The Illusion of Control: The First Step to Emotional Sobriety in Trading

[Rande Howell 10]

The Allure of Magical Thinking

 

It was the start of another trading day, and John was ready. “This day is going to be different. I am going to trade my plan – no matter what!” John said resolutely into his reflection in the mirror. He practiced visualizing and “feeling” the success that trading was going to bring him. He declared the affirmations that he learned from the success seminar he had just attended.

 

He felt the high-energy state that he now believed would create the "success mindset" he had been missing in his trading. And after all that modeling of a super trader, he knew he was attracting success. If he could walk on live coals, he had no doubt that he could conquer the fear that had been blocking him from success in trading. “I’m a million-dollar trader. I am going to conquer my fear. I am a confident and disciplined trader. I am going to win,” John confidently declared in his mind. And sure enough, self-doubt was nowhere to be seen.

 

All went well as he began his trading day. He felt great. His confidence was high as he watched a particular set-up heat up. This was the one he was looking for. It met his trading plan conditions for entry. With his new-found confidence as his guide, he pulled the trigger. Initially the trade trended as he had predicted. Then, WHAM, the trade went sideways on him and it stayed in flux for what seemed like an eternity. It nearly hit his stop a couple of times as it bounced around and it just would not refresh and trend as he had anticipated.

 

Suddenly, and without warning, he was not so sure. He was so sure just moments before. Now his confidence in the certainty of the trade evaporated like a mirage in a desert. Feeling knots in his stomach, all he could hear was the deafening roar of his thoughts, “You’re going to lose.” The self-doubt that moments before was "nowhere to be seen" was now front and center in his mind.

 

What seemed so certain just moments before was thrown into chaos. And out of that uncertainty came a fear of losing. He thought for certain that he could predict where the market was going. And with that certainty gone, fear of loss sprang from the uncertainty and he was no longer trading his plan. Instead he was trading from his fear of uncertainty. What happened that rearranged his thinking so quickly, so thoroughly?

 

The Trader’s Pursuit of the Myth of Certainty

 

The biggest problem I see that keeps traders stuck in mediocrity is their blindness to the need to change from a mindset rooted in predicting certainty of outcome to a probability mindset where the trader learns to live with uncertainty – literally becoming comfortable with not knowing with certainty what is going to happen. It takes internal courage to shift this fundamental biological and psychological bias in perception. Rarely is the mind that brings a person to trading going to be the mind that produces success in trading. The mindset that produces success in other domains of performance based on forcing a will upon the world or having a positive winning attitude does not translate well into trading success.

 

The evolutionary biological bias of your brain predisposes you to seek certainty and avoid uncertainty. (You can already see that this creates a problem in taking a brain designed for survival in an uncertain world and plopping it down into the world of trading without a significant reworking and override of primal directives of the survival brain.) This is your survival (emotional) brain at work. To your primitive brain, uncertainty, chaos, and the fear of death are linked (this is a serious glitch in the development of a trading mind). Add to this the fact that the untrained brain/mind cannot discern the difference between biological threat to the continuance of life and psychological discomfort. (This is a distinct problem in trading because there is always uncertainty and, therefore, psychological discomfort).

 

At its core the brain is a pattern-recognition machine that organizes the developing “you” into a set of beliefs that govern how you interpret and respond to a circumstance that is ambiguous in nature (like trading). Once your brain finds a random solution to a challenge you face, it habituates the solution into an automatic response that no longer requires additional thinking or problem solving. This produces hardwired neural pathways that automatically trigger when the organism (the trader) is exposed to ambiguity, uncertainty, or risk (threat). This mechanism is out of your working awareness and is reactive in nature. (For the trader, this creates a real barrier that compromises the capacity to work with the uncertainty found in trading.) The particular solution is not necessarily the best solution, but it is a successful short-time response to the environmental uncertainty your brain faced.

 

Then the brain takes another step – it generalizes the perception and response to a perceived threat (uncertainty) from one domain to similar ones. This is called response generalization. Suddenly the mind (and all its learned beliefs and behaviors) that the trader brought with him or her into trading becomes a liability to the development of a successful mind for trading. The mind that emerges from the biology of the brain does not separate uncertainty, ambiguity, confusion, and fear from one another. The emotional brain is biased to see the uncertainty found in trading as threatening. This brain and mind that you inherited was never built for the rigors of trading. It’s a liability that you, as a trader bring into trading as a biological bias – and you must retrain it to become a successful negotiator of uncertainty.

 

The brain, with its bias to create a sense of certainty (safe from threats to self), creates highly reactive patterns to keep the illusion of control of circumstance in place. There is even a name for this preponderance – cognitive dissonance. The brain you bring to trading will not accept facts or positions that do not support the current belief structure about its capacity to manage uncertainty (threat). The more facts to the contrary to which you expose the embedded belief, the more entrenched the belief becomes. This all exists so that the brain/mind can keep up its illusion of control.

 

It is this illusion of control that the trader brings to trading that must be altered for him or her to make the transition from certainty-thinking to probability-thinking.

 

Letting Go of the Illusion of Control

 

Trading effectively demands a probability mindset. There has to be a commitment to personal and professional development so that the trader can use the tools and skills of his trade, incorporating a set of beliefs that can manage probability and uncertainty. Otherwise, the trader stays stuck trying to produce certainty. This takes ontological change which most traders neglect, ignore, or avoid. (It represents change for which the outcome is uncertain.) Out of this resistance to challenge the myth of certainty, traders stay stuck in self-limiting beliefs that perpetuate the illusion of control. This is what has to change for a trader to make the jump from looking for certainty to managing uncertainty and risk.

 

The very first step towards reconstructing the beliefs about the management of certainty (trading not to lose) that the trader naturally brings to trading is to wake up to them. Most traders have been mindlessly attempting to force both trading and the markets into patterns that can be predicted with certainty – more commonly known as "trading not to lose". This is the bias that has been embedded into our perception for countless generations. Most traders talk the talk of working with probability, but when their trading account’s health is used as the basis of assessment, a different story emerges.

