The Mind You Brought to Trading is Not the MInd That Brings Success in Trading

[Rande Howell 10]

After a career in sales and a downsizing, Jack decides to take control of his future by focusing his considerable energy on developing a new career in trading. He is highly disciplined, motivated, goal-oriented, and has a winning attitude – traits that served him well as a professional salesman. After studying trading and becoming proficient in his platform and methodology, he is still a break-even trader, at best. And he does not know why.

 

What confounds him is that he is not consistently following his own trading rules regarding entry points (getting in late or too early) and exits (getting out early after small profits). In hindsight, while he is reviewing his trading day, Jack recognizes (after doing some research on trader psychology) that he is trading from a mindset rooted in fear. But it does not make sense to him and he cannot see why he keeps losing.

 

In a consult with me he explains, “I know how to deal with the fear of rejection. To be successful, you get over that in sales. You know it’s a numbers game. When you lose one, you just get yourself cranked back up for the next one. You’ve got to get back to that winning attitude. That is what attracts success.”

 

I ask Jack to explain how he produces a winning attitude in trading. He responds, “The same way I did in sales. I use a visualization technique where I see and feel what it would be like to make $1,000,000. It really pumps me up. I can taste the victory. I then take that energy and focus it on my next sales opportunity or my next trade. I have photographs of what that success would provide me. I’ve built a sales career out of being able to create these high-energy states and to attract success.”

 

I ask Jack, “How is that skill translating to success in trading?” His answer, “Something’s not working. I’m sure it should be working. But it’s not working. And I don’t know what I’m missing.”

 

Why Jack Can’t Trade

 

On the surface Jack’s training in visualization and the law of attraction seems applicable to trading. This training has worked in other domains of experience, why not in trading? Jack's visualization creates a high energy and the chemistry of euphoria to build a desire for the goal. That is a problem in trading, where a very calm, assertive state of mind is needed to manage the tasks of trading. This is a very different feeling state than high energy and euphoric states he called forward to conquer fear of rejection in sales.

 

When in the grips of euphoria (you might call this state a highly positive energetic mood where you feel like you can do anything), you feel sure that the good times are going to roll and continue forever. The trader “feels” certain that he is going to win. You are positive that you are going to make the next sale by the sheer force of will. From that feeling, rooted in euphoria, the thinking, perceptual mind believes in the certainty of winning. This is a sought-after state of mind in high-energy sports such as American football (and in business) where dominating an opponent and winning is part of a peak performance state of mind.

 

In that high-energy, euphoric state, the trader’s mind (deeply connected to his emotional state) is no longer in an impartial and clear mindset. It is highly biased to see only the good that is shaping up. This leads to over-trading and over-trading leads to losses. Those losses lead to pattern-recognition and reaction-formation by the emotional brain of the trader. No amount of willpower or having a positive attitude will force the emotional brain not to hijack the thinking brain once a reactive pattern has been formed.

 

The brain associates these high-energy states with losses and, quite naturally, triggers to avoid them. By experience, the intentional generation of a euphoric emotional cocktail has now been associated with the fear of loss. Suddenly the euphoric feeling (not the performance) of being able to dominate the markets and create a positive future becomes counter-productive. It is now associated with the fear of loss. This is where Jack is stuck.

 

The State of Mind That You Bring to Trading

 

To become consistently successful in his new career, Jack is going to have to relearn how to create the mindset that he brings to trading. The old mindset, so successful in sales and business, became a liability in trading. Why?

 

Highly cognitive endeavors such as chess, bridge, and trading require low levels of emotional arousal for peak performance. You are not trying to produce high-energy feeling states for trading. You are working to produce low levels of emotional arousal so that your trading mind does not get influenced by euphoria or fear (which require high energy states). Getting “cranked up” in a winning attitude produced disastrous trading results for Jack. Low arousal states are required for the methodical, impartial-thinking emotional states of a mindset built for trading.

 

Self-described adrenaline junkie that Jack is, this was a difficult retraining exercise. What he had to do was develop a calm, assertive, impartial state of mind from which to trade. In this state of mind, while in the act of trading, he was not trying to win or lose the trade. Instead he was focused on playing the trade so that he performed it flawlessly according to his trading plan.

 

At this moment probability was on his side. He now “felt” certain that when he traded his plan, he had an edge in his trading. The difference is that he learned to become an emotional manager of what feeling-state was influencing the certainty of beliefs that he brought to trading.

