Self-Mastery: How to Stay Calm and Disciplined When the Money is Real

Articles on Trader Psychology by Rande Howell, Trader Psychologist




I know I’m supposed to be emotionally calm and disciplined when I trade – but HOW do I do it?  I’d be rich if paper money counted.  When money is not at risk, I know how to trade effectively and my trader psychology is solid.  I calmly (and without hesitation) hit my entries without a problem; I’m disciplined with my stops so that I only take small losses because I understand a large chunk of trading is about managing losses – it’s no big deal; and I do a good job of staying in the trades and hitting my targets before exiting – FOMO isn’t rearing up its ugly head. 

     But the moment that the contracts are real and I’m risking capital, something happens to me.  “I’ve got to be right and in control” seizes me and I become emotionally unglued in the blink of an eye when things go against me.  I start breaking my rules, and, before you know it, I’ve given the trade way too much room.  Then I’ll throw good money after bad in the hope that the trade will turn around and get me back to positive ground. After the smoke clears and my sanity comes back out of hiding, I look at the damage and wonder what on earth happened.  I’m so close to getting my trading act together.  It’s these emotional ambushes that I’ve got to get under control.  That’s what is stopping me from getting to the next level.      MG

Deconstructing Your Story about Winning and Being Successful

     Like Mike from the vignette above, the vast majority of traders know what the mind is supposed to look like to trade effectively.  When put to the test though, the illusion of what the mind is “supposed to look like” to trade well falls apart (as judged by the trading account).  The trading “talk” does not match up with the actual “doing” of trading.  The fundamental problem is that traders don’t know HOW to build the mind to perform effectively under the pressure of capital being at risk when the outcome is out of their control. 

     Knowledge is confused with the actual capacity to perform.  It’s the classic problem of not being about to use knowledge gained in a safe classroom when the student then tries to apply that knowledge in a real theater of action and performance.  It is this gap between knowledge of trading, the beliefs you hold about yourself, and the emotional skills needed to maintain a calm and disciplined mind that keeps sabotaging a trader’s potential.  It is not the beliefs that you say you have about yourself that count.  It is the beliefs that are revealed by your performances under pressure that count.  These generally fly in the face of what the trader wants to believe about him or herself.  But these are the ones that count.

      A large part of the problem is that you fool yourself into believing that knowledge and hard work is enough to win at trading.  It is this formula of learning how something works and then applying persistent, hard work to make success happen that lays at the heart of the problem for traders.  And why not?  You grow up in a world where the “story” of success is rooted in overcoming the odds by gaining knowledge, working hard, never giving up, and (most importantly) winning.  And it seems to work.  Ask anyone who has excelled at something (whether in business, academics, or sports) and you hear the same thing – “you gotta want it”.  “You gotta work harder, put in the hours, develop the knowledge” – and “never, never, never give up”.  That’s how you win. 

     Out of that mindset comes the success you envision.  The trader is in competition with the markets – and he (or she) believes he is going to win.  And that is the competitive spirit that traders bring to trading.  Just learn to apply the same principles to trading and you will create the success that you know is possible, right?  No one really talks about emotions or emotional intelligence, much less the beliefs that lie behind the emotional hijacking.  They are mentioned in passing.  But no one questions their ideas regarding winning in trading.  But they should – because it is holding back the development of their potential as a trader.

Self-Mastery is the Key to Winning in Trading

      People are drawn to trading because of the potential for financial gain and personal freedom.  And in the calculus of decision-making they come to believe that they can beat the odds and actually becoming one of the winners in trading.  In the allure of trading, people convince themselves that by developing their knowledge base, working hard, being persistent, and maintaining a positive winning attitude, they can, in fact, win at the game of trading.

     Then, years later, they are still trying.  Success seems so near that they can practically taste it.  Yet consistently profitable trading still stays tantalizingly a little beyond their reach.  If they could only trade without emotions or if they could only control their emotions – that would take them to the next level.  But the more they try to control their emotions, the more the emotions of trading sneak up on them out of nowhere and ambushes them just at the wrong time.  And then they fall apart and lose control.  Bad things happen again and again.  Before they know it, they find themselves freezing because of anxiety or fear just when they need to be disciplined.  The loss of capital has traumatized them and their brain has produced a reactive emotional response.

     The entire time, the trader was focused on “got to win” and totally steeled against losing.  Yet he loses anyway.  Again and again, the trader pulls up his winning attitude and pushes even harder.  By doing this behavior over and over again – in the face of something he cannot control – his brain learns to trigger to fear-based survival instincts.  The trader has now conditioned a response to powerlessness.  The response has been habituated and is now working on automatic.  Every time the trader tries to push past the resistance with his/her winning attitude of persistence, the emotional brain triggers the conditioned response to powerlessness. 

     What does this look like in real life? Let’s take a look from my work with performance issues in trading.

     Mike has a performance problem that keeps reoccurring.  Based on his methodology, once Mike enters a trade and the order is filled, there is a sequence of events that are monitored that will tell him whether to exit the trade at a small loss or if the trade has good potential for profitability by staying in.  He knows intellectually that it is better to take a small loss on a trade that turns against him that to hold on to it, or worse, to add to a trade that his methodology no longer supports.  That’s only logical.  But that is not what he does.

