Have you ever found yourself in a trade that later you wondered, “who was controlling my mouse? This happens because there are other “parts” of us that can emerge and they lurk in either side of our brains. As you probably know, we have two brain hemispheres that make up what can be termed “the dual brain.” The dual brain has two distinct brain systems in which one analyzes piece-by-piece, detailing changes and the other makes an overall update and applies it until the next change. This dual function might well have offered a greater advantage: A) That there would be redundancy in checking conclusions about the nature of events and plans for possible action. And, B) Two very specialized ways to deal with the world.

Brain development is like city development, often, early growth was without a plan; it developed as result of water, or a spur from a train, or where most people laid their roots. Consequently, brain growth like that of the city can be haphazard and lack organization which promotes smooth processing and can greatly impact your analysis of the price action.

Below is a list if conventional wisdom’s hemispheric attributes

LEFT (Analytic)                                 RIGHT (Global)

Successive Hemispheric       Style    Simultaneous Hemispheric Style

1. Verbal 1. Visual, tactual, kinesthetic
2. Responds to word meaning 2. Responds to word pitch, feeling
3. Sequential 3. Random
4. Processes information linearly 4. Processes information in chunks
5. Responds to logic 5. Responds to emotion
6. Plans ahead 6. Spontaneous
7. Recalls people’s names 7. Recalls people’s faces
8. Speaks with few gestures 8. Gestures when speaking
9. Punctual                         9. Less punctual
10. Prefers formal study design                   10. Prefers sound/music background
11. Prefers bright lights while studying       11. Prefers frequent mobility while studying

Now that we have taken a look at some of the functions of the left and right brain and the general importance of each to your trading success, let’s take a look at one of the right brain’s most powerful tools to healing and change—metaphor.

Metaphor is the language of the right brain and it permeates our lives. In order to get something done we “step up to the plate.” With difficult choices, we’re “doing heavy lifting.” We “grab the bull by the horns” to “break the ice.” The lexicon is replete with metaphor, and it is powerful. Metaphor can be riveting, motivating, captivating, enticing, mesmerizing, elegant, simple, elaborate, and highly effective. Emotions are activated on unconscious levels through metaphor due to the rich symbolic association with concepts, both painful and pleasurable, in our subconscious. Metaphors tie into the images of our unconscious and solicit hopes, fears, and longings.

Carl Jung spoke of the strength of the archetype. In Jung’s psychological framework, archetypes are innate, universal prototypes for ideas and may be used to interpret observations. A group of memories and interpretations associated with an archetype are a complex, e.g. a mother complex associated with the mother archetype. Jung treated the archetypes as psychological organs, analogous to physical ones in that both are morphological givens that arose through evolution. Milton Erickson, the grandfather of clinical hypnosis in the US used metaphor and stories to speak directly to his patients’ subconscious and initiate unconscious resources to bear on issues that presented obstacles to them. His storytelling manor both relaxed and put at ease patients’ conscious mind as he began to engage them on an unconscious level. For part 2, please return to the blog tomorrow.

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 the use of 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 keep from 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.

Trading can be counter-intuitive in a number of ways. Let’s examine an instance of this as we look over Shirley’s shoulder at her trade. The green candles were rising faster than space shuttle Endeavor toward her stop. Her eyes were like saucers while she fought a compelling urge to move her stop-loss. The price action belonged to the YM E-mini 5 minute chart, which had been trending downward however in a highly volatile manner. Shirley knew better than to tinker with her stop, but no matter what she told herself she really wanted to avoid getting stopped out. She had identified a supply zone on the 60 minute chart and had executed a short on the 5 minute chart. Just then, some disembodied force grabbed her mouse hand and before she knew it, she had moved the stop a couple of points higher. A few moments from that it happened again and again until Shirley had done it several times thereby greatly increasing her risk and leaving 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 Shirley 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.

So, as Shirley has demonstrated 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. Shirley’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. 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 baromometers 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.

Traders with solid market knowledge too often fall prey to faulty thinking, either about themselves and/or the markets. And, these frequently unconscious conversations fuel fear, greed, anxiety, self-doubt, impatience, anger and a number of other negative emotions that distract valuable attention from the task at hand.   However, that’s not all, these wayward emotions also grossly distort the trader’s ability to accurately judge the market terrain and in effect they become fragmented, frustrated and frazzled. In other words they give in to the noise. Noise can be internal, the kind we just illustrated or external, which would encompass news, talking heads on the radio or TV, and/or any event that takes your attention from what matters most.