 

The "feeling" element of emotion will always do this. In fear, there is a feeling-state that creates a mindset that believes that it is certain that doom is coming if you do not escape. Hesitating to get in at your planned entry points without massive confirmation is often the resulting behavior. In euphoric emotional states, the feeling contaminates your thinking with a certainty of belief that the good times are going to continue to roll. Calm, assertive and impartial emotional states produce a feeling of being certain that you can take advantage of whatever the market is willing to give you. Low arousal states help keep you in this feeling-state where clear, calm thinking occurs.

 

Jack Learns to Trade

 

Jack is still an adrenaline junkie – outside of trading. When he finishes trading for the day, he now rewards himself by directing his energy into other domains where high energy states are useful to performance (tennis in this case). When he is trading though, Jack now calls forward the state of mind rooted in calm, impartial, assertiveness. In this state of mind, he sees the information on his screens, biased by impartiality rather than biased by the certainty of being worth a $1,000,000.

[SIUYA 11]

Rande - as per chance I stumbled across this book review - I have not read or bought it yet but I might.

 

Amazon.com: The Folly of Fools: The Logic of Deceit and Self-Deception in Human Life (9780465027552): Robert Trivers: Books

 

I often think the mind that brought you to trading is not the mind that works in trading as we are often too interested in being right, and when found out often lie to ourselves - the market is manipulated, if I only did this, it was not my fault, etc; and too often the reason why trading in markets seems difficult is that rather than the fear of loosing money, its the fear of being wrong - ie; you cant hide the deception in the markets.

 

anyways - I was wondering what your thoughts were given you often talk more about the money narative someone might have and their approach to money, rather than say a biological/evolutionary/in-built propensity to lie to ourselves to survive. thanks.

[MightyMouse 12]

After a career in sales and a downsizing, Jack decides to take control of his future by focusing his considerable energy on developing a new career in trading. He is highly disciplined, motivated, goal-oriented, and has a winning attitude – traits that served him well as a professional salesman. After studying trading and becoming proficient in his platform and methodology, he is still a break-even trader, at best. And he does not know why.

 

What confounds him is that he is not consistently following his own trading rules regarding entry points (getting in late or too early) and exits (getting out early after small profits). In hindsight, while he is reviewing his trading day, Jack recognizes (after doing some research on trader psychology) that he is trading from a mindset rooted in fear. But it does not make sense to him and he cannot see why he keeps losing.

 

In a consult with me he explains, “I know how to deal with the fear of rejection. To be successful, you get over that in sales. You know it’s a numbers game. When you lose one, you just get yourself cranked back up for the next one. You’ve got to get back to that winning attitude. That is what attracts success.”

 

I ask Jack to explain how he produces a winning attitude in trading. He responds, “The same way I did in sales. I use a visualization technique where I see and feel what it would be like to make $1,000,000. It really pumps me up. I can taste the victory. I then take that energy and focus it on my next sales opportunity or my next trade. I have photographs of what that success would provide me. I’ve built a sales career out of being able to create these high-energy states and to attract success.”

 

I ask Jack, “How is that skill translating to success in trading?” His answer, “Something’s not working. I’m sure it should be working. But it’s not working. And I don’t know what I’m missing.”

 

Why Jack Can’t Trade

 

On the surface Jack’s training in visualization and the law of attraction seems applicable to trading. This training has worked in other domains of experience, why not in trading? Jack's visualization creates a high energy and the chemistry of euphoria to build a desire for the goal. That is a problem in trading, where a very calm, assertive state of mind is needed to manage the tasks of trading. This is a very different feeling state than high energy and euphoric states he called forward to conquer fear of rejection in sales.

 

When in the grips of euphoria (you might call this state a highly positive energetic mood where you feel like you can do anything), you feel sure that the good times are going to roll and continue forever. The trader “feels” certain that he is going to win. You are positive that you are going to make the next sale by the sheer force of will. From that feeling, rooted in euphoria, the thinking, perceptual mind believes in the certainty of winning. This is a sought-after state of mind in high-energy sports such as American football (and in business) where dominating an opponent and winning is part of a peak performance state of mind.

 

In that high-energy, euphoric state, the trader’s mind (deeply connected to his emotional state) is no longer in an impartial and clear mindset. It is highly biased to see only the good that is shaping up. This leads to over-trading and over-trading leads to losses. Those losses lead to pattern-recognition and reaction-formation by the emotional brain of the trader. No amount of willpower or having a positive attitude will force the emotional brain not to hijack the thinking brain once a reactive pattern has been formed.

 

The brain associates these high-energy states with losses and, quite naturally, triggers to avoid them. By experience, the intentional generation of a euphoric emotional cocktail has now been associated with the fear of loss. Suddenly the euphoric feeling (not the performance) of being able to dominate the markets and create a positive future becomes counter-productive. It is now associated with the fear of loss. This is where Jack is stuck.

