Psychology

Managing Your Mind’s Energy Pie

There are too many items to keep track of in the market. The trader must understand that he cannot "know it all". If you could, you would be the ultimate trading machine. This being said, we realize that we are imperfect. We have only 100% of our mental energy to use in any given time frame. Some of it is used in maintaining our bodies ? breathing, walking, talking, etc. Some is used in keeping track of our lives ? what time is it, did I turn off the coffee pot, and did I pay the phone bill? Most of it is used in trying to understand the complexity of our world ? the sensory input from our senses and their identification and categorization. In using this last energy, we tend to trap ourselves into sorting out signals and identifying them with past similarities, to make things easier and to conserve on this energy. Unfortunately, this means it is difficult for us to learn new things clearly and cleanly. A simple example is the color red. Most of us drive a car; therefore, red indicates "stop". If we see the color outside of the context of driving, we still tend to think "stop". Many word association tests have proven this out. Thus, if red meant something other than "stop" in a different setting, we may not learn this new meaning quickly or perhaps if we do; it still has some "shading" of "stop".

Thus, new traders often try to interpret the market using the wrong context as the market has little to do with their social world scenario. Thus, the signals that the market is putting out have little meaning or are, most oft, misinterpreted. The confused trader then tries to gather more evidence to bolster his misinterpretation, further compounding the situation. The more he tries to learn via his old context, the more confusing the data appears to be. As he tries harder, he burns more and more of the energy that is available. Because the energy is finite in any specific time frame, the trader becomes mentally drained, pulling energy from his other needs ? life support, emotional response, logical thinking and rational control. As these items decrease, certain traits start to take over. The strongest of these are the violent emotions ? anger, sadness, frustration and projection.

Each of these in their turn degrades the trader’s ability to understand the direction of the market. Dazed and confused, he makes another bad decision based on good information that has not been properly learned and categorized. This is a downward spiral.

The trader must learn to learn properly. To clear his mind as best as possible and try to see reality, and then to test it against the market ? not what he already knows. So many see the price going down, and their "social" education is to sell, while every market indicator might be screaming "oversold ? buy now". Perverse but true.

Controlling Emotions
Emotion is a mental and physical expression of a perceived stimulus. Some emotions are considered "good", others "bad" ? however, this is, again social thinking. Emotions simply are ? neither good nor bad. It is not good to be euphoric at a tragedy, nor is it bad to be angry against injustice. However, emotions are energy hogs that drain our mental capacity quite quickly, and usually, with little benefit in the long run.

Learning Not to Magnify
We have all been guilty of magnifying a situation. A small personal jibe can bring out a totally out of proportion response. Additionally, the injured party can then use even more energy to mentally challenge his aggressor with the "that’s what I would have done" and concerning himself with the possibility the jibe was a capital "T" truth rather than the small, meaningless mutterings of an inconsiderate person.

What then of trading. Here is an incredibly stressful world, fraught with fears, personal failures and tremendous mental drains. All traders have problems with loss; the successful ones have learned not to magnify the situation. They learn to "let go" of inherent emotions. None are immune to the natural response, but neither do the profitable ones worry about that piece of history. There is no room for emotions, but these are the very stimuli that invoke the strongest ones. The trader must be ever watchful of his composure as trades go against or with him. Euphoria or happiness can be just as debilitating as anger or frustration. You cannot be without emotion, you are not a robot. You can, however, train yourself to control your emotions by staying focused on the goal to be achieved, by monitoring yourself for symptoms of emotional outbreak and by using simple physical stress relief methods to help keep these animals corralled.

Staying Focused
Staying focused is a trained response. A coach once offered me his philosophy, "If it does not add, it must subtract, there are no neutrals". His point was whatever you are doing, it must be additive to your goal. If it does not bring something to the achievement of that goal, then it is a "subtraction", a distraction. Any distraction, no matter how small, is not helping you and, therefore, there are no "neutral" situations. There are pluses or minuses to your goals; you must try to eliminate the minuses. Trading requires patience at times. It is not all split second decisions. Trades need to develop, charts need time to form patterns and traders must focus. This is not easy. One way is to simply keep going over the plan in detail ? why did I open this trade, where was my entry point, what is my stop loss, where is my exit, how will I execute, are my trade plan parameters still in place. Otherwise, the mind wants to wander, to think of far away places with strange sounding names ? a distraction. A trader must love what he is doing – watching the market move, monitoring price action, investigating market and technical indication. It is far easier for this vocation to be successful if it is also your avocation.

You need to understand your normal response pattern. If you do not see "it" coming, you can not control the emotion or the stress. You need to inspect yourself. What is normal respiration, what is normal pulse, what tensions of muscles are natural? Once we can establish this base line of individual performance, we can then monitor ourselves for signs that are "subtracting" from our trading goals.

