One of the concepts that matters to all traders is “results.” Your outcomes or the consequences of your efforts are on the top of your what-matters-most list. In order to increase those results in your favor you must manage your mindset and that begins with the three “internal” variables that contribute to results; they are thoughts, emotions and behaviors. Any outcome or result that you get is an outgrowth of those three variables. Thoughts (movies in your head, internal dialogue, beliefs, biases, values and attitudes) create, prompt and determine emotions, that drive what you do…hence you get a result. When managing your mindset, one of the first and most important concepts is to become aware of thoughts, this is important because most (about 95%) of everything that goes on in your brain/mind is out of your awareness. So, if you are going to manage your thoughts you must first become aware of those negative ones that are causing erratic emotions, like fear and greed which disrupt follow-through causing you to break rules and violate commitments. To become aware you’ve got to monitor what you are telling yourself and when you identify these unconscious conversations it is important to “reframe” them. This mental tool is indispensable to your ability to develop and expand capacity for emotional strength and endurance in the trade.

Reframing begins with an idea or thought and that thought is “framed.” Framed means that the idea has a meaning already associated with it in your mind. Meaning is extremely critical to how you respond or react because when you attribute a meaning to something as in, “that moving average crossover means that my entry was a good one” or “the price action is moving toward my stop and that means that I’m going to lose and that means that I’m a poor trader, and that means…” you get the idea, then what follows is a corresponding emotion and if that emotion is for instance fear, the discomfort prompts you to “do something” to reduce the intensity of the emotion, like move your stop. Meaning controls not only what you perceive, but how you perceive it. So, if you change the meaning (frame) by reframing the idea then you change the meaning, and if you change the meaning then you also change your emotional relationship to it; going from feeling unsupported to supported to do what is in your best interests. This is done by changing the content and/or the context of the idea. Consider the notion of loss. The frame that most traders will use is negative as in adjectives like painful, bad, disaster, failure, etc. In the second example above where the price action is moving toward the stop, the emotional relationship is strained and feels uncomfortable – fear, anxiety, worry, etc. The reframe might look something like: “Every small loss gets me closer to a big win.  Or, failure is only feedback and lessons. Or, losses are the cost of doing business.   Or, everyone experiences loss, what is important is how I manage my losses and keep them small. “ See how the meaning and therefore the emotional relationship or “feeling” of these statements is positive or at least neutral, going from the unsupportive negative energy of the original frame to the supportive positive energy of the reframe.

Your mindset begins with your thoughts and many of those thoughts are in your unconscious so monitor what’s going on in your head because you can’t change what you can’t face and you can’t face what you don’t know. You must first aim to increase your awareness of unconscious conversations by training yourself to be in the moment. It’s not easy which is why I use the word train; just like training for physical competition – only in your mind.   Additionally, I often talk about the importance of being in the NOW of the trade. If you are in the Now; that is, fully present and fully available which means that you are firing on all cylinders and optimizing your internal and external resources you are more likely to be aligned in body, mind and emotions in order to go in the same direction and for the same goals. Being in the now means that you are focused on the task at hand; your attention is more prone to be at least close to if not 100% invested in that task and there is less likelihood for you to be conflicted which is a major issue for traders.   Training yourself to monitor thoughts, emotions and behaviors will also assist you in being able to anticipate what might go wrong and to be proactive in your preparation to deal with it and preemptive in reducing those issues, like biases, that can get in your way.

So, once you identify that the statement that you’re telling yourself is unsupportive, for instance, frame – “I know I don’t have a set-up, but I’ve got to get in on this price action and make some money” reframe – “What I’ve got to do is keep my focus on what-matters-most and wait for my set-up” or frame – “ I’m so stupid for chasing that trade; I’ll never get this right” reframe – “I’ve made a mistake, I’ll journal it and use my tools to cease doing it again; the more data I have the better trader I become” Make sure that your emotional relationship to your mindset as it is created by what and how you are talking to yourself is positive, uplifting and helping you to focus fiercely on the task at hand.