 

Fear of loss in the brain (and the confusion generated by uncertainty) is equated with the fear of death. This is what takes over the trading mind that is led by the prediction of certainty. When you look at serious hesitation problems in pulling the trigger or the hijacking of impartial thinking that happens while managing a trade after entry (like our friend in the vignette), this correlation becomes apparent.

 

Probability-thinking and perception does not come naturally. Traders generally go through a long learning curve to move from the mind that they brought to trading (rooted in certainty-thinking) to the mind that trades successfully. The first step is to wake up from the blindness that keeps the trader from seeing the self-limiting beliefs that hold him in a pattern-recognition bias that force the mind to seek certainty rather than the management of uncertainty.

 

It is this AHA! moment that opens the door to the possibility of change. What most traders discover is that the certainty bias is deeply entrenched and takes real work to change. They recognize that the comfort zone of the way they have been stands in the way of the mindset that is needed for success in trading. This is the first step in the new journey into the re-invention of the self. Only from there can the self be re-constructed from the inside out. In the opening vignette, this is the problem that the trader was experiencing. He was trying to change the self externally. By not grasping the power of biological pattern rooted in the need for certainty, he was never able to develop the skills and tools necessary to change the pattern-making machinery of his brain/mind. The pattern of belief was far more primitive and powerful than the puny tricks he used to try to change that pattern.

 

In truth, he resisted changing into the person he needed to become. Instead, he confused short-term “feel good” states with the mechanics of change. He remained "blind to what he was blind to". He missed the first step – recognizing the bias toward certainty. It "had" him and it was so familiar that he could not “see” it.

 

How Do I Use This Knowledge?

 

I make the following assumptions when I evaluate whether a trader is ready for true psychological change. First, that he has been trading long enough to know HOW to technically trade. Second, that he can trade successfully in simulation where the risk of capital does not trigger the fear of uncertainty.

 

So, look at your trading account. It will reflect the beliefs and biases that you bring to trading. If your trading account remains marginal or continues to need injections of capital, then you need to be asking yourself: What I am blind to that keeps me from achieving my potential in trading? Stay in that question. Then listen. What do you observe? Notice your resistance. Notice what happens to your comfort zone. Notice the tendency to pull back into your familiar pattern despite its lack of achieving success for you. What do you notice about your need to maintain a sense of certainty in the face of uncertainty? What beliefs (about the management of uncertainty or certainty) is this rooted in?

 

Rande Howell

http://www.tradersstateofmind.com

[gosu 10]

The Allure of Magical Thinking

 

It was the start of another trading day, and John was ready. “This day is going to be different. I am going to trade my plan – no matter what!” John said resolutely into his reflection in the mirror. He practiced visualizing and “feeling” the success that trading was going to bring him. He declared the affirmations that he learned from the success seminar he had just attended.

 

He felt the high-energy state that he now believed would create the "success mindset" he had been missing in his trading. And after all that modeling of a super trader, he knew he was attracting success. If he could walk on live coals, he had no doubt that he could conquer the fear that had been blocking him from success in trading. “I’m a million-dollar trader. I am going to conquer my fear. I am a confident and disciplined trader. I am going to win,” John confidently declared in his mind. And sure enough, self-doubt was nowhere to be seen.

 

All went well as he began his trading day. He felt great. His confidence was high as he watched a particular set-up heat up. This was the one he was looking for. It met his trading plan conditions for entry. With his new-found confidence as his guide, he pulled the trigger. Initially the trade trended as he had predicted. Then, WHAM, the trade went sideways on him and it stayed in flux for what seemed like an eternity. It nearly hit his stop a couple of times as it bounced around and it just would not refresh and trend as he had anticipated.

 

Suddenly, and without warning, he was not so sure. He was so sure just moments before. Now his confidence in the certainty of the trade evaporated like a mirage in a desert. Feeling knots in his stomach, all he could hear was the deafening roar of his thoughts, “You’re going to lose.” The self-doubt that moments before was "nowhere to be seen" was now front and center in his mind.

 

What seemed so certain just moments before was thrown into chaos. And out of that uncertainty came a fear of losing. He thought for certain that he could predict where the market was going. And with that certainty gone, fear of loss sprang from the uncertainty and he was no longer trading his plan. Instead he was trading from his fear of uncertainty. What happened that rearranged his thinking so quickly, so thoroughly?

 

* * *

 

I do enjoy your articles as much as anything else on this site. They are redundant but still they don't fail to cause me to laugh and shake my head at the same time.

 

As a point of interest, there is a word to describe the person in your scenario. He is what is known as a FISH.

 

It wasn't clear to me if your purpose for using him as an example was to assert that he is the kind of person who can benefit from your services. I take it he is, otherwise what's the point of bringing him up, right?

 

I get what you are saying about his "visualizing," "affirming," "modeling," "attracting success," etc. Doing those things cannot make up for the fact he has no real knowledge, skill and experience in how to play the game. Yet I don't see how doing those things differs all that much from making up characters in his head and assigning them cute names and distinct roles. I may be oversimplifying what you do, but no doubt he will remain a FISH after you get through with him, except that he got attracted to different bait.

[SIUYA 11]

You seem to base these ideas on the theory that human beings break down mentally because they cannot live with uncertainty. Is that a scientific fact? If it is a scientific fact,can you tell me who established that?

I'm not a scientist or psychologist but i would tend to believe that man's very existence,historically and on a daily basis is actually based entirely on uncertainty.How could it not be? How do you know you won't die tomorrow,or that you won't have a car accident? I'm struggling to come up with 5 things on the entire planet that i could state with absolute certainty will happen.Anyone here care to compile a list for me?

And btw,there are certain people who actually thrive on uncertainty,and for who uncertainty isn't a dirty word..or a problem.

Are you really saying that your clients believe their problems are based on the fact that they need certainty,and that they don't realize that trading is about probabilities.? Or do you have to explain to them that's what the "fear" is based on?

Just as confused as ever about what sort of people your clients are,and how you go about "fixing" them.

 

I am no expert, however.....

It probably reasonably well established that humans become irrational when dealing with probabilities and uncertainty.....just as they often become irrational when dealing with certain questions of value sometimes.