Common symptoms are:

  • Increased perspiration
  • Increased heart rate
  • Increased blood pressure
  • Increased muscle tension
  • Bracing

Once any of these symptoms of an emotional release, or stress level breach is identified, the trader must take corrective action immediately. He must close the trade as he is no longer in control of the plan. The plan said no emotions, right? His objective thinking is now being clouded. The next step is to identify the "stressor," the item or influence that is causing the response. Then the remediation can begin by limiting that stimulus and using physical techniques to reduce both the mental and physical reactions. This would include deep breathing exercises to calm and soothe. It might require physical exertion to eliminate some of the bio- chemical reactions in the body. It will certainly mean doing a rigorous inspection of "self" before going back into the trenches and trying to re-focus.

Outside Influences
At the outset of this, I mentioned that there are simply too many things to keep track of. Thus, we need to develop a plan that "walls out" extraneous items that do not "add" to our goal. This is called a "trading system". Having a trading system is the reliance on data that you can perceive as having a benefit and eliminating distractions that you have not learned to appreciate. Remember, the market is putting out all kinds of signals. We have to learn, as we go, to disassociate our social conditioning so that we might have a better chance of understanding the market’s data. Our trading system must include only data that we know we have learned in a market context. Beginners often want to include everything possible, old Pros have adopted the KISS ( Keep It Simple, Sam) principle.

Other outside influences must also be considered. Having the support of your family and friends is just as important as a good Economic Indicator. Worrying about what your "significant other" is going to do or say when all is not going well is certainly a stressor or distraction. Listening to people who have not done the hard work that you have, is yet another distraction. Announcements, market calls, chat room gossip needs to be accounted for, but never followed blindly. At best, they may be right but they are not working for your best interests. You must learn to exist on a few pieces of information that you have tested and understand. Trade with those for awhile and then add a "piece of the puzzle". Remember, you eat an elephant one bite at a time.

Passion and enthusiasm are the "watch" words of Mike Mc Mahon. He brings both to his trading and his teaching, with over 20 years of experience in the market, as an investor, a trader and a licensed Commodities broker. Mike has taught classes in such diverse topics as Battlefield Medical Aid, Scuba diving, Hazardous Materials Handling procedures and Motivational Salesmanship. Graduated from UCLA with a Bachelor's Degree in Political Science, Mike brings a blend of academia and experience to our classroom. His ability to communicate this blend is the rare talent that allows an active trader to be a successful trainer. His students are always well schooled – with passion and enthusiasm.Mike is an Instructor at Online Trading Academy.

Passion and enthusiasm are the "watch" words of Mike Mc Mahon. He brings both to his trading and his teaching, with over 20 years of experie...

TheBramble

Legendary member
8,395 1,170
There is a steady stream of this type of amorphous generality that is applied to just about any endeavour and trading seems to cop more than its fair share. I used to imagine the seemingly constant supply was as a consequence of equally constant demand from those who think trading is 80% psychological. But I’m no longer convinced there is that level of demand and I’m absolutely certain the 80% figure bandied about is complete tosh.

Those that are in their ‘80% psychological’ phase of trading have either blown their first account (or two) and/or realise it’s all a lot harder than they thought. It’s a welcome respite from wracking your brains trying to figure out what to do next. It’s a resting state for traders that are going to make it and also for those that are moving on to better things, either with or without that final shot at it. No indicators, no price time or volume. No fundamentals. No analysis. No research. Just the equivalent of easy listening for tired (and largely broke) wannabe traders.

No disagreement with Mike or what he has written, only in that it’s just more of the same and doesn’t really take any real effort to produce (pretty much boilerplate across all disciplines) or read and consequently has a similar degree of benefit for the reader. The other issues I have is that it takes time away from doing something more utilitarian in support of developing a successful trading approach while lulling the lazy recipient into the Belief they have done something useful by an uncritical absorption of what is effectively muzak for the troubled trader’s mind…

If it were a post, I’d ignore it, but there is something about the ‘elevation’ of prose to article standard that indicates to me that it is, or should be, something of special merit, interest or novelty to bring to our attention. This article has none of those qualities.

Many traders suggest “Trading in the Zone” and “The Disciplined Trader” as hallmark works on the psychological aspects of trading. I have both in my library and have read them both too - when I was in my ‘trading is 80% psychological’ phase. And I thought so too, then. But they tackle the issue from the wrong angle too – you can’t handle psychological issues related to trading from a trading perspective. You have a platform problem. You can’t tackle any problem from the same platform on which it is created or exists. You need to subtle with these blighters and approach them without them realising they’re being approached at all. You have to go in through the back door.