This past week I was at a conference with some colleagues. A young woman engaged me in conversation about a challenge she was having with her boss. She shared that she felt that her boss was treating her somewhat like a child and that it was creating some difficulties for her in maintaining focus on her duties. In many ways this is very similar to what happens when traders have relationship difficulties with their significant others. It begins to get in the way of their trading, especially when the source of conflict is the trading itself. This blog is designed to help those who don’t know how to talk to their partners when things become “tough.”

Allen looked quizzically at the charts on his monitors.   For the fourth time today he had been stopped out, and he had only taken five trades. But he smiled to himself despite the four losses because he knew that he had traded this entire session “as” a winner (meaning that he had planned every trade, had traded every plan and he had followed every rule).   He knew that he had achieved a private victory today as he also realized that it was critically important to approach his trading one-day and one trade at a time. He had learned that trading requires 100% of his attention in order to focus intently on what matters most in the trade and that to do that he had to remain in the moment, for the moment, fully available, fully present and in the “now” of the trade while resonating with objective reality. He felt good about his effort and knew that as long as he created consistency in mastering the trading process (continually building his skill levels, documenting his mechanical data and internal data, and following through with his commitments) that he would build greater capacity for strength and endurance in the trade. But there was a fly in the ointment. Carol, his wife and as well her family chided Allen for doing what they thought was gambling and took every opportunity to tell him so; especially when he had small losses like today.   Additionally, Carol felt that he was not only wasting his time but she felt angry as she considered that the money Allen used to trade with could be better applied to other family needs and investments.   Allen felt dismayed by Carol’s lack of support and frequent hostility and dreaded the arguments that ensued, which disrupted their otherwise happy marriage. He wanted to keep the peace, but he also really loved trading and believed in his ability to succeed.

If you are experiencing similar discord in your relationship due to a misalignment of attitudes about your trading or if your issue is related more to the negative comments of family and/or friends due to their disapproval then that is a different concern but it requires the same response.   It is time to have an open and honest dialogue about the issue and you must be willing to listen. Here are some ways to approach this conversation. These points, in part, come from my friend Stanley Wachs, Ph.D., a communications consultant. Let’s review Allen’s options:

1. Allen should make an appointment to meet with Carol and anyone else in the family who disparages his trading. In this face-to-face meeting, he should look her in the eye and say, “I need to talk with you about a difficult issue.” Then he should pause briefly. 
Wachs points out that these initial words are important. “he is not saying he wants to ‘chat’ with her; he is not saying that Carol or anyone else is a difficult person, or suggesting that she is only interested in herself; he is not saying he is angry. He is simply saying he needs to talk with her about a difficult issue.”
2. After this initial statement, Allen should “say what he sees.” This step includes stating in a factual way what he has observed. For example, “You have not asked me to show you what my trading entails and you have called my trading “gambling.” Additionally, you have looked away and walked away when I have attempted to bring this up in the past. This affects my ability to communicate positively with you.” Allen should again pause briefly after this statement. Wachs notes that it’s important to be forthright in describing both the behavior and the impact of the behavior. “Don’t be judgmental or offer an opinion about why she looked away or walked away.” State your observations but don’t assign motivations to the behavior you have observed.
3. The next step is for Allen to acknowledge his role in the situation or his reservations about the topic. For example, “I didn’t bring this up before because I thought the situation would change,” or “I held back from speaking to you sooner because I was new to trading.”
4. An optional step at this point is for Allen to state the good intentions of Carol. For example, he might say, “I know you want the best for us financially,” or “You are really good at coming up with ideas for us to do better financially.” If, however, Allen’s honest view is that Carol really doesn’t care, or he can’t make a positive statement in good faith, he should skip this step.
5. Next, Allen should ask Carol for her thoughts. “How do you see it?” or “Do you see the situation differently?” Wachs stresses that at this point it’s essential to be genuinely prepared to listen and understand the other’s point of view. “He must not debate or argue, but hear her side fully, without interrupting her. He must listen deeply and curiously, abandoning control about how he sees it. She may be angry with him for bringing it up. She may say she hasn’t been well. She may say she’s has looked away or walked away because she thought he was selfish. Allen doesn’t know what Carol will say and must not try to control it. His job is to hear her emotions and her passions—as well as the content.”
6. After Carol has stated her perspective, Allen should summarize what he has heard and compare their two views of her behavior about his trading.
7. Finally, Allen should ask Carol what it would take for her to support his trading more fully. He should explore with her what needs to change or what she needs in order to partner with him in his trading, or to be OK with his trading, which is very important to him. Allen should work with her to create solutions that will address her needs and his concerns.