Hence we do underestimate dangerous issues and become overly optimistic.

Its our way of surviving the world and rationalising/visualising/convincing ourselves of things. A coping mechanism or survival mechanism to view the world with rosy glasses.

We do thing we are in control, when often we are not. (some turn to religion, others science )

 

Problem is the market is not like the real world we think we live in where the sun is pretty much guaranteed to rise in the morning, we are not judged as soon as you hit the button and the stigma of being right or wrong is immediately in your face.

 

How this is related to anything is probably or possibly anyone's guess.

 

Without getting too philosophical, as a go..... 5 things on the entire planet that i could state with absolute certainty will happen.

1....one day the world as we know it will not exist

2....the markets will crash again

3....the markets will rally again

4....humans will always repeat their mistakes

5....free lunches in the market will always be arbitraged away.

Edited May 4, 2012 by SIUYA

[karoshiman 10]

Agree with gosu and mitsubishi.

 

The impact of psychology on trading is very much overrated. It is only relevant for new traders who have not yet developed a working concept on the markets for themselves, i.e. their personality. It's about confidence in your methods. Then emotions become secondary.

 

I've experienced it myself. I did really stupid things in my trading (revenge trading, etc.) until I got it, i.e. I've developed a method in which I believe and that works for me.

 

But his target group might be the fishes...

[karoshiman 10]

 

...

 

I'm struggling to come up with 5 things on the entire planet that i could state with absolute certainty will happen.Anyone here care to compile a list for me?

 

...

 

 

 

"Nothing can be said to be certain except death and taxes."

 

 

So, that's only 2... the rest is uncertain

[Rande Howell 10]

Credit where credit is due,your basic writing skills have improved somewhat- i made it all the way through without the need to rewrite every sentence for it to make sense.

Couple of questions... You state that you like to establish that a client knows how to trade technically... exactly how do you establish this fact since you know nothing about trading?

In your example,the trader puts on a trade in which neither his stop nor target is hit and that is enough to induce an anxiety attack....why would that happen? Why would it happen to someone who knows how to trade technically?

You seem to base these ideas on the theory that human beings break down mentally because they cannot live with uncertainty. Is that a scientific fact? If it is a scientific fact,can you tell me who established that?

I'm not a scientist or psychologist but i would tend to believe that man's very existence,historically and on a daily basis is actually based entirely on uncertainty.How could it not be? How do you know you won't die tomorrow,or that you won't have a car accident? I'm struggling to come up with 5 things on the entire planet that i could state with absolute certainty will happen.Anyone here care to compile a list for me?

And btw,there are certain people who actually thrive on uncertainty,and for who uncertainty isn't a dirty word..or a problem.

Are you really saying that your clients believe their problems are based on the fact that they need certainty,and that they don't realize that trading is about probabilities.? Or do you have to explain to them that's what the "fear" is based on?

Just as confused as ever about what sort of people your clients are,and how you go about "fixing" them.

 

If my writing style triggers you to rewrite, I encourage you to save yourself from the angst and not read it. That would solve that problem. And you ask some good questions along the way. See my responses below:

 

The basis I use for determining whether a trader can technically trade or not is the success of his sim trading. If you can trade successfully in sim, there is good evidence that they technically can trade and then we know that his/her ability to manage risk and uncertainty is the major problem. That's psychological organization. What is exposed is the organization of self that manages uncertainty. It's pretty simple and is the basis that methodology teachers will use to refer to me. I see alot of engineers, programmers, and music theory folk that have the trained cognitive tools that would provide a great basis for trading, but they can't get them unpackaged due to fear based reactivity that blows out their capacity to think clearly in the rigors of trading. Very trainable situation.

 

People who know how to trade technically often get in trades and their capacity to trade their plan from a position of impartiality blows up due to hyperasousal of fear of loss of some sort. When they wake up from this emotional hijacking, they again get logical control of their thinking process (their mind) again.

 

Organisms from the simplist to the most complex are inherently wired to avoid uncertainty by establishing familiar patterns that fire into automatic responses to threat to current organization. This is a biological mandate since disorganization of self in a biological sense means death. This drive was not built for the advent of the development of mind. Mind simply follows biological history -- until the owner of the mind wakes up and starts developing awareness. This is a biological mandate that has driven survival for untold generations. Once the pattern is wired, it is highly resistant to change. And then when facts don't support the patterns of recognition, now embedded as belief, the organism (the trader) still acts from history -- rather than changing. This is called cognitive dissonance. In trading, you see this in emotional reactivity thinking where the trading mind is taken over by avoidant or attacking emotions. Both are reacting to perceived threat, but in different directions. Fear of pulling the trigger or revenge trading is what it looks like in trading.

 

Actually I also work with successful traders who simply want to maintain a state of mind that has proven successful in their trading or they seek improvement in their inner game. They seek emotional sobriety so neither fear nor euphoria become the basis from which their trading mind springs. Both are dangerous for successful trading. Others simply never learned how to produce emotional regulation and develop indwelling resources inherent to their humanness until they were forced to by their desire to become a more competent trader. Professional athletes and business folks use coaching to keep their edge up -- it's simply a cost of doing business. I see little difference in trading.

 

If you have been so blessed that the mind you bring to trading needs no tweaking, good for you. Most are blind to what causes them to stay stuck in self defeating pattern. And they need help.

 

Rande Howell

[gosu 10]

RE: Sim Trading

 

In theory I can see how it might be useful. It was recommended to me early on and I did make an attempt but could not stay on it for long and I always "cheated." The problem for me was I could not see the point of it when I had a significant amount ready to trade with and I have never feared putting money on the line for anything I've wanted to do in life.

 

I know there are people who swear by it and on message boards it is often touted. The two persons I've observed up close who swore by their sim trading results were both "cheaters" by my reckoning. That is, they both simmed with amounts they didn't have and traded in ways I knew they wouldn't trade if their own money was on the line. Both had the same lament about how good their system was and how they were "undercapitalized" and so couldn't trade the way they knew they could. I observed them with the possibility of backing their trading and in both cases I declined.

