Llew….
In response to your post number#443….
I understand what you are saying with regard to your mindset. Obviously everyone is slightly different and I’m sure that no two minds work the same way. Therefore it becomes almost impossible to pigeon hole situations by simply making blanket statements.
I’m happy to rattle off a few of my own personal theories on the subject of mindset etc. People may have different views and I’m more than happy to discuss specific issues that may arise from my ramblings.
Here goes……
Firstly, it is my belief that basic mind is divided into two sections, the conscious and the subconscious. I think Socrates touched on this subject in a previous post some while back. The subconscious aspect of the mind is the part which contains the survival instincts. The conscious aspect contains our reasoning and our rule keeping.
When we are first born and start to grow up, we start to develop different areas of our lives. Little by little we take on a personality, this personality is generally formed by our direct experiences which we have encountered up to that moment in time. These experiences will be pleasant experiences and also unpleasant experiences. It all goes in the mix and our persona is born.
Over time we learn to cope with the different situations which life throws at us. For many the first day at school is an early challenge which we have no choice but to tackle. Some children do it easily whilst other struggle with school until the day that they leave. Most people come to terms with ‘school’ and going to school moves firmly inside a child’s comfort zone. Going to school becomes the norm and they have no problems or fears with attending.
Variations of this analogy can be repeated across many areas of the human’s development as a person. First day at a new school, a job interview, starting a new job, learning to drive, buying your first car, meeting a new girlfriend/boyfriend, buying a house etc are all areas where we are forced to move outside what is comfortable for us. Again, over time, we learn to deal with each particular situation in our own way and for the most part, these situations, which we may ultimately tackle several times in our lives, become easier to deal with. So times they get so easy that we regard them as no challenge whatsoever, they move firmly inside a comfort zone, you always feel in control dealing with a particular situation.
Sometime however, the reverse is true and comfort zones get smaller rather than larger. For example if a child gets bitten by a dog at an early age. If no therapy is provided for the child then he or she is likely to grow up with a firm dislike for dogs.
Basically, as we develop we develop loads and loads of different comfort zones all relating to our experiences.
This is where it gets interesting. Whilst we stay within these zones we are comfortable and handle situations with our conscious minds. However, from time to time, in everybody’s lives, there are times when we are forced out of a particular comfort zone. This could relate to anything but most of the time it will be things that just occur randomly in everyday life. A bad experience in the car for example. In these situations the subconscious mind takes over. The main trait of the subconscious mind, as we already mentioned, is self preservation. It will act in a manner which it perceives as being best for you at the time. This will normally be to either preserve you in some fashion or to remove you from some situation which is causing distress. For the most part, in the outside world, this has served man (and indeed woman) for thousands of years. In every human being the subconscious has a proven track record of doing its job well. If it didn't you probably wouldn’t be reading this now, you’d have been run over by a car or something, probably many years ago.
It is my belief that people over-estimate how comfortable they are in their perceived trading environment. People’s comfort zones are actually far smaller that they realise, even if they realise they have a comfort zone or not as the case maybe. However you look at it, the net result is that people are easily pushed outside their zones. This results in the subconscious mind starting to take over. This is bad. Why ? Because the subconscious mind is looking to remove you from danger or stress. The markets are full of FEAR and of GREED. In my opinion, both of these emotions can easily push many outside their comfort zones. Fear is an obvious cause of stress as the two are closely related. Greed is slightly different. We need also to look at ‘Greed’. Problems surrounding how we deal with greed prevent us from running winning positions which increases the size of our profitable trades. In my opinion, the emotion of greed, within the trading environment is almost the emotion of fear. Is it not that greed is a fear that you might loss what you have so far won (in respect of the trade that is winning but yet to be closed) ?
So, as I have so far stated, could it be that both fear and greed will push us outside of our comfort zone, and, in such a situation, our subconscious mind impacts our trading decisions ? On this basis, allowing our subconscious mind to control our choices is almost bound to result in abject failure, as, in order to succeed, you should not be following the emotion of the larger crowd. You succeed in this game by buying low and selling high, however, your subconscious, in order to protect you, will make you do the opposite, you will sell your assets when prices are falling and buy them when prices are rising. You will act entirely with ‘the crowd’ and as such will just surrender you money to the informed few.
In order to overcome this problem you need to do two things. Firstly and most importantly, you will need to remain in control in a much higher percentage of situations. The only way to do this is to increase the size of your comfort zones which relate to trading. Essentially this will cut out the times when your subconscious takes control. This will lead to much better decision making in the longer run which will stop you running with a crowd which are high percentage losers. Secondly, and this is much harder, you can try and train your subconscious. This can be achieved. Advanced driving courses achieve this to a limited extent. They teach you to release brake pressure in a skid (when normally your subconscious makes you press harder), they teach you about remaining in control or regaining control when skidding sideways etc. There are other courses which people take or are sent on which helps them make the right choices when subconscious takes over. If you listen to airline staff are perhaps the best example of this.
For the trader there maybe other ways in which he or she can remain in the comfort zone for longer. For some people the value of money will always have meaning regardless of how much they have to play with. If this is the case then you will have an idea of how much you could reasonably face losing in one bad trade (regardless of money management, it could be less, it could be more). I would suggest that you should never place yourself in a position where you get anywhere near that endurable loss as you will be over estimating your comfort zone again.
Many people fail at trading, not just because of poor money management skill, but also because they can not adequately implement the rules which they believe that they can follow. The only way you will achieve long term success is by training yourself to stay in control for longer. With that in mind the only way is to move forward is to start trading with very small stakes. This is especially true if you are someone who sees that they will always have meaning for the value of money.
Wishes,
Steve.