Even in a relationship individuals have the right to express themselves through endeavors that they love, especially if of course they are positive, growth oriented and have the potential of enriching the unit. And, it’s important to approach the conflict in a proactive, positive and respectful way… just the way you would want your partner to approach you. This is still an aspect of your mental game. Remember, it’s all in your head.

How often have you been in a trade and you thought…”Why should I put a stop in or let the price action hit a stop and take me out?” Actually, if you’ve had this though it would have been “natural” and “intuitive” because humans in almost all cases have an “loss-aversion bias” meaning that we would rather leave money on the table than give back what we perceive is already ours. In other words, trading can be counter-intuitive. Here’s an example of this concept. Let’s say that Sylvia took a trade on the YM E-mini 5 minute chart, which had been trending downward in a highly volatile manner. Sylvia knew better than to tinker with her stop, but she really wanted to avoid getting stopped out. Just then, before she knew it, despite her promise not to, she had moved the stop a couple of points higher. A few moments from that it happened again and again until Sylvia had done it several times leaving her with a looming loss by the time she closed her position. This was a considerably larger loss than she would have experienced had she followed her plan and simply allowed the stop to do its job. Now she felt angry, stupid and sick to her stomach as the realization that she had again done the very thing that she swore she wouldn’t. Shirley was caught in the middle of something that was intuitive; that is, attempting to avert a loss by keeping the price action from canceling what she hoped would be a winning trade. Of course, consistent successful trading is based on behavior that is often “counter-intuitive”, which in this case is incurring a small loss to avert a bigger one.

This and a number of other examples demonstrate that trading is a counter-intuitive process. In the above we looked at how the fear of failure can and often does drive decision making as described in Prospect Theory also known as “loss-aversion” theory as proposed by Kahneman and Tversky, two psychologists in the early 1980’s.   They state that people value gains and losses differently and will base decisions on perceived gains rather than losses. Sylvia’s compulsion to move her stop and keep the hope alive for a profitable gain outweighed her desire to keep her losses small. In other words if a person were given two equal choices, one expressed in terms of possible gains and the other in possible losses, people would choose possible gains even though it meant actually losing more in real terms. Some other “intuitive” trader mistakes are holding losers to long and exiting winning trades prematurely. Here we have another instance of the importance of holding and following through on counter-intuitive thinking, emotions and behaviors. Additionally, Terrance Odean in a paper written in The Journal of Finance, October 1998, discussed in his research that traders and investors have strong inclinations to “follow the crowd” and either jump impulsively on poorly planned trades or put money into popular stocks that do not merit investment. Similarly, it is counter-intuitive to “wait to buy” in a demand zone as the price action is screaming straight down when the natural tendency is to jump in on the short or to fearfully stay out due to an inability to pull the trigger.

So, what do you do when your body, mind and emotions in their natural tendencies tell you to disregard plans, violate rules and break commitments to yourself? One way is to embrace an approach that is emerging as an important field of thought regarding the financial markets. An example of this is behavioral finance (accepting and tracking markets as more than cash flows, earnings, and interest rates, when more-to-the-point these variables are actually psychological barometers that are indicative of the current mood of traders and investors). According to James Berman, a behavioral finance expert, this notion of “counter-intuitiveness” is extremely important when preparing, analyzing, processing and executing your investment strategy or trade. Considering a behavioral finance approach means dropping the traditional assumption that the markets are driven by rational decisions and realizing that cognitive psychology (how people think…and often the irrational quality of thought processes) drives much of the inefficiency of the markets. This realization that the markets are unpredictable will help you, if you are counter-intuitive, to avoid the frequent bubbles that surface from time to time like the dotcom bubble that left many investors out in the cold when it burst. Or in the words of Warren Buffet, counter-intuitive trading and investing in part means, “Be greedy when others are fearful and fearful when others are greedy.”