 

I think that sim trading could have some use if done conscientiously, and there may be people who have not transferred "successful" sim trading into trading with cold hard cash. But I suspect that a lot of people who say they're successful in simulation but not live trading are not being honest with themselves about their sim trading.

[gosu 10]

RE: Human Beings Inherently Wired to Avoid Uncertainty

 

This is just simply false. The realm of "uncertainty" includes calculated risk-taking as well as flat out gambling. We know humans engage voluntarily in both types of activities in life and in the casinos and indeed some people are "wired" such that they derive pleasure from doing things where the outcome is in doubt and no pleasure (i.e., they are bored) when the outcome is certain.

 

The market provides a venue for both types of activities.

[karoshiman 10]

RE: Sim Trading

 

In theory I can see how it might be useful. It was recommended to me early on and I did make an attempt but could not stay on it for long and I always "cheated." The problem for me was I could not see the point of it when I had a significant amount ready to trade with and I have never feared putting money on the line for anything I've wanted to do in life.

 

I know there are people who swear by it and on message boards it is often touted. The two persons I've observed up close who swore by their sim trading results were both "cheaters" by my reckoning. That is, they both simmed with amounts they didn't have and traded in ways I knew they wouldn't trade if their own money was on the line. Both had the same lament about how good their system was and how they were "undercapitalized" and so couldn't trade the way they knew they could. I observed them with the possibility of backing their trading and in both cases I declined.

 

I think that sim trading could have some use if done conscientiously, and there may be people who have not transferred "successful" sim trading into trading with cold hard cash. But I suspect that a lot of people who say they're successful in simulation but not live trading are not being honest with themselves about their sim trading.

 

 

I am the same. I never did sim trading as I have no motivation to be good. There has to be something on the line for me to excel. But I agree with Rande that people are different here. I have also a different "threshold" than most other people when it comes to losing money. I don't get nervous about it. But again, this can cause other problems and it did for me in the beginning... leading to huge losses... :doh:

 

However, I think these basic traits are part of the innate "talents" which can make a very good trader when the trader found his or her method.

[BlueHorseshoe 10]

I'm struggling to come up with 5 things on the entire planet that i could state with absolute certainty will happen.Anyone here care to compile a list for me?

 

I'm sure you don't really want me to give you a crash-course in propositional logic but . . .

 

There are infinite things that are generally thought to be state-able with absolute certainty and they form the set of propositions called tautologies. Each is a propositional construct that is true under any possible boolean valuation of its variables.

 

Some classic examples (I'll give you five!) pulled from Wikipedia would be:

 

• ("A or not A"), the law of the excluded middle. This formula has only one propositional variable, A. Any valuation for this formula must, by definition, assign A one of the truth values true or false, and assign A the other truth value.
  
• ("if A implies B then not-B implies not-A", and vice versa), which expresses the law of contraposition.
  
• ("if not both A and B, then either not-A or not-B", and vice versa), which is known as de Morgan's law.
  
• ("if A implies B and B implies C, then A implies C"), which is the principle known as syllogism.
  
• (if at least one of A or B is true, and each implies C, then C must be true as well), which is the principle known as proof by cases.
  

 

The law of the excluded middle allows you to know that if the market closed higher today then it didn't not close higher today. Useful, eh?

 

Unfortunately tautologies exhibit an absolute degree of redundancy . . . rather like so many of my posts on this forum

 

BlueHorseshoe

[Kiwi 16]

The most amusing thing here is that someone who teaches Jungian (read discredited magic bs) should talk about the allure of magical thinking.

 

Too funny. :rofl:

 

It will of course have been posted on any board that permits him to troll for those who fall for the smell of the oil.

[SIUYA 11]

RE: Human Beings Inherently Wired to Avoid Uncertainty

 

This is just simply false. The realm of "uncertainty" includes calculated risk-taking as well as flat out gambling. We know humans engage voluntarily in both types of activities in life and in the casinos and indeed some people are "wired" such that they derive pleasure from doing things where the outcome is in doubt and no pleasure (i.e., they are bored) when the outcome is certain.

 

The market provides a venue for both types of activities.

 

weather or not we are wired - clearly everyone is different as some people seek risk, others actively avoid it, and I would have thought that as we do have fears then maybe we are wired to avoid things with uncertainty (we tread carefully when we dont know whats going on, we prefer rountine and plan things as humans)....or maybe that's just a common sense mechanism for survival as those reckless ones were eaten by lions. Who knows.....but I did think that using a casino as an example was a poor one - there is no doubt in this case - the house wins!

For casinos its the thrill of thinking you can beat the odds, there is not much uncertainty involved. Usually through some system, or lucky superstition.

Even thrillseekers - base jumpers and the like - seek out beating the odds, and are generally risk averse and plan well as opposed to seeking out uncertainty. I trade to make money, not because I necessarily enjoy the uncertainty of the markets. (I dont see myself going to deal with Nigerian scams just in case one pays off)

So if we are wired or not it not the debate (and I dont mean to argue with you and make it as such )......

 

I would have thought the real issue is - why do we act so irrationally in the face of uncertainty (and we are talking about only the uncertainty associated with - will it go up or down), and how (if caused by fears, inability, no talent, our money narrative, our parents, etc) we can rectify the situation. (if by magic, jungian magic, other helpful tricks and tips,or simple head banging stubbonness)....or by simply minimising the negative effects of dealing with uncertainty or the negative results if we are wrong.

Edited May 5, 2012 by SIUYA

[karoshiman 10]

 

...

 

The impact of psychology on trading is very much overrated. It is only relevant for new traders who have not yet developed a working concept on the markets for themselves, i.e. their personality. It's about confidence in your methods. Then emotions become secondary.

 

...

 

 

 

I have to differentiate my statement above regarding psychology in order to be not misunderstood.

 

What I've meant was that the problems caused by emotions in trading are "overrated" or misunderstood. They are overrated because it's not the emotions which cause the problems. It's the missing link between the traders personality and his or her method.

