Articles on Trader Psychology by Rande Howell, Trader Psychologist
What creates the gap between you and your trading potential? If you could only follow your plan, trading would open the door to the dream. So, what’s causing it? Certainly, it’s not a lack of effort. You strive to develop that hidden potential and you leave no stone unturned in your quest – except for the ones you cannot see or understand. It is this glass ceiling that keeps your growth hostage.
Many traders can talk the talk of trading. Without a felt sense of risk, it’s just a game. It’s easy then to “armchair quarterback” and talk about the “what ifs” that could have been and how much money could have been make – if only… But when money is really at risk, a very different mind shows up to manage the trade. This is the glass ceiling. You know how to trade on a cognitive level. But then the fear of loss kicks in, provoking the trading mind to collapse. This is the difference between success and failure in trading. And few understand the problem.
You’ve Been Barking Up the Wrong Tree
Bridging this gap starts with recognizing that positive self-talk techniques have their limits and begin failing under the pressure of trading. They make you feel good temporarily (like you can conquer the markets) but lose their steam when faced with markets they cannot control. This is because they do not get at the deeper work required to transform self-limiting life patterns operating below conscious threshold. Consequently, change is not permanent, and you fall back into self-limiting patterns after initial success. This is particularly true in trading where the time compression between cause and effect collapses the “success mindset” in the face of winning and losing.
Something is missing – and that is the recognition that we humans are emotional beings first, not rational beings. Instead, we rationalize, thereby creating barriers to our growth. First your emotional nature must be acknowledged - and then mastered. Many people prepare their minds for the trading day by trying to suppress their emotions – particularly the fear and anger of the fight/flight response. This works until the emotion explodes and then takes over the mind. But it is all they know. Traders try harder after failure, only to find that trying harder does not produce emotional mastery. In fact, trying harder simply makes the problem worse.
The start of the problem is that people do not even know what an emotion is. Emotions are not feelings – though emotions do, in fact, have a component of feeling. But feeling is only experiencing the chemistry of the emotion in the body at work. By the time you feel an emotion, the emotion has already impacted the clear thinking that is necessary for successful trading. Actually, not only do you have emotions, you are the embodiment of emotion. Emotions are biological in nature – they take over the mind. Their evolutionary job is to coordinate activity between the environment (the markets) and the organism – that’s the trader.
Anytime there is a notable change in the environment (the markets), there is by definition the triggering of an emotional response to the new development. Though it appears that they are, emotions are not psychological in their nature. They do take over psychology, though, when triggered and allowed to get a head of steam. So, by not arming yourself with a new understanding of emotion you are, in fact, setting yourself up for failure.
By learning how emotions operate though, you open the door to a new way of working with emotions. You will always work with emotions as long as you have a body, so the idea is to manage the emotions in order to bring a certain set of emotions to the table to meet the conditions of the trading environment. And depending on your evolutionary history in managing the emotions that arise to meet the demands of Uncertainty, you may fail to work effectively with them, resulting in disastrous performances in trading.
Thinking is Highly Overrated
Many call the emphasis on working with emotions presented in this book to be the missing link in self-development because it turns conventional wisdom on its head - starting with thought. In neural-biology, you discover that you do not have thoughts – they have you. And they are creating your experience of the world. All while you are misled by your emotions into feeling certain that you are in control. Thought is the caboose of a powerful train called YOU. But emotion is the locomotive. And your limbic (or subconscious) beliefs are the engineer steering the locomotive of your life’s trajectory.
Thought literally creates an alibi (an explanation) for what your ancient Emotional Brain has already decided. By itself, thought will never convince the subconscious to change when under pressure in the moment. Change requires that the Emotional Brain (where beliefs are encoded into neuro-circuitry) choose to challenge the beliefs that drive interactions with Uncertainty. This is where change happens.
First comes the necessary emotional mastery; then comes the creation of the intentional mind. That is because all thinking is emotional state dependent, so thought is driven by the locomotive of emotion. It is not your thinking that needs to be mastered – it is your emotional nature and the beliefs that drive them. It is this constructed mind that you need to be bringing to the game to engage Uncertainty.
The Brain and the Mind
Envision your brain as a community of rival emotional programs that compete to form what you call “me”. That Self, that got built long before you could think, is only one particular construction of a Self. It is not you. You just believe it to be so. Fortunately, the trading mind can be rebuilt because the Self can be re-ordered, particularly in the area of winning and losing. To your ancient caveman brain, losing meant dying and mostly becoming someone else’s meal. There was a powerful incentive “not to lose”. And this learning, embedded into your survival instincts followed you into the trading arena. The problem is that your survival brain cannot tell that there is not physical threat to life when you lose. To it, losing is personal. And it is a death threat. It is going to be a powerful player in your decision making under stress until you learn how to calm down that aspect of your being. You have to become intentional regarding what mind you are bringing to trading.
And, as it emerges from the brain, your mind becomes a place where emotional programs are given voice as your thoughts. They form a governing committee of competing interests that produce an internal struggle that must be mastered in order for you to build an intentional mind. You experience this internal struggle when you hesitate to enter trades where fear of loss has activated the fight/flight response. You also experience it when you refuse to take a loss. If left to your ancient caveman brain, you will fight not to take that loss, and create disaster in your trading account.
To your caveman brain – it is the fear of death that he is fighting. To the intentional trader’s mind – it is only landing on the wrong side of probability. Caveman cannot think in probabilities. That is why your mind has to become intentional – rooted in discipline, courage, calm, and impartialness. Otherwise, your emotional survival brain will take over and work to survive in the moment. The trading brain will want to thrive in the long term.
This is self-mastery. In claiming your true power, you discover that you do not control outcome – and you never did. But you do control the mind that you bring into the moment of performance. This is claiming the real power that you, in fact, do have. This is the Intentional Mind that unlocks your hidden potential. And it is what allows you to chart a course for creation of your life. Come learn more about the missing link that has held you back. Let it be your time now.