The Mindset That You Brought into Trading is NOT the Mindset That Will Bring Success in Trading
The Journey Begins – Stumbling Out of the Starting Gates
Traders begin the journey into trading with high hopes. They believe, with good training and enough screen time, they will be able to master trading and achieve their dreams through trading. They practice diligently in simulation, back-test their methodology, and/or use a trading organization’s “near money” until they clearly see that they can win at this game with their own money. Confident from their past experience of hard work and ambition having paid off in the past, they assume this ethic will lead them to success in trading also. Methodically, they have trained themselves to achieve their dreams.
Then they start trading live. Anyone who has been around trading for a while knows the war stories. The stories of blown-up accounts and the slow bleed of a thousand small cuts litter the landscape of the journey into trading. After the losses, fear takes up residence in the trader’s mind and self-doubt becomes the invisible partner riding herd over the trader’s mind. Even when they have a winning streak, they end up getting over-confident and giving back all their profits – and more. Somewhere the trader’s mind gets hijacked by fear or euphoria and an efficient trading mind is no longer in charge of the methodology that (on paper) gave them the edge to be profitable.
The Journey Hits a Critical Moment – Taking Stock of Yourself
By this time in a trader’s journey, they have chased the Holy Grail through different methodologies, the latest trading guru, the next “can’t miss” indicator, new platforms, and mechanical trading systems that take the emotion out of trading. But they still can’t break through to the next level. By the process of elimination, some begin to realize that they are looking in all the wrong places for the missing ingredient to their success; the Holy Grail is not to be found “out there” in new systems or methodologies.
Rather, the Holy Grail is really a set of inherent, in-dwelling resources within the self. The rub is that traders have to find, excavate, and develop these elements of their potential. And that is uncomfortable to do on an emotional level, especially for someone who has avoided the heavy "emotional lifting" required to change beliefs about one’s capacity to manage the uncertainty of probability. Many traders stay stuck at this point in the evolution of themselves as a trader, either because they do not want to hold themselves responsible for their trading results or because they do not know how to change.
Unless you were lucky enough to win the genetics lottery for trading pre-disposition, there is really no choice but to re-develop the mind for trading. The first big AHA! moment for the emerging trader is recognizing that the problem with his trading is him (or her) – and that alone. Both emotionally and psychologically, this is a difficult task. Redeveloping the self that trades - forces the trader to confront parts of himself that he or she has very successfully avoided for decades. The very psychological dragons that the trader has pushed out of working awareness in other domains of his life now stalk him as he trades.
The developing trader has to look into the mirror of the self and take stock. This is where he really needs to decide if his passion for trading has the emotional motivation to see him through confronting his fears and redeveloping his beliefs about his capacity to truly manage uncertainty. Unlike other areas of his life where there is so much "fuzzy grey" area about declaring "success", the condition of success in trading is black and white – it is your trading account.
If the beliefs you have about your capacity to manage uncertainty in trading are effective, the results will be reflected positively in your trading account. The reverse is also true. If the beliefs you bring to the management of uncertainty in trading are not effective, they will produce trading performances that show a capital drain on your trading account.
The Courage to Build Your Mind for Success in Trading
At this point the trader comes to understand that the mindset that he brought into trading is not the mindset that is going to produces success in trading. And if he is going to be successful in trading, his is going to have to commit to self-development. Self-development implies that the trader is going to have to build a mind for trading. There is no reason to feel embarrassed. Just about everyone comes to this moment in their journey into trading. It’s called paying your dues and waking up.
Generally, at this point a trader has been developing his technical side for three to five years; and he has read more than a few trader psychology books. At some point he realizes that he, and he alone, is the problem that keeps sabotaging his potential. So he decides to commit himself to self-development in the same way that he developed other skills for trading. He has been "in his own way", but he is finally ready to change.
This is a critical moment. Many people leave trading before they arrive at this intersection because they are unwilling to change. However, if the trader truly has a passion for trading, he also has the motivation to change.
Change Into What?
Many traders have attempted to change with no long-term gain. The battlefield of self-development is littered with programs that promise change. Many programs deliver a sense of energy (called a seminar high). When you leave these programs, people literally feel as though they could conquer the world. They leave the training in a state of high energy, they are goal oriented, and they are razor-focused on success. And after walking over burning coals or another seemly impossible mind-over-matter obstacle, they are certain that nothing can stop them. They feel on top of the world. They have the affirmations, the success visualizations, they have learned some NLP, they have done some hypnotic guided meditations that released their higher self, and they have become the spiritual warrior of success.