 

So, in fact, the subject of psychology is still UNDERRATED in a sense that many traders have not yet been able to find a method which suits their personalities. Find a method that "fits" your personality. Or, even better, find a method which IS you!

 

Hence, the only way for a coach to help a trader overcoming the problems caused by emotions is - from my point of view - to help them finding the right trading method for their personalities. And that requires A LOT of knowledge (psychological and, at least, basic understanding of various methods available) and dedication, both from the trader and the coach...

[karoshiman 10]

 

...

 

I would have thought the real issue is - why do we act so irrationally in the face of uncertainty (and we are talking about only the uncertainty associated with - will it go up or down), and how (if caused by fears, inability, no talent, our money narrative, our parents, etc) we can rectify the situation. (if by magic, jungian magic, other helpful tricks and tips,or simple head banging stubbonness)....or by simply minimising the negative effects of dealing with uncertainty or the negative results if we are wrong.

 

 

We only act irrationally in the face of uncertainty, if we don't trust 100% in ourselves and in what we do. See also my previous post # 14.

 

My

[Rande Howell 10]

I have to differentiate my statement above regarding psychology in order to be not misunderstood.

 

What I've meant was that the problems caused by emotions in trading are "overrated" or misunderstood. They are overrated because it's not the emotions which cause the problems. It's the missing link between the traders personality and his or her method.

 

So, in fact, the subject of psychology is still UNDERRATED in a sense that many traders have not yet been able to find a method which suits their personalities. Find a method that "fits" your personality. Or, even better, find a method which IS you!

 

Hence, the only way for a coach to help a trader overcoming the problems caused by emotions is - from my point of view - to help them finding the right trading method for their personalities. And that requires A LOT of knowledge (psychological and, at least, basic understanding of various methods available) and dedication, both from the trader and the coach...

 

I agree in that there is a range in which a personality needs to suit method. What I hold is that emotion is misunderstood. This misunderstranding has tripped up people since before Descartes when he asserted "I think therefore I am". He later realized his mistake, but the rationalistic tradition had already been born. Emotion and feeling are not the same. Feeling is an element of emotion that allows you to sense the emotion and generates the emotional base of cognition. But emotion is so much more. Emotion is biological that takes over psychology. Until we learn to work with emotion, working on psychology is useless. The glue that holds biology, brain, and mind together is emotion. Yet sinks beneath dualistic perception like a rock thrown in deep water.

 

Rande Howell

[SIUYA 11]

We only act irrationally in the face of uncertainty, if we don't trust 100% in ourselves and in what we do. See also my previous post # 14.

 

My

 

Ideally this is true and would be the easy answer but isnt this the whole point?.....you can do all the testing, all the preparation and then still act irrationally when faced with uncertainty.....hence, why, and how do you stop it.

Trusting in yourself and what you do certainly does not ensure you are rational.

I dont think any discretionary trader can say they are that much of a robot they haven't done "silly" irrational things, and/or deviated from their plan, and it may not have been uncertainty that triggers it....it may be the belief they have mastered uncertainty.

But I think these things are related and yet separate from "just sticking to the plan"

[gosu 10]

* * *

I would have thought the real issue is - * * *

 

The real issue is . . . there is no real issue.

 

Issues are needed by people in the business of selling remedies. Issues are also needed by people who rely on them to cope with their making poor choices. It is a match made in heaven and thus the proliferation of both sellers of remedies and people with issues.

 

The more people I come across in this industry the more I think that traders are born and not made. This is not a statement that a person can learn to trade without working hard at it.

Edited May 5, 2012 by gosu

[Mikhoul 10]

For me I did not really make "sim" ...

 

Ive began by using a "Full Brokerage Service", it was them that mange my money.

 

At one point in my life I began to have more time, so I seen good opportunity on the market, call my "broker" and say I'd like we buy this stock xxxx....

 

Within 6 months I realized I was making HUGE gain, and noticed that many stock in my portfolio should have been sold since a longtime...

 

So I said to myself, I will try for One month to make at least $500 NET per week if it's OK, I will consider involving me at full time.

 

So I reach my goal and for each trade I was paying an average of $300 in fees so for in & out $600 ;-)

 

The more I was successful, the more I was interested in learning more...

 

We all can agree that $600 is VERY EXPENSIVE for just one In & Out ( At this time I did not realize it was a lot, so it don't bother me) , but for this price at anytime I was able to cal my brokers ask him a lot of technical questions and he was willing to answer and give me good advice since each trade give a lot of money to him for almost no work, I was doing all the research .

 

So I take the decision make a living of trading, found a discount broker, find the tools I needs and begin to trade "myself" cause I leaving the expensive "Full Brokerage Service" and discover also that my fee goes from $600 to $15 for in and out (2 trades).

 

All this time I was not nervous or anxious, each time I trade I say to myself if you trigger the trade accept that you can loose all the money (btw it's not the goal ;-)

 

So for sure sometime emotion takeover, but for me the "trick" is to be "mindful" about knowing I'm on a high and feel the emotion but don't letting the emotion leading me... just feel the emotion, that's it.

 

Also you have to be able to learn from your mistakes, have confidence in your judgment (if U do your homework), Having fears is fine, but not letting the fears decide your moves... Also don't see trading like a "CASINO" cause it's not the same at all.

 

The basic for me is to accept (In your life) that at any moment you can loose everything that is outside you: Money, car, house, spouse, TV Job etc.... If you realize that and don't overemphasis on those, It will be really hard to the fears or the thrills to lead you... You will just feel the emotion and be mindful about your emotion, this way it's you that will lead... The emotion will be just one of MANY indicators, like those on charts. ;-)

 

Regards

[koyasan 10]

Rande....I find it hard to agree with what you say but you challenge and help clarify my thinking, a very big thank you. A few comments I would like to make:

 

It seems that the basic premise of your argument is that as traders we have to overcome the evolutionary biological bias of our brain, which predisposes us to seek certainty and avoid uncertainty. I’m not so certain this is the case. I would have thought that our evolutionary bias is to manage uncertainty and find ways to minimize the risk inherent in not knowing the outcome of an event. Primitive man would be well aware that not all hunting expeditions would be successful but if tactics and weapons could be improved upon then the success rate would increase. Trial and error, creative thinking and perhaps even random events could all be used to manage uncertainty. The future by definition is unknown and therefore uncertain and I believe that as humans we have evolved to live with this uncertainty without becoming paralyzed by it. Uncertainty has not stopped us from exploring our planet and beyond and uncertainty does not prevent us from getting on a plane or going about our daily business.

