The Trader's Journey of Self-Development

[Rande Howell 10]

The Mindset That You Brought into Trading

is NOT the Mindset That Will Bring Success in Trading

 

The Journey Begins – Stumbling Out of the Starting Gates

 

Traders begin the journey into trading with high hopes. They believe, with good training and enough screen time, they will be able to master trading and achieve their dreams through trading. They practice diligently in simulation, back-test their methodology, and/or use a trading organization’s “near money” until they clearly see that they can win at this game with their own money. Confident from their past experience of hard work and ambition having paid off in the past, they assume this ethic will lead them to success in trading also. Methodically, they have trained themselves to achieve their dreams.

 

Then they start trading live. Anyone who has been around trading for a while knows the war stories. The stories of blown-up accounts and the slow bleed of a thousand small cuts litter the landscape of the journey into trading. After the losses, fear takes up residence in the trader’s mind and self-doubt becomes the invisible partner riding herd over the trader’s mind. Even when they have a winning streak, they end up getting over-confident and giving back all their profits – and more. Somewhere the trader’s mind gets hijacked by fear or euphoria and an efficient trading mind is no longer in charge of the methodology that (on paper) gave them the edge to be profitable.

 

The Journey Hits a Critical Moment – Taking Stock of Yourself

 

By this time in a trader’s journey, they have chased the Holy Grail through different methodologies, the latest trading guru, the next “can’t miss” indicator, new platforms, and mechanical trading systems that take the emotion out of trading. But they still can't break through to the next level. By the process of elimination, some begin to realize that they are looking in all the wrong places for the missing ingredient to their success; the Holy Grail is not to be found “out there” in new systems or methodologies.

 

Rather, the Holy Grail is really a set of inherent, in-dwelling resources within the self. The rub is that traders have to find, excavate, and develop these elements of their potential. And that is uncomfortable to do on an emotional level, especially for someone who has avoided the heavy "emotional lifting" required to change beliefs about one’s capacity to manage the uncertainty of probability. Many traders stay stuck at this point in the evolution of themselves as a trader, either because they do not want to hold themselves responsible for their trading results or because they do not know how to change.

 

Unless you were lucky enough to win the genetics lottery for trading pre-disposition, there is really no choice but to re-develop the mind for trading. The first big AHA! moment for the emerging trader is recognizing that the problem with his trading is him (or her) – and that alone. Both emotionally and psychologically, this is a difficult task. Redeveloping the self that trades forces the trader to confront parts of himself that he or she has very successfully avoided for decades. The very psychological dragons that the trader has pushed out of working awareness in other domains of his life now stalk him as he trades.

 

The developing trader has to look into the mirror of the self and take stock. This is where he really needs to decide if his passion for trading has the emotional motivation to see him through confronting his fears and redeveloping his beliefs about his capacity to truly manage uncertainty. Unlike other areas of his life where there is so much "fuzzy grey" area about declaring "success", the condition of success in trading is black and white – it is your trading account.

 

If the beliefs you have about your capacity to manage uncertainty in trading are effective, the results will be reflected positively in your trading account. The reverse is also true. If the beliefs you bring to the management of uncertainty in trading are not effective, they will produce trading performances that show a capital drain on your trading account.

 

The Courage to Build Your Mind for Success in Trading

 

At this point the trader comes to understand that the mindset that he brought into trading is not the mindset that is going to produces success in trading. And if he is going to be successful in trading, his is going to have to commit to self-development. Self-development implies that the trader is going to have to build a mind for trading. There is no reason to feel embarrassed. Just about everyone comes to this moment in their journey into trading. It’s called paying your dues and waking up.

 

Generally, at this point a trader has been developing his technical side for three to five years; and he has read more than a few trader psychology books. At some point he realizes that he, and he alone, is the problem that keeps sabotaging his potential. So he decides to commit himself to self-development in the same way that he developed other skills for trading. He has been "in his own way", but he is finally ready to change.

 

This is a critical moment. Many people leave trading before they arrive at this intersection because they are unwilling to change. However, if the trader truly has a passion for trading, he also has the motivation to change.

 

Change Into What?

 

Many traders have attempted to change with no long-term gain. The battlefield of self-development is littered with programs that promise change. Many programs deliver a sense of energy (called a seminar high). When you leave these programs, people literally feel as though they could conquer the world. They leave the training in a state of high energy, they are goal oriented, and they are razor-focused on success. And after walking over burning coals or another seemly impossible mind-over-matter obstacle, they are certain that nothing can stop them. They feel on top of the world. They have the affirmations, the success visualizations, they have learned some NLP, they have done some hypnotic guided meditations that released their higher self, and they have become the spiritual warrior of success.