No matter how great this euphoric state feels, this is a dangerous state of mind to develop for practice in trading. Euphoria (which is what these programs generate) is just as dangerous to success in trading as fear. Euphoria is an emotional state that makes a person believe with certainty that the good times are going to roll on forever. It is the same emotionally-based state of mind that hedge fund managers or proprietary traders fall into that causes them to blow up their accounts (i.e. JP Morgan’s $2.5 billon dollar loss).
The mind that needs to be developed for trading is rooted in an emotional compound state called disciplined impartiality. In the same way that fear creates a belief in the certainty of things going wrong and euphoria creates a belief (cognition linked to emotional state) that the good times are going to keep rolling, disciplined impartiality creates a state of mind that believes in the certainty that probability is on your side as you manage the trade well.
Notice the difference here in how the emotional states work. Fear and euphoria produce a bias of predicting certainty of the future as if it were real. Disciplined impartiality produces a mind that manages the probability of what future may come. Fear and euphoria are trying to control the outcome of probability as if it were a certainty. Disciplined impartiality is aimed at controlling the state-of-mind to manage the probability of outcome.
Setting Course for the Journey of Self-Development
First and foremost, as you explore how to develop the self for trading, look for ways of calming down the excitatory process of emotional arousal – not cranking it up. The more emotionally aroused you are, the more difficult you will find it to create the calm, patient states of mind necessary for trading. Next, look at the way the system is teaching you to achieve success. Are you being asked to produce high-energy states where you can “feel” the energy of success that makes success happen as you envision it? Or are you being trained to develop a state of mind that is receptive (or open) to what life (or the markets) are willing to give you and then to seize the possibility?
Trading demands calm, patient states of mind that can seize opportunity when it appears. This is the self-development that works well in trading. It is the difference between the way the American cougar hunts compared to the hunting style of the African lion. The cougar waits in patience for the prey to appear in her ambush zone and then she pounces. This is the kind of strategy that works well in trading. On the other hand, the African lion chases the prey in teams. This high-energy “chasing the trade” strategy sucks the trader into trades and positions that take him out of the state of mind that keeps probability on his side. Ultimately, the trader has to develop a mindset that encourages him to wait to see what the markets are willing to give him and to also conserve energy and capital to trade another day.
Understanding the mind that needs to be developed can really help you sort out HOW you go about building that mind. What tendencies are you bringing to your trading mind as it observes the markets? What aspects of your psychology do you need to develop in order to get into the zone where effective trading occurs?
Rande Howell can be contacted at TradersStateofMind
The Journey Begins – Stumbling Out of the Starting Gates
Traders begin the journey into trading with high hopes. They believe, with good training and enough screen time, they will be able to master trading and achieve their dreams through trading. They practice diligently in simulation, back-test their methodology, and/or use a trading organization’s “near money” until they clearly see that they can win at this game with their own money. Confident from their past experience of hard work and ambition having paid off in the past, they assume this ethic will lead them to success in trading also. Methodically, they have trained themselves to achieve their dreams.
Then they start trading live. Anyone who has been around trading for a while knows the war stories. The stories of blown-up accounts and the slow bleed of a thousand small cuts litter the landscape of the journey into trading. After the losses, fear takes up residence in the trader’s mind and self-doubt becomes the invisible partner riding herd over the trader’s mind. Even when they have a winning streak, they end up getting over-confident and giving back all their profits – and more. Somewhere the trader’s mind gets hijacked by fear or euphoria and an efficient trading mind is no longer in charge of the methodology that (on paper) gave them the edge to be profitable.
The Journey Hits a Critical Moment – Taking Stock of Yourself
By this time in a trader’s journey, they have chased the Holy Grail through different methodologies, the latest trading guru, the next “can’t miss” indicator, new platforms, and mechanical trading systems that take the emotion out of trading. But they still can’t break through to the next level. By the process of elimination, some begin to realize that they are looking in all the wrong places for the missing ingredient to their success; the Holy Grail is not to be found “out there” in new systems or methodologies.
Rather, the Holy Grail is really a set of inherent, in-dwelling resources within the self. The rub is that traders have to find, excavate, and develop these elements of their potential. And that is uncomfortable to do on an emotional level, especially for someone who has avoided the heavy "emotional lifting" required to change beliefs about one’s capacity to manage the uncertainty of probability. Many traders stay stuck at this point in the evolution of themselves as a trader, either because they do not want to hold themselves responsible for their trading results or because they do not know how to change.
Unless you were lucky enough to win the genetics lottery for trading pre-disposition, there is really no choice but to re-develop the mind for trading. The first big AHA! moment for the emerging trader is recognizing that the problem with his trading is him (or her) – and that alone. Both emotionally and psychologically, this is a difficult task. Redeveloping the self that trades - forces the trader to confront parts of himself that he or she has very successfully avoided for decades. The very psychological dragons that the trader has pushed out of working awareness in other domains of his life now stalk him as he trades.
