The power of beliefs is a double-edged sword that can cut both ways. It can help you and it can hurt you. Take the placebo effect and the fact that physicians have been doling out sugar pills forever with amazing results. Or, I’m sure you’ve no doubt heard about people that were diagnosed with some horrible and incurable disease only to go into spontaneous remission or have the condition turn around overnight! It’s incredible, isn’t it? It all speaks to the awesome nature of holding a strong focus of belief on health and well-being and, presto-chango, you’re cured. Well, that’s the way it often seems.
Yes, there’s no doubt that a strong belief in yourself in any context is going to, in many cases, be the difference between thriving and going down. Of course, this notion also applies to your trading. If you are saddled by limiting, irrational or negative beliefs about yourself or your trading, you are going to experience some tough times. Also, beliefs can be used as a tool; and like a new suit of clothes, you can try on a new belief that is designed to take the place of a belief that doesn’t work for you, just to see how it fits.
Essentially, regarding your internal self, there are core beliefs and non-core beliefs. Core beliefs are those closely held, hard-to-change convictions about your goodness, integrity, intelligence, worthiness as well as paradigms about the world and whether it is a safe place. These beliefs are deep and do not respond easily to change. Additionally, they are often unconscious and result in unforced trading errors leaving you scratching your head as to why. They begin forming very early in life and last, in many cases, unchanged until the end. Non-core beliefs express a strong opinion about the market, the price action, your plan and/or your platform that are much easier to change if it they don’t serve you. It is crucial for you to become aware of your beliefs, especially those that are working at cross purposes to your trading.
Here is a belief that can truly erode your ability to be consistently successful. This deals with strongly believing that you must win this trade that you are in. Such a belief can cause you to implode and either turn a winner into a loser or increases your risk and unjustifiably initiate extensive draw-downs. Here’s what I mean.
Have you ever been spurned by a lover? You feel rejected or betrayed and this pain can be quite debilitating. You might be so hurt that you become severely distracted and erratic in your behavior. The same thing holds true for your belief in the notion that you must win in all trades. You see, you might have a strategy that works well. Perhaps it is well-constructed and built from years of pattern analysis that correlates to a high probability of wins. But, this is only a probability, meaning that the edge that the pattern delivers is over many trades and over time. Any one trade within that strategy, no matter how strong it is, has a probability of loss just as it has a probability of profit. If you believe inordinately in that trade, meaning that you convince yourself that it has to be right; then you are setting yourself up for great disappointment and a sense of betrayal. In other words, you have fallen in love so to speak with the notion of this trade being a winner. When it fails to provide you with the expected gratification, disappointment and emotional pain initiates an over-sensitivity causing trepidation and hesitation or revenge anger in the next trade.
Of course, this experience could happen at any time and it could be extended wreaking havoc on your ability to remain focused, calm and centered which is where you must remain to be consistently successful. This may not appear to be a very important point, but on the contrary, it is monumentally important. Many of you initiate a plan based upon a good strategy, but you have invested yourself emotionally in it. You have not adjusted your perspective to take into account that at any time and in any trade, you can and sometimes will lose. When you internalize this inevitability, you will be able to emotionally distance yourself from the outcome of that trade. You will develop, over time, the capacity for the emotional strength and endurance that is required to be a consistently successful trader.
Another point that is important to remember is that when you fall in love with a trade by believing that it should and therefore must win, you fall into a confirmation bias. You begin to pay more attention to, and therefore attribute more weight to, the data that is confirming your beliefs about the trade and consequently disregard equally important contrary information that in many cases might alert you to another eminent outcome. Understanding this, will poise you to accept whatever the outcome of the trade is. This trading position creates a more relaxed view of the data. Given this view, you are likely to be patient and more focused, whatever the outcome. Additionally, you are much less likely to feel the pain of betrayal, rejection, and loss.
So, accept the randomness of the markets. Accept the fact that no matter how powerful your strategy, it is a game of probabilities and the quicker you consistently enter trades with the full understanding that they can and sometimes will fail, the quicker you will position yourself to take advantage of your edge. Over time, as you consistently maintain your focus and execution, you will take better advantage of those times when the pattern is working and you can let your winners run.
Dr Woody Johnson can be contacted on this link: Dr Woody Johnson