 

Control is not as you suggest an illusion but something we all seek in the knowledge that only absolute control is usually unattainable. King Canute could not control the tide but we have learned how to harness its energy to generate power. I can have absolute control over how I bake a cake but I cannot control whether you will enjoy the taste. I don’t know when or how I am going to die but I can at least control some of the factors that will help me live such as food and exercise and general lifestyle. When I drive my car I don’t know if some other driver will crash into me but I can control how I drive. I am not seeking certainty otherwise I would never drive again, I am actively managing whilst at the same time accepting uncertainty. I am seeking to control the factors, which are in my power to control.

 

When I started trading I think it was a natural process to discover the extent of what I could control. I wish I could control everything and the search for the magical indicator which removes uncertainty is a legitimate one. I am an intelligent human being and just because no one else has discovered (or maybe disclosed) the Holy Grail does not prevent me from trying to find this out for myself. My search for the Holy Grail in trading is what I am wired to do in the same way as a scientist searches for a cure for cancer or an astronomer searches for life beyond earth. The search may not be successful but the process of searching is never futile. As a trader the search for the magic indicator helps me to discover what I can control (money management, setup recognition, entry and to some extent exits) and what I cannot control (outcome of any single trade, slippage, black swan events etc). The learning has helped me to define uncertainty and to manage it. My search for certainty is not driven by fear but rather a passion not to put limits upon what is achievable.

 

This brings me to a more fundamental difference of opinion. In your article you have a view of the human brain as something which needs reprogramming. You state that “we cannot discern the difference between biological threat to the continuance of life and psychological discomfort”, we need courage to make internal shifts to our ‘fundamental biological and psychological bias’ and we have to recognize the fallacy of our ‘pattern recognition’ brains which thinks random solutions have wider significance. You believe that our minds ‘cannot separate uncertainty, ambiguity, confusion, and fear from one another’ and ‘probability-thinking and perception does not come naturally’. It’s a dismal and depressing view of mankind in general and traders in particular. Given where we have come from as a species it might explain our atrocities and mistakes but does nothing to explain our successes. And where does our salvation come from? No less a source than psychology whose proponents must have already done battle with our evolutionary demons and have at least discovered the Holy Grail of behavioral reengineering. As a trader you give me no credit for my evolutionary bias to survive, succeed, prosper, be creative, resourceful, determined, focused, to learn from mistakes and ultimately to trade with uncertainty and without fear.

 

As a final thought how exactly would you help ‘John’ become a successful trader?

[4EverMaAT 10]

Rande....I find it hard to agree with what you say but you challenge and help clarify my thinking, a very big thank you. A few comments I would like to make:

 

It seems that the basic premise of your argument is that as traders we have to overcome the evolutionary biological bias of our brain, which predisposes us to seek certainty and avoid uncertainty. I’m not so certain this is the case. I would have thought that our evolutionary bias is to manage uncertainty and find ways to minimize the risk inherent in not knowing the outcome of an event. Primitive man would be well aware that not all hunting expeditions would be successful but if tactics and weapons could be improved upon then the success rate would increase. Trial and error, creative thinking and perhaps even random events could all be used to manage uncertainty. The future by definition is unknown and therefore uncertain and I believe that as humans we have evolved to live with this uncertainty without becoming paralyzed by it. Uncertainty has not stopped us from exploring our planet and beyond and uncertainty does not prevent us from getting on a plane or going about our daily business.

The systems that we create are often to maintain a sense of predictability in life. The fear comes in the curve fitting we often apply to nature. We get used to our predictability and begin to wrap assumptions around how our lives will play out. Many of these assumptions take place (or are maintained) unconsciously; on-the-fly stereotypes as the mind is conditioned to justify everything it perceives. Two minutes of honest scrutinty and it is a big shock when you peel back the stereotypes and you see yourself and everyone around you lying all the time.

 

Control is not as you suggest an illusion but something we all seek in the knowledge that only absolute control is usually unattainable. King Canute could not control the tide but we have learned how to harness its energy to generate power. I can have absolute control over how I bake a cake but I cannot control whether you will enjoy the taste. I don’t know when or how I am going to die but I can at least control some of the factors that will help me live such as food and exercise and general lifestyle. When I drive my car I don’t know if some other driver will crash into me but I can control how I drive. I am not seeking certainty otherwise I would never drive again, I am actively managing whilst at the same time accepting uncertainty. I am seeking to control the factors, which are in my power to control.

......................

It is true that you can only control what is in your power to do so, mainly yourself; your point of view. But the mind usually wants to take responsibility for everything, as the fear of no control (no self) is at the very core.

It's realizing that as much control as you like to think you have is real, *poof* it can all be over in a flash. Did any of it really matter? It does while you are alive, right? So risk shouldn't be something that is run away from, but it is acknowledged fully as inseparable part of trading (and life). Most trading plans (particularly of the directional predictive type) don't account for the uncertainty. Traders want their trades to go the way they want them to go.

 

As a final thought how exactly would you help ‘John’ become a successful trader?

I suppose that only Rande can answer this, but I would suggest practicing "The Four Agreements". That will definetly remove many of the self-limiting agreements that cause a trader to suffer. Until you challenge, or at least acknoledge your core fears, you'll never have the courage to let go fully. Rande could help by providing support pointing out the fears and laying out some template in which can assist the client in removing fear or no longer giving them attention they don't deserve.

[SIUYA 11]

The real issue is . . . there is no real issue.

 

Issues are needed by people in the business of selling remedies. Issues are also needed by people who rely on them to cope with their making poor choices. It is a match made in heaven and thus the proliferation of both sellers of remedies and people with issues.

 

The more people I come across in this industry the more I think that traders are born and not made. This is not a statement that a person can learn to trade without working hard at it.