The solution is a simple one. You pretend.

Trading is 100% trading. And you are 100% psychological.

Sort out the trading and you wont have any psychological issues – trust me. LOL

How many times have you got really good at something and with that competence found confidence and a sense of ‘Not Caring’? It comes with the territory. You have to get good at ‘it’ (whatever ‘it’ is) first before you can feel good about being good at it. Savvy?

Anyone who has tried the various ‘mental game of..’ Golf/Tennis/Knitting – whatever, knows, unless they were one of the outliers, that it simply doesn’t work. You need to get good at the tangible endeavour level before you can start to feel good at the psychological level. No amount of mental gymnastics will do that ahead of you actually becoming competent.

There is a shortcut.

Pretend.

While you’re working on all you need to sort out to ensure your trading is approaching perfection (intelligent setups, timely and accurate datafeed, adequate platform resource, adequate capital, trading plan, money management, risk management, entry criteria, stop placement, trade development profile, execution plan etc) pretend you’re the trader you know you’ll need to be n order for all of that to work OK.

Maintain a Distance from your Actions. Keep an Objective and Detached View of all you’re doing and Develop a Deep Sense of Not Caring. You’ll need to pretend in the beginning, but it gets much easier. Your successes will ensure that.
 

Trader333

Moderator
8,502 881
You need to subtle with these blighters and approach them without them realising they’re being approached at all. You have to go in through the back door.
Yes I agree with this.

Maintain a Distance from your Actions. Keep an Objective and Detached View of all you’re doing and Develop a Deep Sense of Not Caring. You’ll need to pretend in the beginning, but it gets much easier. Your successes will ensure that.
I know of some people that have accelerated this aspect by using self hypnosis and had good results with it. Essentially it works by making the subconscious mind not care because to the subconscious there is no difference between reality and fiction.


Paul
 
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Windowsill

Well-known member
305 39
Its all procrastination really. If you're serious about trading it involves some study....but once you have established the basics...just get on with it and try to stay disciplined. Any effort on searching for the Grail is pointless, just like watching Sat TV. One really needs to be objective and question the motives behind the 95% of rubbish bandied about regards trading and find the 5% worth reading, this of course won't be an easy read....it might involve effort, actually questioning peconceived ideas and changing how one perceives this arena!!

If one keeps blowing accounts!!! then you obviously have too much money already in my opinion. This mindset is not conducive to trading whatever you may be lead to believe from "Stock Market Wizards."

"It’s a welcome respite from wracking your brains trying to figure out what to do next." I love that line!!

But its what you need to do.lol
 
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blackcab

Established member
523 51
Look at their eyes

I look at the author's photo when I read an article and use my reaction as a guideline. Thick as two short planks, most of them, with their dense faces trying hard to look profound or authoritative or wise and their bouffant hair, they're framed by the corporate photographer sitting half side-on to the camera in thinking-in-action pose, or smirking like a sales rep, against a pastel marbelised backdrop. Their desperate, piggy eyes betraying the lack of profound, authoritative or wise thoughts in their slow heads.

This one's bald and bearded, so an academic, authoritative, wise shot, definitely. Lean forward slightly and quiz the camera like you've been caught mid-profound-thought. Look into my eyes. I am The Master. I have a mysterious yet accessible aura, like a clever uncle. You want to give me your money in return for my profound wisdom, captured in my many e-books with large fonts and gaudy coloured headings.

Of the photos of the authors submitting their collateral here, scraped from their AdSense-revenue-generating, search engine-optimised Web sites, how many actually look intelligent to you, enough to make you think they may be cleverer than you?

Having said that, he might be fine for all I know. I just wanted a rant.
 

tightstops

Active member
245 19
funny, ive often thought similar when the guys trying hard to look serious and important and give the impression he knows what hes on about before hes even said anything it probably means hes full of shyt. having said that when a cameras pointed at me i suddenly become very aware of myself and end up making some sort of stupid grin. i suppose you kind of plaster a face on for the occasion and if looking sage like is going to sell a couple of extra cds or books why not
 

TheBramble

Legendary member
8,395 1,170
having said that when a cameras pointed at me i suddenly become very aware of myself and end up making some sort of stupid grin. i suppose you kind of plaster a face on for the occasion
I always take a face from the ancient gallery...then I walk on down the hall...
 

TheBramble

Legendary member
8,395 1,170
Always a welcome diversion.

But Vad is one of those rare individuals for whom I do have a good word.

Can I suggest that only those willing to submit photos of themselves can tack the pee out of others?

Mine attached. (Totally domesticated as you can see).
 

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