The Trading Brain on Money and Risk

Articles on Trader Psychology by Rande Howell, Trader Psychologist




What does Your Notion of Money Have in Common with an Emotional Hijacking?

     People often wonder what comes over them as they trade.  It’s like a switch goes off and, suddenly without warning, where a reasonable disciplined trader was sitting, now sits a person who starts behaving irrationally and taking misguided actions.  On the surface, traders know that winning or losing capital is simply part of trading.  And (when in their right mind) they are mentally prepared to use their statistical edge that will give them the advantage over time.  Every trader talks this talk as if it were what he/she truly believed at the core of his/her being.

     Then something happens.  Under the pressures of risking capital, all the well-crafted plans get unraveled, and deeper (more reactive) emotional patterns erupt from the depths.  Suddenly, the trader seems almost possessed.  From a distance a trader can watch him(her)self  act destructively, but he is powerless to stop his trading mind from spinning out of control, again.

     What happened to the trader’s mind rooted in Reason and Logic?  The one that is supposed to be there while you trade – the one you identify with?  Where did it go?  And where did this alien creature come from that took over the trader’s body and mind?

Money and Primitive Beliefs Rooted in Survival Conjoin

     This emotional and mental hijacking seems to have come out of the blue.  But it didn’t.  It came out of your unexamined beliefs about money – not what you say you believe, but your beliefs behind performance will manifest.  Money, as a belief, becomes far more than a mere medium of exchange. Money symbolically becomes your capacity to survive the unknown that is challenged on a very primitive level.   

     Money becomes a mirror of your beliefs about your personal sense of adequacy, mattering, worth, and power.  And when risking capital, you are exposing your deepest beliefs about your capacity to engage the unknown.  Money becomes your security against the unknown dangers that might threaten your survival.  To our ancestors, survival was being tested regularly in the environment.  To modern man, money becomes symbolic of your strength to survive and be protected from the uncertainties of life.  And trading provides an environment where there is nowhere to hide those beliefs from yourself or others.

     The ironic thing about trading is that it puts all of these unexamined beliefs about money, safety, and power into play on a stage governed by uncertainty – the very concern that our primitive ancestors evolved to avoid.  This condition is what makes trading so challenging for many people.  They are wired to avoid the risk that uncertainty brings on a primitive level.  Yet, successful trading, by its very nature, engages uncertainty and risk as something to manage rationally while ancient emotional beliefs about physical safety and power are being triggered simultaneously.  This is why the mind you bring to trading is not going to be the mind that is going to produce success in trading.

     It is imperative that these primitive beliefs, below the threshold of conscious thought, are brought to the surface of working awareness so they can be examined, deconstructed, and reconstructed into higher functioning beliefs for the modern world of trading and managing uncertainty.  Until this is done, there will be a collision between the primitive survival beliefs of the emotional brain (wrapped into the symbol of money) and the probability-based rational thinking required for successful trading.

     So, what beliefs are being triggered when you risk capital and what beliefs are driving your trading behavior?  Why is this question so important to success in trading?  Because, under stress, you will revert back to primitive beliefs of the emotional brain, and your thinking will be hijacked (while under pressure) for short term survival responses when exposed to uncertainty and risk until you can change the neural circuity of reactive response patterns.  Trading sets a stage where a very new brain/mind has to be built for the management of uncertainty.  Otherwise, reactivity under stress stays the norm.

Defining the Emotional Beliefs that Drive Trading Performance

     What are the beliefs about identity and money that entrap traders?  Below are the identity and money beliefs that I commonly find with struggling traders.  What I invite you to explore is how fears about your efficacy in the management of uncertainty (survival) become linked to your notions about money.  This is what is being exposed in your trading performances and consequently in your trading account.  The health of your trading account is what forces you to take a deeper look at the beliefs that you have about money that are flying beneath the radar of your awareness.  Use it as a clue, and you are the detective. 

     Behaviorally, are you prone to protect money, squander money, fear money, desire money, accumulate money, or hoard money?  These are the behaviors that point to the underlying emotions of fear, anger, euphoria, reactive impulsiveness, patience, or calm authority.

Scarcity Thinking– “if I risk anything, what little I have will be taken from me and I’ll be left homeless.”