 

The State of Mind That You Bring to Trading

 

To become consistently successful in his new career, Jack is going to have to relearn how to create the mindset that he brings to trading. The old mindset, so successful in sales and business, became a liability in trading. Why?

 

 

 

Self-described adrenaline junkie that Jack is, this was a difficult retraining exercise. What he had to do was develop a calm, assertive, impartial state of mind from which to trade. In this state of mind, while in the act of trading, he was not trying to win or lose the trade. Instead he was focused on playing the trade so that he performed it flawlessly according to his trading plan.

 

At this moment probability was on his side. He now “felt” certain that when he traded his plan, he had an edge in his trading. The difference is that he learned to become an emotional manager of what feeling-state was influencing the certainty of beliefs that he brought to trading.

 

The "feeling" element of emotion will always do this. In fear, there is a feeling-state that creates a mindset that believes that it is certain that doom is coming if you do not escape. Hesitating to get in at your planned entry points without massive confirmation is often the resulting behavior. In euphoric emotional states, the feeling contaminates your thinking with a certainty of belief that the good times are going to continue to roll. Calm, assertive and impartial emotional states produce a feeling of being certain that you can take advantage of whatever the market is willing to give you. Low arousal states help keep you in this feeling-state where clear, calm thinking occurs.

 

Jack Learns to Trade

 

Jack is still an adrenaline junkie – outside of trading. When he finishes trading for the day, he now rewards himself by directing his energy into other domains where high energy states are useful to performance (tennis in this case). When he is trading though, Jack now calls forward the state of mind rooted in calm, impartial, assertiveness. In this state of mind, he sees the information on his screens, biased by impartiality rather than biased by the certainty of being worth a $1,000,000.

 

" I ask Jack to explain how he produces a winning attitude in trading. He responds, “The same way I did in sales. I use a visualization technique where I see and feel what it would be like to make $1,000,000. It really pumps me up. I can taste the victory. I then take that energy and focus it on my next sales opportunity or my next trade. I have photographs of what that success would provide me. I’ve built a sales career out of being able to create these high-energy states and to attract success.”

 

I think it might be a good idea for Jack and the author to understand the real reason why Jack was a successful salesman. It will be difficult for the author to help Jack with his new endevour if he accepts or promotes the illusions that Jack already possesses. It appears from the brief description of Jack's sales career that Jack has ego issues.

 

When companies downsize, they stop supplying coffee to employees, they consolidate real estate leases, they get rid of dead wood clerical staff, but they do not get rid of top sales people.

 

Clean up the BS Rande, some people won't buy it.

[Rande Howell 10]

"

 

When companies downsize, they stop supplying coffee to employees, they consolidate real estate leases, they get rid of dead wood clerical staff, but they do not get rid of top sales people.

 

Clean up the BS Rande, some people won't buy it.

 

No BS. Actual client. Not deadwood. Many good salespeople (and a host of other kinds) have lost jobs in the pharmaceutical industry (and other industries). Particularly if you are over 50. They are forced to retool and retrain for new opportunities. The emphasis is on the energy state associated with his goal of success. Typically sales and marketing and executive-type people are taught from this perspective. And it simply does not translate well to trading mind.

 

Rande

[steve46 12]

I think the idea of having an "adaptive mind" is a good thing, provided a person can offer a practical example that gives traders a idea of what is needed

 

Today we had a good example just now, as Ben Bernanke was asked a question by Representative Charles Grassley of Iowa....

 

In response to his question about the impact of a pending increase in taxes if congress does not extend the Bush Tax Cuts, Bernanke suggested that while congress needs to adopt a sustainable long term fisal program, they also need to respond to the immediate situation and provide some relief to tax payers.

 

The attached chart shows a market that was moving sideways while that question was asked and where the green arrow comes, you have a "response" as Mr. Bernanke answers the question.....the result was a tradable move up

 

From my point of view what most developing traders could benefit from would be the kind of education that allows them to recognize THAT kind of opportunity and take advantage of it...rather than some unfocused idea of managing emotional content...

 

Sorry, but I would rather have a practical way to make money now, and learn to manage my emotions a bit later....

 

Thanks

Steve

[Rande Howell 10]

I think the idea of having an "adaptive mind" is a good thing, provided a person can offer a practical example that gives traders a idea of what is needed

 

Today we had a good example just now, as Ben Bernanke was asked a question by Representative Charles Grassley of Iowa....

 

In response to his question about the impact of a pending increase in taxes if congress does not extend the Bush Tax Cuts, Bernanke suggested that while congress needs to adopt a sustainable long term fisal program, they also need to respond to the immediate situation and provide some relief to tax payers.

