Psychology

Are Your Trading Beliefs Working for or Against You?

Are your beliefs creating a barrier to your trading success?

Prior to Rodger Banister breaking the four minute mile barrier in 1954 it was a widely held belief that no human could possibly run a mile in under four minutes. The month following his feat, no less than 30 runners broke the four minute mile barrier.

What happened? Did these 30 runners suddenly develop better leg muscles or bigger lung capacities? Clearly not, what happened was far more powerful, it was the birth of a belief. Suddenly at the point of Roger Banister breaking that barrier he created beliefs within other runners that they could do the same.

We can liken his feat to when a market reaches a support or resistance level and is unable to break through that invisible barrier. The longer that barrier exists, the more traders believe in it and the more they will set up trades using it as a reference point.

This reference point however is a double-edged sword, a sword that can turn in an instant to provide the trader with either profit or loss. We could even go as far as to say that when everything is distilled down, the age-old traders’ dilemma is whether or not support or resistance will hold.

Speculating on support or resistance is clearly of vital importance to the trader because this speculation will either increase or decrease the traders’ equity. It is at this stage of speculation; traders, depending upon their actions will fall into one of two categories. So as to gain a better understanding of these categories, we should label them, surface and belief.

The surface traders will be busying themselves applying all manner of indicators to the visual representation of the market as presented to them by their screens. They are also likely to be avidly participating in opinion gathering, listening to news releases along with anything that they perceive to be enhancing their pending trading decision.

The belief traders on the other hand will hold a completely opposite mindset. The mindset that I am referring to here is not one of opposite market direction but rather one of what is going to cause any price barrier to either hold or be broken through.

The belief trader will have learned that regardless of opinion, regardless of any indicator placed on the surface of a chart pattern, there is a belief barrier that will be the ultimate decider as to the pending direction of the market. This belief barrier is the same barrier that Roger Banister had to break through before he could physically run a mile in under four minutes.

When we delve deeper into beliefs we soon discover they have a very powerful effect on our lives. We could go as far to say that the beliefs that we hold about the world around us and about ourselves actually define us, not only to the extent of who we are, but ultimately directly influence our day to day actions and decisions.

One phenomena of a belief that can have far reaching effects on a traders equity curve, is how long a person will hold onto a belief before either consciously changing it or having if forcibly changed.

A consciously changed belief sounds on the surface as if it is something we can do at will, a simple thought process. Whilst this may be true of something like speculating on whether  or not it will rain tomorrow, it is certainly not true of any belief that holds an emotional content.

Beliefs with emotional content are far more resilient to change; in fact they often take on a life of their own and we can use this to effectively trade market movements with quite predictable results.

To trade beliefs, we first need to examine how they function and the best place for this research is within ourselves. This examination will call for reflection on past trading actions and what caused those actions and reactions.

During this personal research the most important area to understand will be that of belief defence.

The starting point will be to examine a recent trade that you took which did not work out as planned. Recall this trade in terms of how you felt at the time and what was going through your mind as it started to fail. You will probably discover that there was a period of time when you knew this trade was not going to work out as you had initially expected but you refused to act. The action you could have taken would have been to manually close this trade for a smaller loss than you did.

The reason you failed to act in this instance will be directly related to the belief that you created just prior to you actually placing the trade. The birth of a personal belief is a very powerful emotional creation and like I explained earlier, they greatly impact the way we see the world.

For you to close the trade all you likely need to do is to click a button or two on your brokers dealing platform. But you will be unable to do this until your initial belief that allowed you to action the trade in the first place no longer exists. What we are looking at here in its raw form is the birth, death and rebirth of beliefs. This never ending cycle is the only force that allows any trader to actually open a trading position.

Where does this leave you and your trading? Actually in a very powerful position, because by understanding how beliefs directly relate to every trading decision, you can start to make real sense of market moves that are centred on support and resistance barriers.

 A support or resistance area highlighted by a horizontal line at a particular price has little value outside of just a line. On the other hand by understanding the birth and death cycle of beliefs and then multiplying this understanding to apply to the collective beliefs, one has opportunity to predict sustained market moves with real profit potential.

Martin Cole can be contacted at LearningtToTrade

 One afternoon in Northampton England 1990, an earth tremor shook the magistrate court building that Martin Cole was standing in. Martin then aged 35 experienced a second tremor at the deeper level of his stomach as the official receiver looked up and said “Mr Cole, the purpose of bankruptcy is to enable a man to start again. I trust you will do just that” Martin left the court to start again and this time took the advice from his farming father which was to simply “produce something of real value to others.” Several businesses followed, ranging from a pizza restaurant to a building company. By around 1995 the financial markets started to take a grip on Martins imagination and over the next few years Martin developed a trading theory that simply stated; regardless of appearance, behind every traders decision there must first be belief in either higher or lower prices. Over the next few years his belief theory was developed into bespoke trading software that is today known as PAT.  His software is now used by a restricted number of traders around the globe to successfully trade the markets. In 2009 at aged 50 Martin moved to New Zealand with his family to enjoy semi-retirement. But as his wife says “somehow semi-retirement still includes 40 to 60 hours a week helping others to achieve trading success. 

 One afternoon in Northampton England 1990, an earth tremor shook the magistrate court building that Martin Cole was standing in. Martin then ag...

swillette

Newbie
6 0
Helpful

Thank you for your perspective on beliefs. As a scalper that trades based on support/resistance and price action, I can relate to your article. Now if I can close out those losing trades sooner when I first BELIEVE the trade is not going to work. Any suggestions on reacting to your beliefs sooner? Thanks, Steve at The4xJournal
 

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