to experience vulnerability.  The feeling of vulnerability is directly linked to triggering of the fight/flight response to uncertainty – the very thing that the trader does not want to happen.

How Do You Get Out of This Fix?

When the Emotional Brain first engages uncertainty, it learns to solve the problem of short term survival presented by the stressor.  This is called a Limbic Learning.  This problem solution is amoral – it simply wants to find and incorporate a way of dealing with the potential threat of the uncertainty.  If it is successful, that learning locks into neural networks and simply fires as a proven way of solving the problem.  Much later a psychology of meaning moves the Limbic Learning (amoral in nature) into something new – an emotional belief.  It is here that Trading Psychology develops. 

Ultimately you need to change the beliefs that you, the trader, is projecting onto the markets.  Those beliefs are reflected in the health of your trading account. However, those beliefs have now been encoded into emotionally reactive patterns supported by neural pathways.  These emotionally reactive patterns have to be calmed down BEFORE you can get underneath - to the beliefs, assumptions, and biases that drive your performance under the stress of uncertainty.

In my work this process follows a sequence.  First the trader has to retrain the body’s triggering to emotion.  The emotional triggering is a reactive pattern that fires and then takes over the mind.  In Emotional Regulation you learn how to calm down the intensity of the emotional firing so that it does not hijack the trading mind.  That’s step one.  Nothing else matters until you can regulate the emotion.  The next step is learning Mindfulness as a way of slowing down your thoughts and then separating from them.  In this step you learn that thoughts will always be there, but you do not have to identify with them and get carried away into that world of thought.  You, instead, can step back out of the thought train and re-center yourself.

These are the two essential skills.  And with Mindfulness you begin exploring the different aspects of your humanness and discover that your mind is a busy neighborhood.  A neighborhood with some really great neighbors and some really bad neighbors.  And you begin to discern them through Mindfulness.  You discover that you have choice over what aspects of the Self govern the mind that engages uncertainty.  This is where you really begin to get control of the mind that you bring to the moment of performance. 

You learn to let go of the impossible task of trying to control outcome (that you never had control over anyway).  And you begin to focus on what you do control – and this is big.  You learn through applied mindfulness how to control the emotional programs that give rise to the quality of your thinking.  Instead of a mind rooted in fear and/or aggression that engages uncertainty, you find that you can bring a mind rooted in discipline, courage, self-soothing, and impartiality to the table of trading.  This is the psychological edge needed to produce the method edge you have, in theory.  Now the emotional brain is your partner with the Thinking Brain.  They work together as one unit.  This is the Traders State of Mind needed for working effectively with the uncertainty of risking capital.  This is the Probability Mind that has evolved from the fear based mind that you brought to trading.  You have become the designer, rather than allowing natural selection to determine the mind you bring to trading.

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