 

I 100% agree with you on both points to a large extent, but that does not mean that people also dont develop issues, or have things that hold them back, or develop issues.....unless of course you are saying good traders never deviate from plans, never get worried unnecessarily so, never have bad days whereby they act irrationally.....

do you apply the same thinking to sports and sports psychologists.

What about management coaches who help people who otherwise are normally successful but cant quite break through to the next level.

 

I went into the cult of abercrombie and Fitch today - the Mayfair shop is something else....and for me I hate it, I hate the culture, the image the whole marketing crap...but it does not mean that others might not get value out of it. Much the same as I dont care for volume analysis in trading, and yet I dont need to say those who push it push rubbish.

 

I think discussing things, allowing people to have their say is part of a health process, and not everyone fits into your and my box.

 

or maybe I just like the underdog.

[karoshiman 10]

 

... unless of course you are saying good traders never deviate from plans, never get worried unnecessarily so, never have bad days whereby they act irrationally.....

 

...

 

 

 

I think they do, but the deviations are smaller in extent and are also acknowledged and corrected a lot quicker than with other traders. At the end, we are all humans and do mistakes. The question is how often and with which impact.

[roztom 10]

I tend to agree with some of Rande's implications:

 

The need to predict what will happen (Need To be Right)

Holding on to a belief that the market doesn't agree with.

Not letting go and adjusting to the market.

Not seeing trading as a execution of an edge with a random distribution of outcomes.

 

This is not a counterpoint to other posts here but with few exceptions we bring learned behaviors to trading that are contrary to success in an uncertain world. Even the basic "fight or flight" will cause traders to impulse and dump a trade when there is nothing structurally wrong with it. We run from danger in the real world but stand in front of danger in the trading world. In fact, typically the best trades are entered when there is the most uncertainty

 

If someone has a viable method and cannot execute it then either it is not aligned with their psychology or they have an attachment to money that is interfering.

 

I think it takes quite an effort for we mere mortals to change our relationship with the need to avoid loss, be right and have our self-worth validated by the next random trading outcome... logically we should understand this but emotionally we still experience the other.

[gosu 10]

Hi SIUYA,

 

I've parsed your post below.

 

I 100% agree with you on both points to a large extent,

 

This means you don't agree 100%. Not that you should or that I care whether or not you do.

 

but that does not mean that people also dont develop issues, or have things that hold them back, or develop issues.....unless of course you are saying good traders never deviate from plans, never get worried unnecessarily so, never have bad days whereby they act irrationally.....

 

We are all human, we have bad days, I have bad days. Sometimes I have bad weeks. That doesn't mean I have or am developing "issues." I've been doing this long enough to know that when I'm well rested and my mind is clear, my body fit, and have minimal distractions, extracting from the market is effortless. I call it being in the groove, and the results are "unbelievable" to people.

 

On the other extreme, when I'm tired, physically ill, weighed down by personal or family problems, etc., my trading becomes shit and I'll do idiotic things I would never otherwise do. In between those extremes, there is the day to day momentary lapses in judgment, laziness, plain stubbornness, etc., but these are usually not frequent enough to put me out of the green on most days and very rarely in a week.

 

In any case, trading is a performance activity and I accept my results and don't look to blame people, circumstances, or psychological issues for lousy performance. In the big picture, trading is just a neat game to extract resources from and not that serious. There is nothing inherent about me or trading that can't be addressed with exercise, good nutrition, healing time, and getting my head straight, which is really a matter of aligning myself with life's true priorities.

 

do you apply the same thinking to sports and sports psychologists.

What about management coaches who help people who otherwise are normally successful but cant quite break through to the next level.

 

I sometimes use analogies to describe how I do things, but only in very limited ways, and I consider trading on its own terms when considered as a whole because it is so unlike other activities. I like to improve how I do things; sometimes I don't see much improvement. I'm open to learning. Seeking the expertise of others certainly falls in line with that; I cannot be an expert in all fields. I have knowledge, skill, and many years of successful experience in three areas, trading being one of them. Whether or not I am truly expert, I know enough to separate the wheat from the chaff in those areas.

 

I went into the cult of abercrombie and Fitch today - the Mayfair shop is something else....and for me I hate it, I hate the culture, the image the whole marketing crap...but it does not mean that others might not get value out of it. Much the same as I dont care for volume analysis in trading, and yet I dont need to say those who push it push rubbish.

 

I don't wear their clothes but I am not turned off by their image or marketing. I accept that the fashion industry is all about hype and not substance. Thus I don't get your analogy between choice of clothing and using volume analysis, unless you are saying trading is also about hype and not substance.

 

I think discussing things, allowing people to have their say is part of a health process, and not everyone fits into your and my box.

 

Everyone is free to form and state their own opinions. Everyone who has posted here has done that. In the end, we all must think for ourselves and make our own choices.

 

or maybe I just like the underdog.

 

Who is the underdog?

[Rande Howell 10]

Rande....I find it hard to agree with what you say but you challenge and help clarify my thinking, a very big thank you. A few comments I would like to make:

 

It seems that the basic premise of your argument is that as traders we have to overcome the evolutionary biological bias of our brain, which predisposes us to seek certainty and avoid uncertainty. I’m not so certain this is the case. I would have thought that our evolutionary bias is to manage uncertainty and find ways to minimize the risk inherent in not knowing the outcome of an event. Primitive man would be well aware that not all hunting expeditions would be successful but if tactics and weapons could be improved upon then the success rate would increase. Trial and error, creative thinking and perhaps even random events could all be used to manage uncertainty. The future by definition is unknown and therefore uncertain and I believe that as humans we have evolved to live with this uncertainty without becoming paralyzed by it. Uncertainty has not stopped us from exploring our planet and beyond and uncertainty does not prevent us from getting on a plane or going about our daily business.

