Taming the Furies: Disrupting Fear & Calming the Mind

[Rande Howell 10]

Taming the Furies

Disrupting Fear and Calming the Mind

 

“I don’t get it. I know how to trade,” explains Brian, “I’ve been trading for 9 years and I can’t seem to break through this barrier to really successful trading. Something is holding me back, and I don’t know what it is. I see a pattern though. I see the set up. I see its potential.

 

But I’m tough on the price I’m willing to pay to get into a trade. I’m determined to buy at a price that will limit my losses. The problem is that often my buy order just sits there not getting filled as I watch the price climb. I realize that I could have bought at a higher price point and still made good money, but I want to limit my losses first.

 

What I’m beginning to see is that by focusing on loss abatement, I’m not really practicing risk management. Both the potential and probability for a winning trade is there. But I shut myself out of the trade because I assess from a negative expectation (contain loss) rather than risk capital on the probability of a successful trade. It may seem like a subtle distinction, but now I see that is what has kept me from achieving my potential in trading for nearly a decade. I’ve tried various training program about how to change my beliefs, and I’ve tried to click my heels and snap my fingers, but they don’t seem to work for me. How do I get beyond this mindset?”

 

The Brain, the Mind, and the Market Collide

 

Brian, like many traders, does not understand how to change deeply ingrained patterns of perception and behavior. He assumes that changing beliefs is a mechanical process where he can take a part off and put a new one on. His assumption about change is highly inaccurate. Until he grasps how to disrupt the biology of pattern, attempting to change his beliefs and thoughts will accomplish short term results that fade over time. And the old historical pattern will reclaim perception. This is the same reason why diets do not work. Most diets (and dieters) attempt to change behavior from the outside. This only changes the surface. The dieter, in the attempt to change appearance, remains blind to his self limiting core beliefs of which over-eating is only a symptom – not the problem.

 

Let’s take a look at what Brian does not understand about the biology of pattern and belief that limits his potential as a trader. He is trying to understand the market when he does not understand some fundamental aspects about himself. This is the piece about changing beliefs long term that nearly all traders miss.

 

Before moving to the market, let’s make sure you know what the default position is for your brain and your mind regarding the market. Your brain evolved over eons of time to be a pattern recognition machine. With survival as an adaptive stressor, it also evolved to negatively assess situations as a default position. So it is a pattern recognition machine as well as a negative assessment machine. That is the biological predisposition that you bring into trading just because you have a brain and body to preserve. You have an uphill struggle for re-training your biology to right this situation for successful trading.

 

This subtle difference can be seen in Brian’s discovery. Despite knowing how to trade, the fundamental assumption he makes is focused on “not losing, or minimizing loss” rather than maximizing the probability of success. Because his mindset is locked on this position, Brian cannot “see” another world of risk management in which consistently successful traders operate. There is a biological bias, which has become a psychological limitation, and which Brian will need to correct in order for him to move to the next level.

 

As a pattern recognition and pattern creating machine, your brain’s job is to discover pattern and build structure around that pattern so that chaos is avoided (same thing you attempt to do in trading). Like a singular cell biological system organizing itself so that the chaos outside the cell wall will not destroy the engine of life within the cell, so also do very complicated biological systems (such as “you”) organize themselves. Your brain organizes you into contained structures (called comfort zones or perceptual maps), both biologically and psychologically, to avoid intrusion of the uncertainty of the world in which you exist. The problem is that in trading you have to embrace the uncertainty of the market. And instead of trying to control the market, you have to learn how to control yourself. To master the market, you will have to conquer yourself.

 

Like your biology organizing itself to survive in a larger eco-system that can and will be threatening, you build a psychology primarily invested in avoiding dangerous elements in your environment that could disrupt the structural integrity of the organization of the self called “you”. Have you noticed how unsuccessful this strategy is when used in trading? Like Brian, you try to avoid threat to integrity (loss), rather than manage risk for probable outcomes.

 

As humans in a quest for certainty in a world of uncertainty, we have closed ourselves off from the inherent dangers in the natural world. We build and live in houses where we control who and what we allow in the front door; we control the weather; we control our food, and so much more. It would seem that we have created the conditions of certainty where uncertainty used to prevail. We have the illusion of control.

 

Then life throws us a curve ball for which we are unprepared or we live lives devoid of adventure and meaning. Both are undesirable. In the first case, we are thrown into chaos. We are surprised because we have been following the rules under the assumption that they will lead to certainty. Faced with uncertainty, we either re-examine our beliefs and position and begin to create a new life – or we stay stuck insisting that our rules should work. Or we begin to seek adventure and meaning that throws us back to grapple with uncertainty and risk. The key is whether we have the skills to manage risk and uncertainty. If we do, we embrace probability and organize ourselves for the adventure to achieve that potential. If we do not develop the skills, we continue to crave certainty so we can prevent loss. And we forfeit our potential just as Brian is doing in the vignette above.

 

Brian’s performances in trading kept crashing him up against the rules of his sense of certainty. Because he was so far removed from the uncertainty of the natural world that contains an element of chaos, his beliefs about how to interact with the forces of life seemed to work. He had achieved a false sense of certainty in his man-made world. Then he started trading and discovered that the world of trading did not follow his carefully orchestrated belief systems of loss containment.

 

The market he encountered defied certainty. To protect himself from this uncertainty, he screwed down the conditions on his buy prices so that he could contain his losses. This protective behavior continued until he ratcheted down his potential for loss – only to find he also closed the probability of profit. What was he missing?

 

Rande Howell