Discovering the Historical Narrative that Sabotages Your Trading Mind


3 ratings



Rande Howell

08 Sep, 2017

in Psychology

The Mind on Emotions
Patterns are about automatic responses to environmental pressures – and emotions drive those automatic responses.  From an Emotional Intelligence perspective emotions are very different than the way people think about emotions.  First, emotions are not psychological; they are biological and take over psychology and thinking.  They trigger when there are changes in the environment (markets) that affect the organism (Jeff or you).  Human beings (Jeff and you) are biased to negatively assess changes in their environment because this was a very successful strategy that is now wired into humans as traits.  (When was the last time you turned on your favorite news channel and found good news?).  Emotions will move the organism (you and Jeff) into action AND will influence the kind of thinking of which you are capable. (Just think of the fear of loss that freezes your hand on the mouse or the anger that drives you to get revenge, or the euphoria that breeds over-confidence.)

Traders have made emotions their enemy.  And Jeff (like so many other traders) tried to control his emotions (thinking that they were the enemy) and tried to trade without emotion.  Unfortunately, this is an impossible task and sets the trader up for emotional hijackings.  Emotions are the way the organism (again Jeff and you) responds to environmental changes.  They are going to happen.  The emotionally intelligent trader USES emotions to create the mind (all thinking is emotional-state-dependent) that engages uncertainty with capital at risk rather than getting hammered by default emotional programming that governs the way you respond to uncertainty and risk.  This is important because the instinctual emotional brain cannot differentiate psychological discomfort from biological fear.  To it, when you experience the vulnerability of risking capital with an uncertain outcome, it views this as a mortal threat and responds by the fight/flight response.

Once triggered, the emotion revs up, preparing the trader for confronting the threat (i.e. the saber-toothed tiger) rather than calmly and coolly working the probabilities.  Once the emotion has aroused for action, its chemistry enters the blood stream and brain – and rational thinking is compromised.  This is when fear, anger, over-confidence, and/or greed do their damage to the trading mind.  So learning to master your emotional nature on uncertainty (which gives rise to the mind engaging uncertainty) is a major task every trader must accomplish in his/her development as a trader. Until a trader can learn how to understand and manage emotions effectively, getting at the historical narrative (where your beliefs are housed) is simply not possible.  Emotional state management is a basic core skill every trader needs to develop if he/she is to master the mind (self-narrative) that trades.

Fortunately emotional regulation and emotional intelligence can be taught.  Neither you nor Jeff are stuck with the mind that you brought to trading.  The mind that emerges from your emotional brain and survival instincts can be taught.  Let’s go back to Jeff’s re-occurring pattern of self-sabotage where he would give back all his profits after a strong profitable period.

Belief – the Glue that Holds Pattern and Emotion Together as a Narrative
First, let’s define beliefs for context here.  Beliefs are assumptions that take on the power of truth.  Your brain (when engaging the world) is fed sensorial information as it assesses the world around it.  Then your brain, based on these beliefs (see above definition) creates a virtual representation (historical narrative) that it then projects onto the phenomena of the markets.  The effectiveness of your virtual representations (your beliefs) is measured in trading by the health of your trading account.

These assumptions that have become true as your beliefs form the pattern-making machinery of the brain and mind.  And it is the beliefs you hold about your capacity to manage uncertainty and vulnerability that drives your trading performances and the life scripts that create the story you tell about trading.  You do not have these beliefs that create the historical narrative – they have you.  It is not what you say you believe that matters.  It is what you DO and think in the midst of engaging uncertainty that isolates the beliefs that are truly driving your trading and are reflected in your trading account.  The emotions that arise from your engagement with uncertainty tell you much about what beliefs are truly driving your trading. 

Now let’s take a look at Jeff’s reoccurring pattern (called the Historical Narrative) from this new perspective.  (I worked personally with Jeff so I have some insider information.)  Jeff was driven by a need to win (to prove that he mattered) rooted in his competitive spirit.  He also held the belief that he was not that smart so he had to work harder than anyone else to achieve.  And when he finally proved himself in competition or business, it made him feel really good.  He was proud of himself. These two beliefs (“having to win to prove that I matter and having to work hard because I’m not naturally good enough”) worked well for Jeff until he started trading.  Before trading, he could control nearly every outcome using this hard work, competitive, and winning mindset.  (It even worked for a while in trading as he earned the right for a funded trading account.)  He naturally felt good when he started trading well and showing other people that he had the “stuff”. That made him feel even better.

This “feeling good” was not rooted in a humble confidence.  This feeling good that he experienced when he proved himself and showed others that he was a winner was euphoria (i.e. a dopamine reward system).  But euphoria is dangerous to the trading mind, where a balanced and emotionally stable mind is needed.  Winning, after the hard work of proving his value as a human being, gave Jeff a huge injection of dopamine.  And as a short-term problem solution it worked well as his hard work did lead to the desired outcome – winning and proving that he mattered.  Out of this successful solution arose a habituated pattern of interacting with the world around Jeff and this became the historical narrative from which Jeff acted.  And why not?  After all, he had proven himself successful.

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Have you heard about FL?

Have you heard about " MERCHANT ADVANCED" trading method?

Don't know anything about all that above! I'm just a simple trend trader that takes money out of the market and have found the psychological stuff quite useful. I've always found it beneficial to listen to what other people have to say, because occasionally there are some nuggets. :)

Sep 08, 2017

Member (1021 posts)

Good Article

Not necessarily new ideas but well explained and I suspect highly relevant (can see myself there in the past). Looking forward to the next instalment.

Sep 08, 2017

Member (1021 posts)