 

The attached chart shows a market that was moving sideways while that question was asked and where the green arrow comes, you have a "response" as Mr. Bernanke answers the question.....the result was a tradable move up

 

From my point of view what most developing traders could benefit from would be the kind of education that allows them to recognize THAT kind of opportunity and take advantage of it...rather than some unfocused idea of managing emotional content...

 

Sorry, but I would rather have a practical way to make money now, and learn to manage my emotions a bit later....

 

Thanks

Steve

 

Of course the emotional management you bring to the Now is what determines what you see.

[joshdance 10]

I think the idea of having an "adaptive mind" is a good thing, provided a person can offer a practical example that gives traders a idea of what is needed

 

Today we had a good example just now, as Ben Bernanke was asked a question by Representative Charles Grassley of Iowa....

 

In response to his question about the impact of a pending increase in taxes if congress does not extend the Bush Tax Cuts, Bernanke suggested that while congress needs to adopt a sustainable long term fisal program, they also need to respond to the immediate situation and provide some relief to tax payers.

 

The attached chart shows a market that was moving sideways while that question was asked and where the green arrow comes, you have a "response" as Mr. Bernanke answers the question.....the result was a tradable move up

 

From my point of view what most developing traders could benefit from would be the kind of education that allows them to recognize THAT kind of opportunity and take advantage of it...rather than some unfocused idea of managing emotional content...

 

Sorry, but I would rather have a practical way to make money now, and learn to manage my emotions a bit later....

 

Thanks

Steve

 

Double posting since you did as well steve:

 

This is one of many Bernanke testimonies, press conferences, etc., and if you think that him saying that caused the market to respond in some meaningful way, I think you've lost your mind, to put it bluntly and nicely. He says things like this all of the time, and Bernanke is VERY good at remaining generally apolitical in his comments. He crafts his comments in such a way that it will NOT cause ripples, if you listen to how he responds. The market tried to break beneath yesterday's low. Buyers held it, and pushed it back above. The market was primed for a run to the top of this range already, and Mr. Bernanke's comments had minimal impact. In fact, look on the "Day trading emini futures" thread and you'll see that I recognized the order flow shift, BEFORE this was said. The market is very well aware that he and the FOMC are responsible for monetary policy, which is why they pay attention to those matters; they don't give a rat's butt about his politically correct comments in which he stays out of matters regarding legislation.

[SILVER 10]

Rande,

thanks for giving such insights in the ways you see the mind working.Helped me get a different perspective and work from that.How long does it take on average to reprogram certain patterns from your experience?

[joshdance 10]

Rande - as per chance I stumbled across this book review - I have not read or bought it yet but I might.

 

Amazon.com: The Folly of Fools: The Logic of Deceit and Self-Deception in Human Life (9780465027552): Robert Trivers: Books

 

I often think the mind that brought you to trading is not the mind that works in trading as we are often too interested in being right, and when found out often lie to ourselves - the market is manipulated, if I only did this, it was not my fault, etc; and too often the reason why trading in markets seems difficult is that rather than the fear of loosing money, its the fear of being wrong - ie; you cant hide the deception in the markets.

 

anyways - I was wondering what your thoughts were given you often talk more about the money narative someone might have and their approach to money, rather than say a biological/evolutionary/in-built propensity to lie to ourselves to survive. thanks.

 

This is a good point. I've found that when I pass on a great trade idea, it's for fear of being wrong about my logical premise. If I lose, then I'm wrong about my good idea. Yet, if I then take a poor, low probability opportunity, I can almost sense immediately that it's a bad idea but I stay with it--because at least I get to be right about it being such a dumb idea. Perhaps that sounds ridiculous, but it's not about losing money, it's about being right or wrong.

 

By the way Rande, I want to say thank you for your posts as well. I am sorry that you get a lot of attacks and take a lot of heat for what you post, but I think ultimately the cause of this is that you are a self-admitted non-trader. You don't actually trade, so people don't respect your advice, no matter how valuable it may be. If you came from a place of actually having put into action what you are preaching in the markets, I think you would realize how much of what you say is either true or not, from a personal perspective. Sure, Tiger Woods' coach is not as good as Tiger Woods and can coach him, but I'll bet you that he has actually picked up a club and played a round or two before.

[Rande Howell 10]

Rande - as per chance I stumbled across this book review - I have not read or bought it yet but I might.

 

Amazon.com: The Folly of Fools: The Logic of Deceit and Self-Deception in Human Life (9780465027552): Robert Trivers: Books

 

anyways - I was wondering what your thoughts were given you often talk more about the money narative someone might have and their approach to money, rather than say a biological/evolutionary/in-built propensity to lie to ourselves to survive. thanks.