The developing trader has to look into the mirror of the self and take stock. This is where he really needs to decide if his passion for trading has the emotional motivation to see him through confronting his fears and redeveloping his beliefs about his capacity to truly manage uncertainty. Unlike other areas of his life where there is so much "fuzzy grey" area about declaring "success", the condition of success in trading is black and white – it is your trading account.
If the beliefs you have about your capacity to manage uncertainty in trading are effective, the results will be reflected positively in your trading account. The reverse is also true. If the beliefs you bring to the management of uncertainty in trading are not effective, they will produce trading performances that show a capital drain on your trading account.
The Courage to Build Your Mind for Success in Trading
At this point the trader comes to understand that the mindset that he brought into trading is not the mindset that is going to produces success in trading. And if he is going to be successful in trading, his is going to have to commit to self-development. Self-development implies that the trader is going to have to build a mind for trading. There is no reason to feel embarrassed. Just about everyone comes to this moment in their journey into trading. It’s called paying your dues and waking up.
Generally, at this point a trader has been developing his technical side for three to five years; and he has read more than a few trader psychology books. At some point he realizes that he, and he alone, is the problem that keeps sabotaging his potential. So he decides to commit himself to self-development in the same way that he developed other skills for trading. He has been "in his own way", but he is finally ready to change.
This is a critical moment. Many people leave trading before they arrive at this intersection because they are unwilling to change. However, if the trader truly has a passion for trading, he also has the motivation to change.
Change Into What?
Many traders have attempted to change with no long-term gain. The battlefield of self-development is littered with programs that promise change. Many programs deliver a sense of energy (called a seminar high). When you leave these programs, people literally feel as though they could conquer the world. They leave the training in a state of high energy, they are goal oriented, and they are razor-focused on success. And after walking over burning coals or another seemly impossible mind-over-matter obstacle, they are certain that nothing can stop them. They feel on top of the world. They have the affirmations, the success visualizations, they have learned some NLP, they have done some hypnotic guided meditations that released their higher self, and they have become the spiritual warrior of success.
No matter how great this euphoric state feels, this is a dangerous state of mind to develop for practice in trading. Euphoria (which is what these programs generate) is just as dangerous to success in trading as fear. Euphoria is an emotional state that makes a person believe with certainty that the good times are going to roll on forever. It is the same emotionally-based state of mind that hedge fund managers or proprietary traders fall into that causes them to blow up their accounts (i.e. JP Morgan’s $2.5 billon dollar loss).
The mind that needs to be developed for trading is rooted in an emotional compound state called disciplined impartiality. In the same way that fear creates a belief in the certainty of things going wrong and euphoria creates a belief (cognition linked to emotional state) that the good times are going to keep rolling, disciplined impartiality creates a state of mind that believes in the certainty that probability is on your side as you manage the trade well.
Notice the difference here in how the emotional states work. Fear and euphoria produce a bias of predicting certainty of the future as if it were real. Disciplined impartiality produces a mind that manages the probability of what future may come. Fear and euphoria are trying to control the outcome of probability as if it were a certainty. Disciplined impartiality is aimed at controlling the state-of-mind to manage the probability of outcome.
Setting Course for the Journey of Self-Development
First and foremost, as you explore how to develop the self for trading, look for ways of calming down the excitatory process of emotional arousal – not cranking it up. The more emotionally aroused you are, the more difficult you will find it to create the calm, patient states of mind necessary for trading. Next, look at the way the system is teaching you to achieve success. Are you being asked to produce high-energy states where you can “feel” the energy of success that makes success happen as you envision it? Or are you being trained to develop a state of mind that is receptive (or open) to what life (or the markets) are willing to give you and then to seize the possibility?
Trading demands calm, patient states of mind that can seize opportunity when it appears. This is the self-development that works well in trading. It is the difference between the way the American cougar hunts compared to the hunting style of the African lion. The cougar waits in patience for the prey to appear in her ambush zone and then she pounces. This is the kind of strategy that works well in trading. On the other hand, the African lion chases the prey in teams. This high-energy “chasing the trade” strategy sucks the trader into trades and positions that take him out of the state of mind that keeps probability on his side. Ultimately, the trader has to develop a mindset that encourages him to wait to see what the markets are willing to give him and to also conserve energy and capital to trade another day.
Understanding the mind that needs to be developed can really help you sort out HOW you go about building that mind. What tendencies are you bringing to your trading mind as it observes the markets? What aspects of your psychology do you need to develop in order to get into the zone where effective trading occurs?
Rande Howell can be contacted at TradersStateofMind
Last edited by a moderator:
