Awareness is Vitally Important to Trading....But Why?


1 rating



Dr. M. Woodruff Johnson

19 Sep, 2018

in Psychology

‘You can’t change what you can’t face, and you can’t face what you don’t know.’  This obscure but very important quote was coined by my friend, Jackie in a conversation we had some years ago.  We were discussing the challenges that all humans face with initiating and managing change.  Within this conversation we both agreed enthusiastically that, embodied in this simple yet deeply profound statement is a principled truth about how acutely and pervasively awareness plays into your ability to detect and repair issues.

The speed and effectiveness with which you become aware that you have initiated an error in the sequence of behaviors needed to secure an effective outcome to an endeavor…like trading… will determine whether you get stuck in a negative behavioral loop or proactively negotiate your way out of it. In other words, if you can’t identify your point-of-failure in a circumstance, that means that you don’t have the data to address it and initiate a course correction.  This being true, then you will continue to do the same thing and, yet, expect a different result.  This is a tenuous position because you can get caught in a loop of behaviors, either unwilling or unable to do something different.  But, how could you be expected to do something different if you aren’t aware of the offending variable?

A few years ago, I had some critters in my basement.  They were field mice that had come in through a hole in the wall.  After a number of them had found the hole, no doubt alerted to its existence by their cohorts, (they had become aware) the mice began to attack anything that remotely resembled food.  They ate through baseboards, got into the food cupboards and generally had a good time before I identified that 1) there was a problem, 2) that they were rodents and 3) what to do about them.  However, was this the end of the issue?  No, because I had yet to realize the breech and then find exactly where it was.  Until this additional data was available, for every mouse that was eliminated there were 2 or 3 more that gained entry.  It became like the game Whack-a-Mole; they just kept coming and the problem continued. Ah, but once that critical piece of data was uncovered (the location of the hole) the problem was effectively resolved…at least that one!  So, this notion of awareness is not only crucial for identifying where you’ve gone wrong, but also to discover what must be done to have a genuine resolution.

Another critical factor is that most experiences in mind, brain or body (95 – 97%) are out of awareness (unconscious).  Take a moment to consider the trillions of communications that go on in your brain, mind and body in each moment, down to the cellular level, and all but a few happen below the surface in the subconscious. This includes the higher functions of thoughts, emotions and behaviors.

Now, let’s drill down a little deeper.  In the formula for getting results, you may remember that there are three variables that are always present in any outcome; and even though there may be other variables present from time to time, these three are vital and they always impact upon the result.  Those variables are, T + E + B = R where T = thought, E = emotion, B = behavior and, of course, R = results.

Largely, people erroneously believe that thoughts are mostly both conscious and rational.  Neither is true.  Thoughts are mostly unconscious and include mind movies, verbalizations, beliefs, biases, values and attitudes. All of these thoughts can be either supportive, or highly toxic.  Toxicity, unfortunately, is typical for many people across the planet due to political unrest, dire living conditions and violence.  From the earliest moments in life, negative experiences have led people to create meaning and beliefs about those experiences that are limiting, negative and irrational. These belief structures are deep in the unconscious and continue to negatively impact upon conscious thoughts; for example, I can’t do this; I’m no good at math; I’m stupid, you must be lucky to be a successful trader; and so on and so on.  Now, these conscious thoughts that are triggered by deep seated subconscious beliefs generate emotions like fear, greed, anger, anxiety and doubt, to name a few.  When these and similar emotions are activated they drive behaviors causing you to do the very thing that you promised you wouldn’t do, for instance moving a stop, chasing a trade, or premature exiting! Herein lay the financial death traps that will eventually blow up your portfolio.

You need to be logged in to post comments or rate this article.

Self-control, focus and having the will power and determination to ignore your emotions and concentrate on the evidence in front of your eyes are all key to me. When you are very experienced there might be times when your sub-conscious is remembering similar situations in the past and that gives rise to a "gut feeling" which you might well choose to follow, but that's not for beginners.
Objectivity and and some seasoned judgment are what matter in my opinion. When the facts change, your view of them and your actions should follow on.
A lot of trading psychology is waffle and navel gazing - imho.

Sep 20, 2018

Member (7339 posts)

There are a lot of psychologists churning out articles on trading even though they themselves either don't trade or aren't particularly good at it if they do (for example, Van Tharp). I assume they do it to drum up business for themselves. But, as always, caveat emptor: make sure that whomever you're reading or listening to knows what he or she is talking about.


if you cant trade ...then teach trading

if you cant trade or teach trading .....then teach Trading psychology

if you cant do any of the above ......... ?


Sep 20, 2018

Member (35302 posts)

Being in the present moment means that you are less likely to allow thoughts / feelings that would cause you to not follow your rules / plan. There are a huge number of traders that don't do what they plan when in a trade because of attachment to previous thoughts and emotions.

I agree that the logical thing to do is to follow a strict set of rules but logic often goes out of the window when in a trade as many traders will attest to.

Sep 19, 2018

(8403 posts)