Rande Howell

Very few people come equipped psychologically to produce success in trading. Though psychology takes much of the blame, much of the problem is rooted in biology rooted in our evolutionary past. We are possessed to believe that we can control outcome and be right. We also avoid uncertainty. These are biological biases that become the psychology we experience the markets through. So traders try to control what can't be controlled and, in doing so, lose sight of what they can control in trading -- the mind they bring to performance. As long as traders insist on being right or in control, they will always give their money over time to wiser participants. Rande Howell http://www.mytradersstateofmind.com

This is really a reply to SIUYA's comments about the military. There is a good book :HOW WE KNOW that directs itself toward seeing how instinctual intuition and reason can work together in decision making under pressure. Intuition is defined as unconscious pattern recognition that operating outside of knowledge derived by reason Well anyway, that's the way I define it in my work. In combat situations often there is no time to deliberate about decisions. Gut instinct has been found to fill in the gaps that reason can't get at. And they teach intuition as part of decision making. It is this knowing without knowing how you know. I study the military because of their interest in peak performance under the stress of the battlefield and they have a lot of money and very smart minds to produce performance under pressure. Much better than most of the academic research. Traders are taught to use reason and logic as their guides in decision making -- and leave emotion out of the picture -- which BTW is impossible to do. Yet, when you get around really skillful traders, you will find that they typically use gut instinct or intuition as part of their calculus of decision making. Very few things in trading are clear cut black and white knowledge that reason, alone, can work well.. It is in this grey ambiguity that skillful traders use intuition to fill in. It's not guessing. It is instinctual problem solving that by passes logic. Same thing the US military is teaching these days. There are a couple of professional traders I work with who teach a very logic based decision making process. Just what you would expect. Yet, in their trading rules under the pressure of living trading, they drive their students nuts when they take trades that don't follow the rules that the students know. The expert trader retorts that they are following the rules. In hindsight, they are. In the moment to the untrained eye, they aren't. Instead of turning a blind eye toward intuition, they are learned how to incorporate it into their very successful decision making. Unfortunately for floor traders becoming screen traders, the gut instincts that they learned on the floor are useless when they can't feel the emotions of decision makers around them. To be successful, they have to relearn how to use their intuition in a different domain. Reason and instinct really need to be taught how to work together in a trader's mind. The video and article I'm preparing for April addresses this gap in understanding trader's mind. The problem is that reason appears to be reasonable until it is put to the test. Then you find that it is slave to emotion. Without really learning how to work with your instinctual emotional nature, traders typically trade with half a brain and limited capacity to act under conditions of uncertainty. SIUYA -- I am going to be speaking in Brisbane and the Gold Coast in May at the national conference for the Australian Technical Analysis Association. I will also be in Sydney for a few days following the conference. Are you in any of those locations? Rande Howell

Personally, I find the biggest gap to competence in trading is the movement from a deterministic mindset to a probability based mindset. It's huge and difficult to make that shift. Rande Howell

That's a surprise. If you go to u-tube and type in Rande Howell, you'll find about 35 more videos on Trader Psychology over the years. They are not as coat and tie as the Money Show ones. Rande Howell

I've know very few people who can maintain a disciplined mindset that is totally focused for extended periods of time. Brain's need for glucose replenishment is real for being focused and alert. Traders I work with seem to be able to maintain focus for somewhere between 30 minutes to 1.5 hours at a time. Then breaks are needed to refuel. Scheduling breaks gives the trader time for his brain and mind to replenish and prepare for another high concentration period. Otherwise thinking quality is compromised. Rande

There entire compensation package is built around short term success or failure. Consistently profitable traders do not get the same bonuses are the home run hitters, though they out perform them in the longer term. It like they know they need to think long term, but the entire culture is stacked to act in the short term. Traders and pm's burn out early so you see young people in these positions. It's a self selecting breed. John Coats, a nuero-scientist who studies the financial markets, has studied and written about this extensively. Currently I'm brought in for 2 hour trainings. I see a mix of traders, portfolio managers, and fund managers. It is the fund managers and portfolio managers that are most open to my message. Thank you for your kind remarks. Trading is a remarkable laboratory for me. The process of trading cuts to the bone like in no other endeavor I've seen. The trading account is a pure measure of the beliefs that the trader is projecting upon the markets. Self honesty is required for the building of long term success. Rande

The firm is highly competitive and is known on Wall St to recruit traders and pm's with a take no prisoners, dog-eat-dog attitude that is the backbone of the firm. They also behave this way internally. This was the first time they had allowed a peak performance guy to train personnel. They also have a high burn out rate even for Wall St. The head trader was not open to my message, but the portfolio managers were. The pm's stay around a lot longer. This firm was over the edge, but all the firms I did training for held an attitude that they expected to win ever day. It was so different from the trainings I've done in Asia and Europe, where there was an acknowledgment that that notion is not workable. It was just striking to me that there could be so much difference between cultures. The Americans were much more like the Chinese than the other financial cultures I worked with in this must win attitude. I've never worked with Australian financial firms so I have no basis to compare there. Rande