Another approach to employ that uses the information from the psychological barometers of the markets is to extricate yourself from “herd mentality” as a novice trader and investor. You must be able to track the order flow and identify when the losers will quit which means the market will retrace or reverse. The order flow is created from a natural imbalance between buyers and sellers; this imbalance becomes the price action. Your order must be ahead of the next wave of orders in the direction of the price action. You must understand what prevents you from seeing where the loser is…because as a novice you “are” the loser at this point. In many ways your thinking is the same as every other novice out there. This is paramount to your trading because these changes in the markets, and the beginning of substantial moves, are where trading and investment profits are realized. In order to remove yourself from the crowd you must monitor your thinking. Leaning how you think gives you clues to how they (the herd) think. Identifying those times when you feel the urge to do something that is out of line with your stated plan or a violation of your rules is to be documented. Remember, you can’t change what you can’t face and you can’t face what you don’t know. You must track your thinking, emotions and behavior. This is key to getting the results that you want.

Clarity of thinking and emotional patience precede counter-intuitive behavior. Furthermore, your A-Game depends on it. Master your mental game by first becoming aware of what you are thinking and then you are in a better position to change in the direction of growth in your trading outcomes

This podcast is a light-hearted but rigorous look at the unlimited resources that we have called our brain/mind. Dr. Woody Johnson, Vega Karlsson and other associates explore these resources through conversations and interviews with thought leaders and innovators that are finding new and fascinating discoveries that help us to get more out of our brain/mind resources.

Listen to our podcast through iPhone and iTunes click HERE

Listen to our podcast through Google Play and Android click HERE

Did you know that you don’t have to be mentally ill to have different personalities reside in your body? Actually, it is quite normal to have various “parts” that emerge at different times depending on what is going on at the moment. If fact, these parts speak different languages (as in negative thoughts vs. positive thoughts) and see different things as well; which is why you may have wondered how you made that bonehead trade after seeing the chart’s reality in the wake of a loss. This kind of personal and emotional volatility can play havoc on your trading account. Similar to the market, personal volatility as you trade is a reflection of the emerging emotions of the masses as they trade furiously, impulsively, and at times capriciously.

The market is continually sending messages; messages about volume, momentum, and volatility. But, those messages are best captured by first attending to your own volatility so that you can see the charts as they are. In fact, every blemish, character flaw and weakness that you have is in that reflection, because you “express yourself” while in the markets. The successful trader can “feel the markets” through insight and intuition that has been developed through countless hours of observing market charts; but she does not get lost in those feelings. The successful trader has an intimate understanding about the importance of emotional intelligence, i.e., managing emotional volatility through protocols, routines and habits. They focus on doing the “right” things habitually (following trading plans, rules, money management and position sizing) as if their life depended upon it…and their trading life does depend upon it. In this way they set themselves up to get the right results habitually. They know that consistent successful execution is intimately related to mastering the right things. This represents the development of a “positive trading trance.”

The “positive trading trance” (supporting your ability to focus with a laser precision) becomes a Zen of trading by losing the ego attachment and using mind management tools that engage the subconscious to work for them rather than against them. This is accomplished by redefining your relationship to the trade. As in a business transaction with another human being, the objective is to be in the flow; that is, a detached interaction where (even when a profit is involved) you are not attempting to aggressively bleed the situation dry but come away having done well.

To be and stay in the flow of the “positive trading trance” you must be fully conscious and “watch” what you are doing. You want to activate the “internal observer” and this is accomplished by relaxing at every opportunity and creating the habit of “being fully present, in the moment; and in the Now of the trade.” In this way you can access and activate internal resources that can shift you from a state of fear, frustration, irritation, and stressful tension to a state of relaxation, mental clarity, and self-confidence with focused intention on doing the “right” thing in the trade. There are many internal resources that you have, a lot of which, you may not even be aware. But, it is very difficult to be available to accessing and activating internal resources without activating the internal observer.

Activating the internal observer can be accomplished by doing the following:

Change physiology

• Change your physiology, stand if sitting or sit if standing
• Straighten your body
• Take a good stretch
• Take a few deep breaths, in this way you are oxygenating the blood in your brain and muscles, which in turn helps you to relax. By breathing deeply you slow things down and initiate a “Relaxation Response.”