 

No matter how great this euphoric state feels, this is a dangerous state of mind to develop for practice in trading. Euphoria (which is what these programs generate) is just as dangerous to success in trading as fear. Euphoria is an emotional state that makes a person believe with certainty that the good times are going to roll on forever. It is the same emotionally-based state of mind that hedge fund managers or proprietary traders fall into that causes them to blow up their accounts (i.e. JP Morgan’s $2.5 billon dollar loss).

 

The mind that needs to be developed for trading is rooted in an emotional compound state called disciplined impartiality. In the same way that fear creates a belief in the certainty of things going wrong and euphoria creates a belief (cognition linked to emotional state) that the good times are going to keep rolling, disciplined impartiality creates a state of mind that believes in the certainty that probability is on your side as you manage the trade well.

 

Notice the difference here in how the emotional states work. Fear and euphoria produce a bias of predicting certainty of the future as if it were real. Disciplined impartiality produces a mind that manages the probability of what future may come. Fear and euphoria are trying to control the outcome of probability as if it were a certainty. Disciplined impartiality is aimed at controlling the state-of-mind to manage the probability of outcome.

 

Setting Course for the Journey of Self-Development

 

First and foremost, as you explore how to develop the self for trading, look for ways of calming down the excitatory process of emotional arousal – not cranking it up. The more emotionally aroused you are, the more difficult you will find it to create the calm, patient states of mind necessary for trading. Next, look at the way the system is teaching you to achieve success. Are you being asked to produce high-energy states where you can “feel” the energy of success that makes success happen as you envision it? Or are you being trained to develop a state of mind that is receptive (or open) to what life (or the markets) are willing to give you and then to seize the possibility?

 

Trading demands calm, patient states of mind that can seize opportunity when it appears. This is the self-development that works well in trading. It is the difference between the way the American cougar hunts compared to the hunting style of the African lion. The cougar waits in patience for the prey to appear in her ambush zone and then she pounces. This is the kind of strategy that works well in trading. On the other hand, the African lion chases the prey in teams. This high-energy “chasing the trade” strategy sucks the trader into trades and positions that take him out of the state of mind that keeps probability on his side. Ultimately, the trader has to develop a mindset that encourages him to wait to see what the markets are willing to give him and to also conserve energy and capital to trade another day.

 

Understanding the mind that needs to be developed can really help you sort out HOW you go about building that mind. What tendencies are you bringing to your trading mind as it observes the markets? What aspects of your psychology do you need to develop in order to get into the zone where effective trading occurs?

[koyasan 10]

Rande....enjoyed your article and thought provoking as always, though it takes a few reads to really get to grips with what you are saying. If I have got this right, once a trader is 'good enough' (to use the term in the Winnicott sense) on the TA side the only (and greater) challenge to success is the mental game which you define as , " redeveloping his beliefs about his capacity to truly manage uncertainty". The goal as you see it is to develope a mindset of 'disciplined impartiality" which is possible for the trader to achieve if he is motivated by a passion for trading. I'm with you so far and would not disagree.

 

On the TA side I think there are a lot of traders who have sufficient knowledge re strategy,set ups, money management , back testing etc which is not reflected in their trading accounts. If anything I probably spent more time on TA looking for 'certainty' as a way to avoid the mental stress of 'managing uncertainty'. After all if I had a surefire strategy then there is no stress in the execution. Equally when I am under more stress managing uncertainty it explains why I might go back to working on the TA side of the equation. I agree with you that there comes a point in our trading when we realise that it is now time to spend more time on the mental game..the TA side is 'good enough' to make money.

 

There is also a hidden caution in your post which suggests it is probably pointless to concentrate on the mental game until you have demonstrated competency on the TA side. Not sure how you would measure this but I agree with the sentiment. Just wonder how would you recognise someone who is competent on the TA side but dos'nt believe it and what about the person who has the mental game but not the TA? On this latter point since the TA side is probably easier is it theoretically possible that the journey for you to become a successful trader is a shorter one? That's a serious question because for me it might help to clarify the process of how to become a successful trader.

[MightyMouse 12]

Understanding the mind that needs to be developed can really help you sort out HOW you go about building that mind. What tendencies are you bringing to your trading mind as it observes the markets? What aspects of your psychology do you need to develop in order to get into the zone where effective trading occurs?

 

Rande,

 

Is this possible or practical? If someone's mind isn't currently suited for trading wouldn't it make more sense to find a suitable vocation or talent for that person's mind rather than go through all the trouble to learn TA then get to work on developing his mind to be able to properly observe the markets so that it is more suited for trading?

 

Besides which TA and the proper mind will likely get a trader to be a breakeven trader but no more than that. Traders have or develop a knack for finding other traders to buy inventory from them at high prices or sell to them at low prices. They know how to find those traders that are pressured to buy or sell at the wrong times. TA or traditional TA will will not get you there.