     Instead his tendency is to give the trade some room because “it just might turn around”, even though this action is against the rules of his methodology.  Then to make matters worse, when the trade doesn’t turn around, he frequently adds to the position in the remote hope that he might be able to get the trade back to breakeven. It seems like a good idea at the time. Clearly Mike has had a breakdown in discipline.  But it is so contrary to the Mike everybody knows.  To them and to him, he is a disciplined guy who follows the rules – he’s a CPA and that’s what they do. 

     Now let’s dig deeper.  Mike hates losing and he’s a hard worker.  He’s a middle aged man who enjoys iron man competitions and triathlons.  He’s a tough guy and has true grit.  He will push himself to win and most often does.  You would think that with this kind of winning attitude and his determined persistence that discipline would never be a problem in trading.  But it is.

     Cutting to the chase (it took a while to get to the bottom of this performance problem), Mike grew up believing that he was not very smart, even though he became a CPA.  But his belief was that he would out-work everybody else and that would result in winning.  No, he might not be the smartest, but he was the hardest worker by far.  And that hard work would equalize his deficit.  His hard work covered up his belief about his not being smart enough.  Out of this he became a fierce competitor.  He was out to prove himself.  And with each win, he proved that hard work covered up his Achilles' heel of not being smart enough.   

     When he lost, he felt stupid.  So he worked even harder to cover up his secret.  This adaptation worked well and became a life-long habit.  Except when he began trading.  Suddenly what had worked for his entire life started working against him.  In trading, when he took a loss, he experienced the shame of being stupid (not smart enough).  The now reactive pattern triggered immediately – work harder as a cover up.  Push harder – you’ll prove yourself by sheer force.  “If I don’t win, people will know what I’m hiding – that I’m not smart enough to be successful”.  This cycle went on until Mike and I discovered it lurking in the background of his awareness.

     The truth is, you don’t really have to be very smart to be a consistent winner in trading.  There are plenty of very smart people who outsmart themselves every day in trading.  So being smart can easily work against you. You only have to smart enough, okay enough, to consistently win in trading.  That’s all.  Real smart has very little to do with it.  But Mike still had to summon the courage to face his misdirected shame of not being smart enough.  Now that we had it in the open, it could be worked on.  Mike also discovered that hard work had little to do with success in trading.  It wasn’t about pushing himself hard to cover up his own perceived lack of “smartness”.  It was about being disciplined to follow his rules even in the midst of ambiguity.

     The missing piece was turning to face his demon of “not being smart enough”, rather than covering it up in hard work.  And maybe Mike will never be the smartest trader in the room.  That means nothing.  What mattered was that he was a smart enough trader to win consistently – and that was okay enough.  It’s been a powerful and positive change for him.

Embracing Your Powerlessness to Find Your Core Strength

    Recently I was listening to an interview with Richard Rohr – a contemplative Benedictine monk who has had a powerful impact on the Men’s Movement worldwide.  In the interview Richard talked about the need for men to own their powerlessness rather than buy into the cultural notions of power.  And he said that one of the breakdowns of the modern world is that men often never get to fully experience their inability to force outcomes.  In particular, by never claiming their powerlessness, they never realize the power of their being.  Instead they get stuck in shows of power (think of all those guys who drive those big hulking pick-up trucks that have never done a lick of work).  They confuse “looking good” – the trappings of power – with finding the core of their power in the moment of engaging the uncertainty of the world…the power to master themselves.

     Trading is much like a training ground for accepting your powerlessness.  To be successful in trading, you give up the illusion of control (that the big hulking pick-up gives you temporarily).  You do not control outcome.  No matter how powerful you feel, no matter how much you put on your big-boy pants – in trading all that show of power goes for naught.  You are merely a very small fish in a vast ocean.  That realization is the closing down of one possibility, but it is the opening of a much greater one.

     Trading offers something far more precious though.  It offers self-mastery as a core life skill.  It is true that you do not control outcome.  In accepting that, a far more powerful possibility opens up in your mind’s eye.  You can become master of yourself.  You can become master of the mind that you bring into the moment of engaging uncertainty.  That’s the Holy Grail.  It was never “out there” – the empowered mind has always been “in there”.

     It is “in there” that you create your own destiny.  Instead of a façade of power (winning the outcome) that you hide behind, trading forces you to claim your innermost core strength.  This core of the mind you bring into the moment, coupled with a winning method, is the edge that everybody seeks.  But few find it.  That power is waiting for you to claim it.  But are you looking in the right place?  It is not about controlling external outcomes.  It is about finding the power of NOW that has always dwelled within you.  That’s the cosmic joke – who would have ever thought that trading would be a path to find yourself and to master yourself? 

     The next time you are trading and find yourself compelled to win (because you are a winner), stop for a moment.  Ask yourself – why am I trying to control something that is by its nature uncontrollable?  Then take it deeper.  Ask yourself, what fear is blocking my path to self-mastery that I am avoiding by staying stuck in trying to control the uncontrollable?

     Now you’re cooking.  And you’re on your way to learning how to develop the Probability Based Mind needed for success in trading.
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