 

SIUYA

 

Self deception is inherent to the human condition. What is often confused with thinking is the biogical thrownness to generate an explanation after the emotional brain has triggered to habitual pattern. That pattern is often self serving. It takes enormous rigor to redirect fear and greed direction into life affirming diections. Gandhi and Mandela came to point that they were able to manage the impulses of our biological nature. fasting, meditation, and self knowledge are historically tools used to create the internal discipline to maintain attunement to our higher nature. Christ meditated and fasted for 40days before he was able to get a bead on the deception that lived within him. You can bet most traders will insist in staying in self deception. Should be good news for a competent trader. I have actually had people say to me that they didn't have to change their beliefs to become better traders. The telling me this had lost his house in the process of trading and never told his wife. Self honesty is really important for change to occurred.

 

Rande Howell

[Rande Howell 10]

Rande,

thanks for giving such insights in the ways you see the mind working.Helped me get a different perspective and work from that.How long does it take on average to reprogram certain patterns from your experience?

 

With committed work, about 3 to 4 months. And you come to realize that you have to be vigilant.

 

Rande Howell

[Rande Howell 10]

This is a good point. I've found that when I pass on a great trade idea, it's for fear of being wrong about my logical premise. If I lose, then I'm wrong about my good idea. Yet, if I then take a poor, low probability opportunity, I can almost sense immediately that it's a bad idea but I stay with it--because at least I get to be right about it being such a dumb idea. Perhaps that sounds ridiculous, but it's not about losing money, it's about being right or wrong.

 

By the way Rande, I want to say thank you for your posts as well. I am sorry that you get a lot of attacks and take a lot of heat for what you post, but I think ultimately the cause of this is that you are a self-admitted non-trader. You don't actually trade, so people don't respect your advice, no matter how valuable it may be. If you came from a place of actually having put into action what you are preaching in the markets, I think you would realize how much of what you say is either true or not, from a personal perspective. Sure, Tiger Woods' coach is not as good as Tiger Woods and can coach him, but I'll bet you that he has actually picked up a club and played a round or two before.

 

The flak is understandable from a particular mindset. My work is very self selectiing. It's like in any public performance, there will always be detractors. My work is currently being incorporated into several methodology teachers programming. They have seen the benefit first hand and now are applying it to their students. I have degree in chemistry which is truly not in alainment with my passions. I learned to not force myself into a direction that I don't resonate with particularly to prove to someone else something about me.

 

Rande Howell

[steve46 12]

Double posting since you did as well steve:

 

This is one of many Bernanke testimonies, press conferences, etc., and if you think that him saying that caused the market to respond in some meaningful way, I think you've lost your mind, to put it bluntly and nicely. He says things like this all of the time, and Bernanke is VERY good at remaining generally apolitical in his comments. He crafts his comments in such a way that it will NOT cause ripples, if you listen to how he responds. The market tried to break beneath yesterday's low. Buyers held it, and pushed it back above. The market was primed for a run to the top of this range already, and Mr. Bernanke's comments had minimal impact. In fact, look on the "Day trading emini futures" thread and you'll see that I recognized the order flow shift, BEFORE this was said. The market is very well aware that he and the FOMC are responsible for monetary policy, which is why they pay attention to those matters; they don't give a rat's butt about his politically correct comments in which he stays out of matters regarding legislation.

 

Yes thanks for that thoughtful comment....

 

My response is simple...there's a reason that these events are televised...people make decisions based on what they hear Mr. Bernanke say in response to questions

 

In this case Mr. Bernanke was asked about a subject that is important to the market...we know this because right after he answered the market moved....its a simple concept that (almost) anyone can appreciate...

 

Thanks

Steve

 

Thanks

Edited February 7, 2012 by steve46

[gosu 10]

It's more of the same from Rande.

 

After a career in sales and a downsizing, Jack decides to take control of his future by focusing his considerable energy on developing a new career in trading. He is highly disciplined, motivated, goal-oriented, and has a winning attitude – traits that served him well as a professional salesman. After studying trading and becoming proficient in his platform and methodology, he is still a break-even trader, at best. And he does not know why.

 

The better question is why anyone should think Jack should be able to extract from the markets simply "after studying trading and becoming proficient in his platform and methodology." It is easy for a person who has no interest in learning to trade to gloss over the one thousand and one details that go into actually doing it.

 

What confounds him is that he is not consistently following his own trading rules regarding entry points (getting in late or too early) and exits (getting out early after small profits). In hindsight, while he is reviewing his trading day, Jack recognizes (after doing some research on trader psychology) that he is trading from a mindset rooted in fear. But it does not make sense to him and he cannot see why he keeps losing.