 

BTW, I am not questioning whether or not you can help someone develop their mind.

 

MM

[steve46 12]

Yeah well I have a couple of observations of my own regarding a trader's "self-development"

 

I believe that past a certain point in life it becomes impractical, and most certainy unlikely, that a person will make the very significant changes required to become reasonably good at this business......sports analogies are near and dear to me, probably because I have some life experience is that arena.....just to pick one, it is well known that if you can't learn to hit a major league curve ball, unless you can throw one (unless you are a pitcher) you aren't going to make it in that sport...it matters not whether you "understand" what you are looking for, how the curve ball is thrown, etc.....you either can or cannot hit that pitch.... there is no middle ground....

 

As a pursuit, I believe that this business (trading on a daily basis) is similar.....up to a point one can find, and receive education, mentoring, and technical expertise, but there is a critical element that is found in one's psyche (in some of us anyway) that cannot be taught or learned unless you have at least "a seed" of that intangible "something" within you to begin with....

 

Now to be realistic, we cannot all be Michael Jordan (basketball)...or Nolan Ryan (baseball) but we can maximize our own potential, whatever that is.....from my point of view the "real" question is......is that potential (the maximum that we might achieve)......enough.

 

Its up to each person of course to make that decision. In my own classes after number of months of trading in a supervised environment I asked each student to go out on there own and try to make a reasonable living....I suggest to them that they should be able to do that within about 6 months.

 

In my opinion, if a person cannot make significant progress within a reasonable amount of time, given sensible restraints in terms of capital.....they probably should look elsewhere for a vocation...

 

Good luck

Edited July 13, 2012 by steve46

[Rande Howell 10]

Rande....enjoyed your article and thought provoking as always, though it takes a few reads to really get to grips with what you are saying. If I have got this right, once a trader is 'good enough' (to use the term in the Winnicott sense) on the TA side the only (and greater) challenge to success is the mental game which you define as , " redeveloping his beliefs about his capacity to truly manage uncertainty". The goal as you see it is to develope a mindset of 'disciplined impartiality" which is possible for the trader to achieve if he is motivated by a passion for trading. I'm with you so far and would not disagree.

 

On the TA side I think there are a lot of traders who have sufficient knowledge re strategy,set ups, money management , back testing etc which is not reflected in their trading accounts. If anything I probably spent more time on TA looking for 'certainty' as a way to avoid the mental stress of 'managing uncertainty'. After all if I had a surefire strategy then there is no stress in the execution. Equally when I am under more stress managing uncertainty it explains why I might go back to working on the TA side of the equation. I agree with you that there comes a point in our trading when we realise that it is now time to spend more time on the mental game..the TA side is 'good enough' to make money.

 

There is also a hidden caution in your post which suggests it is probably pointless to concentrate on the mental game until you have demonstrated competency on the TA side. Not sure how you would measure this but I agree with the sentiment. Just wonder how would you recognise someone who is competent on the TA side but dos'nt believe it and what about the person who has the mental game but not the TA? On this latter point since the TA side is probably easier is it theoretically possible that the journey for you to become a successful trader is a shorter one? That's a serious question because for me it might help to clarify the process of how to become a successful trader.

 

Koyasan

 

What an interesting post. It is our nature to look outside the self for solutions to problems. Until a trader comes to understand that they are both the problem and the answer, they do not take self development seriously. Trading is about the intersection of platform, methodology, and mind. Mind does not sit outside of the trading -- it is part of the trading. Each element is essential, but the development of mind is neglected. Until this need is addressed, there is a weakness in the system. If a trader were to recognize this need early and address it, then a much shorter path to consistent profitability becomes a real possibility. But they have to come to have place value on and need of self development first. Most people I work with have traded for a number of years and can produce paper profits easily and they really understand the mechanics of successful trading. When they come to the conclusion that they need to build the mind, it can be done in fairly short order. So there can be a shortened path, but the trader has to see the need and push through their resistance. Meanwhile the markets really don't care what story the trader brings to the arena. How the trader approaches the uncertainty is what matters. Better be prepared both in skills and mind.

 

Rande

[Rande Howell 10]

Rande,

 

Is this possible or practical? If someone's mind isn't currently suited for trading wouldn't it make more sense to find a suitable vocation or talent for that person's mind rather than go through all the trouble to learn TA then get to work on developing his mind to be able to properly observe the markets so that it is more suited for trading?

 

Besides which TA and the proper mind will likely get a trader to be a breakeven trader but no more than that. Traders have or develop a knack for finding other traders to buy inventory from them at high prices or sell to them at low prices. They know how to find those traders that are pressured to buy or sell at the wrong times. TA or traditional TA will will not get you there.

 

BTW, I am not questioning whether or not you can help someone develop their mind.