 

Control is not as you suggest an illusion but something we all seek in the knowledge that only absolute control is usually unattainable. King Canute could not control the tide but we have learned how to harness its energy to generate power. I can have absolute control over how I bake a cake but I cannot control whether you will enjoy the taste. I don’t know when or how I am going to die but I can at least control some of the factors that will help me live such as food and exercise and general lifestyle. When I drive my car I don’t know if some other driver will crash into me but I can control how I drive. I am not seeking certainty otherwise I would never drive again, I am actively managing whilst at the same time accepting uncertainty. I am seeking to control the factors, which are in my power to control.

 

When I started trading I think it was a natural process to discover the extent of what I could control. I wish I could control everything and the search for the magical indicator which removes uncertainty is a legitimate one. I am an intelligent human being and just because no one else has discovered (or maybe disclosed) the Holy Grail does not prevent me from trying to find this out for myself. My search for the Holy Grail in trading is what I am wired to do in the same way as a scientist searches for a cure for cancer or an astronomer searches for life beyond earth. The search may not be successful but the process of searching is never futile. As a trader the search for the magic indicator helps me to discover what I can control (money management, setup recognition, entry and to some extent exits) and what I cannot control (outcome of any single trade, slippage, black swan events etc). The learning has helped me to define uncertainty and to manage it. My search for certainty is not driven by fear but rather a passion not to put limits upon what is achievable.

 

This brings me to a more fundamental difference of opinion. In your article you have a view of the human brain as something which needs reprogramming. You state that “we cannot discern the difference between biological threat to the continuance of life and psychological discomfort”, we need courage to make internal shifts to our ‘fundamental biological and psychological bias’ and we have to recognize the fallacy of our ‘pattern recognition’ brains which thinks random solutions have wider significance. You believe that our minds ‘cannot separate uncertainty, ambiguity, confusion, and fear from one another’ and ‘probability-thinking and perception does not come naturally’. It’s a dismal and depressing view of mankind in general and traders in particular. Given where we have come from as a species it might explain our atrocities and mistakes but does nothing to explain our successes. And where does our salvation come from? No less a source than psychology whose proponents must have already done battle with our evolutionary demons and have at least discovered the Holy Grail of behavioral reengineering. As a trader you give me no credit for my evolutionary bias to survive, succeed, prosper, be creative, resourceful, determined, focused, to learn from mistakes and ultimately to trade with uncertainty and without fear.

 

As a final thought how exactly would you help ‘John’ become a successful trader?

 

"John" is a former client of mine who is now trading successfully. This forum is way too small a space to a discourse about how brain adapts biological system to its environment and creates reactive patterns to trigger before thought to similar generalized stimuli in the environment. One of the better ways of understanding of understanding this process would be to look at how brain responds to traumatic events. Patterns get wired and "pop up" reactively based on genealizing from a negative event in the environment. If you have ever had a substantial loss in trading and found it hard to trade after that, you have experienced this process.

 

It is possible to discern between biological threat and psychological discomfort. But you have to train the brain/mind for it. Just like learning to read changes the brain from its evolutionary direction, so can we build a "new and improved" brain/mind for trading. Evolution and biology did not set up shop for long term success. It is wired for short term success. Once success to a break down has been established, it wires it into pattern or habit. Often that short term success is not actually good for long term success. This is what is happening when a trader keeps repeating the same mistake over and over again despite the negative consequences. In the stress (or thrill) of the moment, the amygada's reactive fear patterns get past the hypocampus' evaluation function that moderates fear responses by the elavation of stress hormones that block the hippocampus' moderating influence on the amygdala.

 

The brain only learns from mistakes, but it also tries to prevent the possibility of experiencing a mistake. That's what reactive pattern is all about. It's not seeking to better the self long term -- only short term.

 

Back to "John". He had learned long ago "not to make a mistake" in his training as an engineer. He "knew" that trading was a numbers game where even with an edge, there would be losses intellectually. However when he was in the soup, this intellectual stuff simply got blown out of the water. Having gone to numerous Tony Robbins' seminars, he tried to envision outcome, overcome fear, and control the future with his positive and powerful attitude. Having worked with a number of people like this, it is no surprize that this approach to psychology created a bigger monster when he discovered he could not control outcome. He could only control his response to circumstance.

 

He was taught the same process I teach all my clients. First emotional regulation in the context of the trading environment. Until you get control of emotional reactivity, you don't get to the door of the mind. Second is mindfulness where I am teaching a trader how to take a step back from thoughts and beliefs that hold your perception of the world. Third, I taught "John" how to observe the Internal Dialog -- that's all those thoughts running around in your head -- particularly the kind that come with stress and worry. In particular I taught him to question his historical conversation about being right. From there, I taught him how to access the indwelling discipline, courage, self soothing, and impartiality within himself and develop it so that this emotional base created the mind that traded, rather than the one he showed up with in the beginning to trade. I used a memory model to retool emotional memory to access the varioius emotional states that give rise to mental states (this is the archetypal stuff). Took about 4 months for basic change process to become high functioning in the trading environment. He went from a mindset in his trading rooted in "trading not to loss" to a mindset that stayed disciplined and impartial as he worked with the uncertain world of outcome in this trading day. Can he fall back into the old pattern? Easy. You gotta stay alert to back sliding.

 

One of the methodology teachers I work with is Gail Mercer of Traders Help Desk. She has been teaching for a long time and her clients have ennormous respect for what they have learned with her. Her comments on traders are on target. She says that the problem occurs because traders have a problem pulling the trigger, staying in the trade, and taking losses. She reports -- It is their head, not their methodolgy that is the problem. Much of it false bravado of the male kind, she also reports (She says it more colorfully). She has tried to solve this problem for many years. Same things we're talking about here. Out of working with this situation, she now integrates trader psychology into her trader training. And if you were going to her conference later this month, you would see me teaching teaching various elements of my work that she then integrates into her training the next day. It's a great way of working with traders.

 

I encourage you to read into Emotional Intelligence. Particular pattern formation and reactivity and the rise of mind from brain. It is theory, but with alot of testing of hypothosis that grounds it. What you will discover is a vast amount of the stuff I write about comes out this theory. I also give a number of free educational webinars that show how these elements fit together. EQ is far more important than IQ.

 

Rande Howell

Edited May 7, 2012 by Rande Howell