 

He isn't consistently following his "trading rules" regarding entries and exits because deep down he knows that his rules are arbitrary and don't give him any advantage over the counterparty taking the other side of his trade. Moreover, his fear is rational and is trying to protect him from the perceived dangerous situation (to his account) every time he puts on a trade while being at a disadvantage. The fact that it makes no sense to him why he is fearful and why he keeps losing just reveals how little he knows about what it takes to extract.

 

In a consult with me he explains, “I know how to deal with the fear of rejection. To be successful, you get over that in sales. You know it’s a numbers game. When you lose one, you just get yourself cranked back up for the next one. You’ve got to get back to that winning attitude. That is what attracts success.”

 

I ask Jack to explain how he produces a winning attitude in trading. He responds, “The same way I did in sales. I use a visualization technique where I see and feel what it would be like to make $1,000,000. It really pumps me up. I can taste the victory. I then take that energy and focus it on my next sales opportunity or my next trade. I have photographs of what that success would provide me. I’ve built a sales career out of being able to create these high-energy states and to attract success.”

 

I ask Jack, “How is that skill translating to success in trading?” His answer, “Something’s not working. I’m sure it should be working. But it’s not working. And I don’t know what I’m missing.”

 

It is obvious Jack is clueless about what it takes to succeed. Even worse for him, he does not know how to proceed to begin learning about what it takes to succeed and so he is susceptible to purported remedies for his broken mind that just lead him further astray from knowing what it takes.

 

 

Why Jack Can’t Trade

 

On the surface Jack’s training in visualization and the law of attraction seems applicable to trading. This training has worked in other domains of experience, why not in trading? Jack's visualization creates a high energy and the chemistry of euphoria to build a desire for the goal. That is a problem in trading, where a very calm, assertive state of mind is needed to manage the tasks of trading. This is a very different feeling state than high energy and euphoric states he called forward to conquer fear of rejection in sales.

 

When in the grips of euphoria (you might call this state a highly positive energetic mood where you feel like you can do anything), you feel sure that the good times are going to roll and continue forever. The trader “feels” certain that he is going to win. You are positive that you are going to make the next sale by the sheer force of will. From that feeling, rooted in euphoria, the thinking, perceptual mind believes in the certainty of winning. This is a sought-after state of mind in high-energy sports such as American football (and in business) where dominating an opponent and winning is part of a peak performance state of mind.

 

In that high-energy, euphoric state, the trader’s mind (deeply connected to his emotional state) is no longer in an impartial and clear mindset. It is highly biased to see only the good that is shaping up. This leads to over-trading and over-trading leads to losses. Those losses lead to pattern-recognition and reaction-formation by the emotional brain of the trader. No amount of willpower or having a positive attitude will force the emotional brain not to hijack the thinking brain once a reactive pattern has been formed.

 

The brain associates these high-energy states with losses and, quite naturally, triggers to avoid them. By experience, the intentional generation of a euphoric emotional cocktail has now been associated with the fear of loss. Suddenly the euphoric feeling (not the performance) of being able to dominate the markets and create a positive future becomes counter-productive. It is now associated with the fear of loss. This is where Jack is stuck.

 

Jack can't trade because he lacks the Knowledge, Skill, and Experience. Period.

 

 

The State of Mind That You Bring to Trading

 

To become consistently successful in his new career, Jack is going to have to relearn how to create the mindset that he brings to trading. The old mindset, so successful in sales and business, became a liability in trading. Why?

 

Highly cognitive endeavors such as chess, bridge, and trading require low levels of emotional arousal for peak performance. You are not trying to produce high-energy feeling states for trading. You are working to produce low levels of emotional arousal so that your trading mind does not get influenced by euphoria or fear (which require high energy states). Getting “cranked up” in a winning attitude produced disastrous trading results for Jack. Low arousal states are required for the methodical, impartial-thinking emotional states of a mindset built for trading.

 

Self-described adrenaline junkie that Jack is, this was a difficult retraining exercise. What he had to do was develop a calm, assertive, impartial state of mind from which to trade. In this state of mind, while in the act of trading, he was not trying to win or lose the trade. Instead he was focused on playing the trade so that he performed it flawlessly according to his trading plan.

 

At this moment probability was on his side. He now “felt” certain that when he traded his plan, he had an edge in his trading. The difference is that he learned to become an emotional manager of what feeling-state was influencing the certainty of beliefs that he brought to trading.