Irrational Exuberance– “When I have money, I will prove to everyone that I matter and I’m powerful.  Money makes me feel large and in-charge.”

Irrational Angst– “The future is full of danger.  I need to keep myself safe and not risk losing what I have.”

Hoarding– “With my stockpile of money, I will be safe from the dangers around me.”

Non Deserving– “I don’t deserve to make a lot of money.”

Saboteur– “I’ll never make enough money to feel good enough.  I know something will happen to take it away from me.”

Puritan Work Ethic– “To feel good I have to work hard for my money.”

Lust– “When I have money, I am a powerful somebody. I’ve got to take it all.  Money makes me feel powerful.”

Paranoid– “I feel threatened when money is taken from me and I have to get it back before I perish.”

     Most traders find that their deepest beliefs about money and mattering come from the formative period of brain development where the brain is organizing a Self to work in conjunction with its environment.  This is called the Historical Self and it is formed in our families of origin.  It’s neither right nor wrong.  It is just your brain organizing “you” into a Self that is built to survive in the environment in which it finds itself.  This is called adaptation.  The beliefs are not true.  They are simply the brain’s best effort at the developmental moment to organize the future “you” into an organism that can survive in a particular environment.

     For instance, many people grow up in families where there is a family history of scarcity thinking.  There was always a background fear about their capacity to survive.  Small farm families produce these circumstances often.  They are at the mercy of weather and market conditions and are always on the edge of not having enough money for the months and years ahead.  The scarcity thinking comes out of experience and history.  And it moves from one generation into the next.  A person may have left the farm a long time ago, but when he trades, the underpinnings of scarcity are still there.  It’s nobody’s fault.  But it is the trader’s responsibility to shift the thinking from being rooted in scarcity and into probability.

      Many traders grow up having to prove their worth, adequacy, or mattering by their performances.  Later, self-worth becomes confused with net worth.  This becomes a formula for over-trading as well as revenge trading.  These are just historical circumstances to which the brain adapted.  It worked back then.  However, it no longer works in the management of uncertainty found it trading.  The historical organization of the Self has to be changed by the trader to suit the new circumstances of trading.

Exposing Your Performance Beliefs by the Way You React to Loss or Gain of Money?

     Money, when linked to a Belief about the Self, acts like a drug.  Winning or losing money can make you feel good or bad, worthwhile or unworthy, adequate or inadequate, or powerful or helpless.  Yet, if your focus is on winning or losing money, your attention is not on the one thing that you can control in trading – the mind that you bring into the moment of performance.  The successful trader’s mind is not focused on future outcome and how that outcome is going to make you feel.

      The successful trader is focused on the process of performance.  If this is done, the trader is focused on what he can control and the money will take care of itself.  His identity is not fused to what money will bring him – only on his performance.  The future has not arrived.  The past is gone.  The only thing that matters is NOW.  His identity, as he is trading, is not fused to his beliefs about money.  He has been trained to not judge himself by his wins or losses.  That’s a tragic flaw.  He has no absolute control over winning or losing any given trade.  Yet, if he stays focused on the Here and Now of his performance, he knows money will take care of itself.  His job is to manage his performance.  And to give up the illusion of control that gets rolled up in beliefs about money and power.

     What are your beliefs about money?  Are they helping you or hindering you as a trader?  Are you willing to examine your beliefs about money, winning money, and losing money to advance your career in trading?  If you are, then begin to notice what happens when you win or lose money in trading.  And notice how it makes you feel.  In particular, notice what you hear in your head when you lose money in trading.  And also, what you hear in your head when you win money in trading.  Both expose the beliefs you hold.  Do they help you LONG TERM to become a better trader?    Do they need to change for you to grow as a trader?

     Effective beliefs help you to grow your trading account over time.  Self-limiting beliefs keep you and your trading account from growing into the potential of self-affirming beliefs. 

     Beliefs become the Observer that you view potential through and they bring forth that potential into manifestation through your trading account.  Fortunately beliefs are only assumptions that have taken on the force of truth.  And they can be changed once they are observed.  Money becomes a medium of effectively working with others rather than linked to your value as a human being.

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