Think about what the trader was attempting to do with all that oc behavior -- trying to better control outcome. To a successful trader, all the "stuff" appears to be a disorganized mind. To the trader not willing to embrace the unknown, it seems logical and helps him "feel" in control.. He becomes locked into a particular way of dealing with the uncertainty that had worked in another time and place -- and now it doesn't. But the pattern is locked now. All biological systems organize themselves to avoid the introduction of the chaotic unknown. Our cells have semi-permeable membranes to negotiate the world beyond its closed system. Learning to open that system for growth is a challenge. So it is with trading. There will be many people who never transition from a deterministic mindset to a probability based mindset. These people really need to find a way to make a living more consistent with their mindsets. Trading requires a probability based mindset so that the unknown is simply part of the equation. Rande Howell:crap:

Can't eliminate emotions, mind, or self from trading mind. Except if you are dead. If you've figured out a way to eliminate emotions as part of an organism's dance with the environment, I'm sure neuro-science would be very interested. But you can become the designer of the emotions and mind that you bring into the moment. It's not the absence of emotion that is possible -- it is the management of what emotions are showing up responding to the uncertainty of the unknown. This is what creates the quality of the mind in the midst of the performance. Rande Howell

The organism and the human mind comes to various beliefs about their capacity to manage the uncertainty of the unknown. It is these beliefs that you see played out in the trading drama. Impatience and hesitation are simply expressions of these beliefs. Rande Howell

All this aversion to risk boils down to one thing -- the fear of the unknown. It is both biological through genetic predisposition and psychological in learned reponses in its expression. Trading just makes it impossible to ignore. Rande Howell

This is really an interesting experience you are describing here. Right now, my thinking is that the problem is really about the need to shift from a deterministic mindset where outcome controlled is attempted to probability based mindset (game theory) where the only thing that can be controlled is the mind that is brought into the moment of uncertainty. It is difficult to train. Not because the material is all that difficult, but because the human is so resistant to changing belief pattern. Even though we now know Descartes and Newton had enormous limitations in their theories, in the deterministic paradigm the organism feels a false sense of control that feeds into the brain's tendency toward self-deception. This trumps long term thinking every time. In the probability paradigm (though more honest) triggers the vulnerability of the fear of the unknown.-- and its short term consequences predicted by brain's survival circuitry. It is learning how to accept and work with the vulnerability of the moment -- before outcome is known -- that the trader has to master to be successful. I saw this in trainings I was giving on Wall St. earlier this week. They know their is a high probability of loss on any given trade or position in a given day, but they are taught to win at any cost. They are rewarded and punished based on this criterion. One particular group is taught to believe that they must win every trade. There is also a very high burn out rate or attrition rate in this firm. They also know that if they are right 48% of the time, they will be wealthy. And if they hit 52%, they will become a legend. Yet, they cling to the short term need to win every time -- or create a narrative projecting blame and responsibility outside of the self. Hey, if we can have discussion like this, I'll start publishing here again. Rande Howell

In neuro-science what has been discovered is that you never experience reality, or the markets as a trader. Instead your brain takes data from your sensorial modalities and forms a virtual representation that is projected upon the markets. That is what you "see". You do not see the markets. The virtual simulation is the belief lens through which you interpret the phenomena. You hear utterances from a person and your brain's virtual simulation creates meaning. We did not hear the same thing. History is interpreted by the victors to be right.

OILFXPRO With sufficient motivation and the right set of circumstances, I have seen it done in 2-3 months. More realistic typical times vary from 6 months to a year, depending on the person. People who insist on being in control of outcome or not making a mistake -- never. I have found that it takes about 3-4 months of concentrated work to break the pattern of deterministic thinking and embrace probability thinking. Great improvement is show in this moment, but this new way of perceiving has to be habituated as the new norm. That takes awhile. It the difference between becoming profitable and consistently extracting capital from the markets. Most people don't like hearing that, but that is what I find with the methodology I teach. I have found that managing the physicality of emotion has to be taught first or the mind is too easily overwhelmed by its nature reaction to uncertainty. Then, a tool for re-understanding the mind is introduced -- mindfulness. It is here that a trader can look at his biases and restructure them. Rande Howell

I've worked with a number of former successful pit traders who move to screen trading, and they fail miserably. Competence in the pit does not translate to competence when the trader does not get to smell and see the emotions of others in the raw. What's your take on this? Rande Howell