 

The "feeling" element of emotion will always do this. In fear, there is a feeling-state that creates a mindset that believes that it is certain that doom is coming if you do not escape. Hesitating to get in at your planned entry points without massive confirmation is often the resulting behavior. In euphoric emotional states, the feeling contaminates your thinking with a certainty of belief that the good times are going to continue to roll. Calm, assertive and impartial emotional states produce a feeling of being certain that you can take advantage of whatever the market is willing to give you. Low arousal states help keep you in this feeling-state where clear, calm thinking occurs.

 

Rather than focusing on the "state of mind," Jack should focus on acquiring (1) rudimentary Knowledge necessary to get operational, (2) basic Skill to move in and out of the markets safely that leads to (3) successful Experience that builds confidence.

 

 

Jack Learns to Trade

 

Jack is still an adrenaline junkie – outside of trading. When he finishes trading for the day, he now rewards himself by directing his energy into other domains where high energy states are useful to performance (tennis in this case). When he is trading though, Jack now calls forward the state of mind rooted in calm, impartial, assertiveness. In this state of mind, he sees the information on his screens, biased by impartiality rather than biased by the certainty of being worth a $1,000,000.

 

Nothing in that description reveals that Jack has acquired the Knowledge, Skill, and Experience that helps him to extract.

[steve46 12]

Of course the emotional management you bring to the Now is what determines what you see.

 

I disagree...I think we all "see" the same thing....what differs is the significance we assign to what we see....and my "proof" is over in the thread titled "daytrading the Emini futures"....where I suggest to other traders that upon hearing Mr. Bernanke's response to a question earlier today, I decided to take a trade......while other presumably rational traders respond by saying that I am crazy to do so.....

 

We hear the same words...I decide to take the trade, others decide "nope"

[joshdance 10]

Yes thanks for that thoughtful comment....

 

My response is simple...there's a reason that these events are televised...people make decisions based on what they hear Mr. Bernanke say in response to questions

 

In this case Mr. Bernanke was asked about a subject that is important to the market...we know this because right after he answered the market moved....its a simple concept that (almost) anyone can appreciate...

 

Thanks

Steve

 

Thanks

 

Steve, this is a fallacy of causation. You are presuming that because the market moved when he said something, that his comment was the cause, or impetus which caused traders to move the market. Perhaps it was, but one does not imply the other. Perhaps you missed the prior 20 or so minutes to this comment where the market sold off below yesterday's low, came back above aggressively, and held. Traders were already buying the market. I mentioned this in the thread you reference BEFORE his comment was made. It was clear. Go and read it, 10:22am, 20 minutes before this -- no Bernanke comments necessary to see.

 

Furthermore, after reviewing the testimony, Bernanke said nothing of substance in this answer. He did not indicate any action, or any intention to do anything. He basically said that if current law stayed the same and taxes increased (among other things) on Jan 1 2013, that it would slow the recovery, and he gave supporting CBO data regarding projected unemployment and GDP. He even reiterated his "strong advocacy for maintaining fiscal sustainability in the longer term" -- then basically said the obvious, as he does very well, that as Jan 1 2013 gets closer, congress would need to be given a clear road map as to how to proceed. Bernanke is not affiliated with the CBO, legislation, tax cuts, or any of that stuff, and even if he were, he did not say anything out of the ordinary there. It's a typical Bernanke answer that's carefully worded to avoid a strong reaction.

 

we know this because right after he answered the market moved

 

Tell me steve, when you step on a crack on the sidewalk and people die somewhere, did you kill them? Correlation is NOT causation.

 

Better yet steve, go and look at the video again ( http://www.c-spanvideo.org/program/USEconomicOutlook21 ) ... as Senator Sessions prefaces his question with a typically political statement regarding the dreadful situation of the u.s. economy, the market sells strongly at 10:03:22 ... did the market not know something about the economy that the senator enlightened us with? Did they not like his question?

 

Or when the market bought at 10:11am EST, a senator stood up in his chair to point at a chart. Did the market see something they liked that suddenly caused a flurry of buying? Maybe they liked his pants he was wearing? The market had already started buying, and it was continuation. Seriously, do you not get it?

 

Are so many "professionals" :rofl: so logically challenged?

Edited February 8, 2012 by joshdance

[steve46 12]

Challenged?

 

Only when we make money doing it year after year.

 

Thanks for that brilliant masturbatory essay..I am sure you feel much better now

 

Love that

 

Steve

[Rande Howell 10]

I disagree...I think we all "see" the same thing....what differs is the significance we assign to what we see....and my "proof" is over in the thread titled "daytrading the Emini futures"....where I suggest to other traders that upon hearing Mr. Bernanke's response to a question earlier today, I decided to take a trade......while other presumably rational traders respond by saying that I am crazy to do so.....