 

MM

 

You brought this vocation notion up a while back in response to a guy I was working with that had a strong ability to build businesses. And you were dead on. The guy did become a profitable trader and he has now bought a business that he can grow. Trading is sideline now. What he discovered was that he loved being in the nitty, gritty of building businesses and was not nearly as well suited for trading. He could make himself do it, but it was a waste of perfectly good talent. His miscalucation was that trading was a business that was capital intensive. He expected to be able to apply his acumen to trading as a business and build it. He did not realize that he would have to redevelop his mind to become a trader. What he learned in working with me has served him well, but it is being applied to business rather than trading now.

 

From what I've seen, the person has to have genuine passion for trading to make the endeavor worthwhile. Because you are going to have to go through some serious development to build the skills, both technical and mental, to become successful. I believe most anyone can accomplish that if they are so motivated. But to sustain that motivation, I find the necessary ingrediant to make it worthwhile is passion for what they are doing.

 

The major problem I see is a fear based mentality that is brought into trading with the hopes that they can escape the limitations they have been experiencing in other areas of their lives. After being sucked into trading by some serous misguided promises, they get into trading and find that facing their dragons are no longer avoidable. Sooner or later, we have to face up to our fears -- whether its in trading or in other areas where we experience limitations based on our beliefs.

 

I really appreciate the insight you have brought to the discussion of trader psychology and want to acknowledge you were dead on the money about suitable vocations.

 

Rande Howell

[Rande Howell 10]

Yeah well I have a couple of observations of my own regarding a trader's "self-development"

 

I believe that past a certain point in life it becomes impractical, and most certainy unlikely, that a person will make the very significant changes required to become reasonably good at this business......sports analogies are near and dear to me, probably because I have some life experience is that arena.....just to pick one, it is well known that if you can't learn to hit a major league curve ball, unless you can throw one (unless you are a pitcher) you aren't going to make it in that sport...it matters not whether you "understand" what you are looking for, how the curve ball is thrown, etc.....you either can or cannot hit that pitch.... there is no middle ground....

 

As a pursuit, I believe that this business (trading on a daily basis) is similar.....up to a point one can find, and receive education, mentoring, and technical expertise, but there is a critical element that is found in one's psyche (in some of us anyway) that cannot be taught or learned unless you have at least "a seed" of that intangible "something" within you to begin with....

 

Now to be realistic, we cannot all be Michael Jordan (basketball)...or Nolan Ryan (baseball) but we can maximize our own potential, whatever that is.....from my point of view the "real" question is......is that potential (the maximum that we might achieve)......enough.

 

Its up to each person of course to make that decision. In my own classes after number of months of trading in a supervised environment I asked each student to go out on there own and try to make a reasonable living....I suggest to them that they should be able to do that within about 6 months.

 

In my opinion, if a person cannot make significant progress within a reasonable amount of time, given sensible restraints in terms of capital.....they probably should look elsewhere for a vocation...

 

Good luck

 

Most of the traders I work with are not seeking to be a master trader. Instead they are seeking to be competent enough to earn a living -- what I call a professional trader. I find a huge gap in methodology teachers ability to train aspiring traders. They can teach the TA and mechanics of trading, but they don't know how to touch the underlysing self limiting beliefs that the trader brings to trading. Unless those are deconstructed and reconstructed into higher functioning beliefs, then you are right, they either have it or not.

 

My hope is that a new frontier in trader training will emerge where solid methodology teachers recognize that it is part of their training to get at this psychology part. In the same way I found very few therapists know how to produce long term change, I find that too with "trader psychologists".

 

Steve, I hope one day you and I talk. Everything I've read of yours tells me you are a good teacher and a credit to an aspiring traders learning how to trade. In much the same way that Gail Mercer of Traders Help Desk and I have begun working together to work with the whole trader -- my hope is that we can explore that also.

 

Rande Howell

[steve46 12]

Thanks Rande for the kind words

 

Until recently I had decided not to teach again. Unfortunately I was one of those folks with an account at MF Global, so I was taught a "lesson" of my own about trust. Fortunately I have been able to recover much of my account so the damage was minimal.

 

What I have decided to do in future relates to this incident. Based on what I have learned I decided to see if it was possible to take a small account (less than $10,000) and make a profit. I have never tried it myself and in the past I have counseled folks not to try...especially for newbies, I think it puts a bit too much emotional strain on a trader and that seems to have a negative effect on their ability to make good decisions. In the process of working on this problem I came upon something unexpected. I learned a simple technique that seems to insulate a person from the many negative thoughts that can intrude, both before the trade, after they are filled on their entry and during the management phase..

 

Now as this last part of my test process comes to a close frankly I am surprised that this process seems to work with relatively inexperienced folks. In fact I am so encouraged that I may give teaching another try and if so I will contact you..

 

Thanks again

Steve

Edited July 16, 2012 by steve46