The Final Frontier:

[Rande Howell 10]

The Final Frontier:

Navigating the "Mind"field of Trading Without Blowing Up

 

“Now that I have had struggle after struggle for months and have had many losing months, I no longer wish this to go on without some tools to deal with the patience required to wait for strong setups, the courage to make the entry, the discipline to set the stop and hold it, and the impartiality to sit and wait for the trade to develop to its target. The system is still solid gold but I am holding it back.”

 

The only difference between this trader and many other traders is that he had been successful for a while before his trading took a nose dive. That very success gave him a false sense of confidence that later came back to bite him. His mood felt “so right” that he did not question whether he was in the right mindset to trade or not. He inexplicably sabotaged his trading. This is not a trader who set out to incrementally blow up his trading account. But that is what happened anyway.

 

What is it about the mind that creates such problems in trading?

 

On the surface, trading looks like any other skill that a person learns and becomes proficient in. All a trader has to do is to apply the methodology he or she has learned and risk is managed. But the actual performance of trading is different. There are many traders who know how to trade when risk of loss is not involved, but fall apart when their knowledge is put to the test when trading "live".

 

The first blunder a trader makes (and our friend from above made) is to assume that the mind and emotion are separate from one another. Many traders are advised by well-meaning teachers to “leave their emotions at the door” when they trade. Just how do you do this?

 

You don’t. But traders have a tendency to maintain a deception where they believe they are capable of this. The belief “feels” right and is not reality tested. The “feeling” right (more about this later) and a sense of certainty clouds the mind – no matter what evidence is presented to the contrary. This is called cognitive dissonance. Then comes the collision between these ungrounded beliefs (rooted in the feeling of certainty) and their performance in trading.

 

Beliefs, no matter how much they “feel” right, are severely tested for effectiveness in trading. Many people act from beliefs that are never put to the test until they get into trading. And then they are confronted with the observation that the beliefs that they bring to trading do not allow them to move from a certainty-based mindset to a probability-based mindset. And without a probability-based mindset, dealing with the uncertainty involved in trading will trigger fear as the emotional base for thinking while trading.

 

The brain has deceived the trader’s mind. The brain was never designed to separate uncertainty from fear. But it is designed to produce a sense of certainty, even if the assumption is wrong, so that the brain does not have to experience the discomfort of uncertainty. To the brain, uncertainty is fused with the fear of death. This is where most traders stay stuck.

 

Emotion and Cognition Are Linked

 

What neuro-science has convincingly demonstrated is that emotion and thinking are embedded into one another. Your thinking (as well as your memory) is emotional- state-dependent. If you change the emotion, you also change the quality of both thinking and memory. Emotion encodes the way a memory (and your thinking) is filed. Ask a person to remember an event that was encoded while angry and they will have a difficult time even finding the memory to retrieve while in a calm state.

 

And the person’s memory has been filed in the mind in such a way that it is accessed from that emotional state. Take an example of a couple having an argument. A woman, while angry, will have access to all the memories of everything her spouse has ever done wrong while in a state of anger. Years disappear and she can remember things that the man has long forgotten. And she piles on these memories. This is emotional-state-dependence showing up in memory retrieval and thinking. This same phenomenon occurs in a person’s mind while trading as well.

 

When the anger subsides, a different picture emerges. No longer in anger, she does not biologically have easy access to those memories. The file of memories is encoded to be accessed while in the emotional state of anger. When not in anger, she no longer has direct access to those memories. They simply do not appear in the mind unless the emotional state that they were encoded in becomes the emotional state that determines her state of mind.

 

This becomes a mine field, waiting to be tripped, when applied to trading. Few traders bring the understanding into their trading of how brain, emotion, mind, memory, and thinking interact with one another. And without this understanding, and new skills built upon this understanding, an important tool for building a mindset for trading is lost and they stay in a faulty belief that emotion and thinking are separate – because it “feels” right. The trader may believe that they are separate, but their trading account shows a different story.

 

The Over Confident Trader Sabotaged

 

Now let’s take a look at our trader friend and also take a deeper look at the mind driven by emotion. Initially the trader quoted in the vignette came to me because he was not making enough money. He was profitable, but he felt (notice the feeling state that distorts perception) that he should be doing much better. Once he had determined that he was already making between 2-3% return per month on his trading account (and this was a standard level of return that most traders would aspire toward), he was no longer motivated to build a mindset.

 

He “felt” certain that he could do much better. In his studies he had read about what typical returns are for traders, but his mind (under the influence of the feeling of certainty) discounted this information. His trading had produced a euphoria that, in his mindlessness, had seduced him into the feeling of certainty that he should be doing better. Cutting down to his core motivations, he wanted to prove himself by his performances in trading. He wanted to be wealthy and prove to the world (and his long-dead parents) his worth. In his mindlessness, he was confusing external validation of the self by performance with the internal validation of the self of his being. This was his second blunder.

 

The moment that a trader uses his performances in trading as an indicator of his worth as a human being, he is in trouble. This is a faulty assumption to base your beliefs about self worth upon. Trading is a not a measuring stick of your worth. Trading is a performance. It is a performance that requires a stable and trained mindset to produce success, but it is only a performance – and not a measure of a person’s worth.

 

In this trader’s case, his early success in trading actually generated a feeling of euphoria that he mistook for confidence and worth that was based upon performance. The early success filled up a hole in his internal sense of self worth that made him “feel” triumphant. As an emotional state that is short term in nature, the “feeling” of worth that came from his performances gave him a sense of certainty about his worth.

 

The feeling component of an emotion will do that. Feeling is the subjective experience of the emotion and it creates a sense of certainty in whatever direction the emotion is wired to take you. Fear will create a feeling of certainty in the domain of doom. Greed will create a feeling of certainty in the domain of expansive possibility. That feeling for our friend in the vignette became exuberance and euphoria. Out of that exuberance came the certainty of the belief that he was going to win, and win more. It made him “feel” like he mattered in the short term as an emotion will do. It also short circuited his capacity to think in the long term and in terms of probability. That feeling of exuberance compromised the possibility of discipline, impartiality, and patience.

 

Before he knew it, the need to prove himself to others through trading had taken its toll on his trading account over a period of months. Humbled, and no longer deceived by greed or exuberance, he became set to look at the self limiting beliefs that his desire to prove himself by performance were rooted in.

 

Self Limiting Beliefs Become the Stumbling Block in Your Trading

 

Our friend’s problems in trading are rooted in his need to prove himself externally to others. He does have passion for trading – he truly loves it. But his psychology has fused performance with his being. He, like many traders, is blind to what drives his motivations while trading. The four self-limiting beliefs that need to be observed and transformed are: (1) A sense of inadequacy, (2) a sense of not mattering, (3) a sense of unworthiness, and (4) a sense of powerlessness.

 

When you trade, what are you trying to prove? Many traders will say that they got into trading so that they could become rich. What will being rich prove? Notice that, for most, money becomes a short term fix to fix up a psychic hole rooted in “feelings” of inadequacy, not mattering, not being worthy, or powerlessness.

 

If you trade to absolve these self limiting beliefs, the feelings will come back again to haunt you. As you learn to trade from a position of being alive in the performance and challenge of trading, a very different state of mind engages the uncertainty of trading - a state of mind that learns from mistakes and does not see losses as indicators of his or her worth...but only as indicators of his or her current level of competence to trade. And competence in trading, both psychological and methodological, can be learned.

 

At this moment the trader is moving beyond trading from the “feeling” of self limiting beliefs and into a peak performance state of mind built for trading. Trading becomes an art and science to master – not a measure of a person’s worth or power.