 

We hear the same words...I decide to take the trade, others decide "nope"

 

This is the observer you bring to "see" opportunity. And the "nopes" bring an observer to the situation that "sees" no opportunity. Same event, two different observers seeing different possibililites. It is the emotion, rooted in the management of uncertainty, that creates the observer of the event. The accepted norm in neuro-biology is that all thought is emotional state dependent. It's not the only way of understanding how we go about understanding and interpreting phenomena, it is just the one I base my assumptions upon.

 

Rande Howell

[MightyMouse 12]

 

 

Or when the market bought at 10:11am EST, a senator stood up in his chair to point at a chart. Did the market see something they liked that suddenly caused a flurry of buying? Maybe they liked his pants he was wearing? The market had already started buying, and it was continuation. Seriously, do you not get it?

 

Through careful analysis we have indicators that can anticipate the direction the market will take dependent on a senator's pants, shirt, and tie. The wild card is the markets reaction to his selection of his shoes and belt, but we are working on it.

[joshdance 10]

Challenged?

 

Only when we make money doing it year after year.

 

Thanks for that brilliant masturbatory essay..I am sure you feel much better now

 

Love that

 

Steve

 

As usual, when your argument fails the test of common sense and logic, an answer like yours above is the sort I would expect.

[SpearPointTrader 10]

Mind set is the main difference between success, or failure in this business. Facing down the barrel of a gun, and calmly telling the guy holding he still owes you money and he'd better pay up or else, requires a very unique mindset.

 

That is the same mind set a trader needs. You have to be conscious of the gun, but not inhibited by it or mentally effected by it so you can focus on making your entry and exit at the right times.

 

I am actually starting to think a slight detachment from reality is a benefit to this game.

[SIUYA 11]

I am actually starting to think a slight detachment from reality is a benefit to this game.

 

maybe a detachment from a previously perceived reality to a new one where reality is far less forgiving of excuses, deceptive self delusional behavior and purely evidence based????

 

and WTF ---- if a guy is pointing a gun at me because he owes me money it makes me s..t myself and I have every right to that reality - this aint the movies - he is clearly a nutter - but i get your point

 

damm - ECB - and their interest rate gun

[Rande Howell 10]

Mind set is the main difference between success, or failure in this business. Facing down the barrel of a gun, and calmly telling the guy holding he still owes you money and he'd better pay up or else, requires a very unique mindset.

 

That is the same mind set a trader needs. You have to be conscious of the gun, but not inhibited by it or mentally effected by it so you can focus on making your entry and exit at the right times.

 

I am actually starting to think a slight detachment from reality is a benefit to this game.

 

SpearPointTrader

 

I'm with SUIYA on this one regarding "detachment from reality". In the practice of mindfulness, there is a stepping back and observing from a dispassionate perspective. That may represent a very different way of seeing the world -- kinda like your detachment. For most traders this sense of impartiality has to be learned, so it is a deviation from the historical way they have interacted with the world.

 

If you read this forum, really read what SUIYA, MM, and GOSU say about this. Take their comments in the context of trading, rather than other domains of action. It is their (learned or inherent, I don't know) detachment or dispassion that allows them to "see" the market in such a way that they are able to extract from the markets. At least, this is my take on it. I don't know for a fact that they are successful traders -- but I believe so based on their presentation.

 

In my work I am striving to teach traders how to turn or and turn off this quality. Turn on this perspective when trading because it is necessary to attune to the emotionality of the markets and take advantage of the emotion traders are bringing to the dance. In dispassion, detachment, or impartiality is becomes much more possible to "see" or sense others fear and/or greed based on market conditions. This is not a state of mind that will bring success in other relationships in other domains though. It's a necessary element in trading mind though.

 

Rande Howell

[joshdance 10]

Mind set is the main difference between success, or failure in this business. Facing down the barrel of a gun, and calmly telling the guy holding he still owes you money and he'd better pay up or else, requires a very unique mindset.

 

Is the market the guy holding the gun in your analogy?

[MightyMouse 12]

Mind set is the main difference between success, or failure in this business. Facing down the barrel of a gun, and calmly telling the guy holding he still owes you money and he'd better pay up or else, requires a very unique mindset.

 

That is the same mind set a trader needs. You have to be conscious of the gun, but not inhibited by it or mentally effected by it so you can focus on making your entry and exit at the right times.

 

I am actually starting to think a slight detachment from reality is a benefit to this game.

 

The market doesn't have a real gun to point. Hard to trade when you believe the threat is real. However, the distorted perception that the market is holding a gun to you, makes it easy to take money from the market.

 

Put another way, if you see a gun when you trade, you shouldn't trade until you make the gun go away.

 

I am not directing these statements to anyone specific.