So, how do you decrease the “noise” factor and remain focused? Well, it begins by remaining self-aware, which means you are cognizant of your thoughts, emotions and behaviors at any given moment. Allow me to make a distinction here between self-aware and self-absorbed. Self-absorbed is an ego driven function. Self-absorbed means that you are not thinking about your thinking but you are enamored with the thought that is up for you; as in the need to be seen as right, or to be seen as a winner, or the need to remain in the comfort zone. Self-absorbed is not concerned with growth and skill-building, it is concerned with “how good do I look.” On the other hand, self-awareness has to do with introspection and self-reflection in the service of learning and growth. Remaining self-aware not only has to do with monitoring your thoughts, it also has to do with being in the present. Too often, traders are caught up in thoughts about what already happened or what they hope will happen rather than what “is” happening. Think of it this way, when your thoughts are wrapped up in the past moment (a trade or otherwise) or in the future as in what you hope will happen, you are taking valuable attention and therefore resources from the moment at hand. You only have 100% of conscious attention available to you at any given moment. If you are using let’s say 20% to 30% (which is a small percentage) to ruminate about past losses or wax poetic about what might be, then you have only 70% to 80% to bear upon the task at hand. Now, if that task is not important, like doodling for instance or playing solitaire then this may not be a problem. But, if you are engaged in something like TRADING then you owe it to yourself to have all of your intention and attention focused in the moment …that means 100% so that you can activate and access all of your internal and external resources and apply them to the trade at hand.   I remember teaching an XLT Mastering the Mental Game class for Online Trading Academy recently and one of the students apologized for not paying attention and being interactive enough, because, he said, “I’m in a trade.” HELLO… if you are trading you need to be trading and trading only! Although, I’m flattered that you’d like to share your trading attention with my class, if you are trading then the class is not on the “what matters most list.” Never, ever attempt to multi-task your trading.   Actually, any endeavor that is purposeful and meaningful you owe all of your attention to. Anything that is not trading and focused-in-the-moment while trading is “noise.”

By the way, that sound you just heard was me getting down off my soapbox. But, it is imperative that you remain self-aware, moment-to-moment as you undertake the process of trading. It requires your A-Game; and you need 100% of your attention to be effective in the trader trenches. Monitor your thoughts, emotions and behavior; and of course use your Thought Journal to document faulty thinking, errant emotions and bad behavior as you bring them into awareness. At that point you’ll be able to address them, one issue at a time.

You are at your trading platform and you have visualized the trade over and over. You saw yourself sitting in front of your computer screen, cool, calm and collected. Your back is straight, your brow smooth, and your heart is beating evenly as you simply hold the mouse without squeezing it with dry palms. Now, notice that you are saying to yourself, “Take a deep breath and feel the patience; I’m all about patience.” You are allowing your trade to progress according to plan, with stops in place and remaining in place while letting the market prove the plan wrong or right. You’ve done this same exercise many times in your demo account to create the neural (brain) pathway and networks associated with creating the behavior in just the way that you want. These brain networks include everything that you see, hear, feel, smell and taste associated with this trading event. You know that every time you do this you are mentally rehearsing (training yourself) through this series of behaviors. Just like a professional ball player who practices through mental rehearsal in his mind first then does everything just has he had visualized it in order to “train” his mind and his muscles to do the right thing habitually so that he gets the right results habitually; you are training your mind and muscles to follow through in the trade. When you complete the trade, you celebrate your success with the realization that success is defined as executing the trade in exactly the way it was planned and following all of your rules…explicitly.   You acknowledge that you have learned and now demonstrating that neurons which fire together wire together. In other words, when you think, feel or do; brain cells fire/release neurotransmitters, neurochemicals and other messenger molecules that create pathways in your brain creating a “memory pathway” of how to do this behavior optimally; and when it happens habitually those pathways become hard wired and fire together automatically in the same situation.   You were not only mentally rehearsing and practicing peak performance; you were creating an “effective routine.”

Mental rehearsal is a powerful tool that is used by all manner of peak performers and high achievers across the board; from elite surgeons, to high powered trial attorneys, to world class athletes because they have come to understand the power of imagination. They also understand that it is not enough to simply sit and visualize, you must demonstrate the ability in real time by “practicing” the art and using your muscles in the process. Demonstration is the crucial final step from mental rehearsal to personal evolution. As you practice the desired behavioral strategy (a high level multi-step plan for getting a result) the more that you “go through the exact motions” associated with the desired result you are slowly changing “explicit memory” (memory of how to do things that you can think about and declare like stating your name or your address or gender) to “implicit memory” (procedural memory that is unconscious; that is, behavior that you don’t have to think about as in typing, brushing your teeth, tying your shoes, riding a bike, and playing a musical instrument). Another way to think of it is to look at how you learned to drive a stick shift. You learned each behavior that was necessary individually and then grasped through instruction or watching a model, the whole “behavioral strategy” associated with the desired result of effortless driving. You then practiced … you Tested (tried the particular behavior like pushing in the clutch) then through feedback from the car you knew if it was done correctly – usually a surge forward followed by an immediate stall meant that you needed to do it again – you Operated (looked at the model or reviewed the correct way to push in the clutch), then Tested again (engaged that particular behavior again, in this instance practicing on the clutch); and you tested – operated – tested until at some point you got it and “exited” this process. All the while you had to think about each and every behavioral point in the strategy and you were using “explicit or episodic memory.” You did this until you could flawlessly execute the entire stick shift driving strategy. Of course, fifteen years after you “learned” this strategy you may have found yourself driving 65 miles an hour down the freeway while negotiating a cup of coffee, with a burger in one hand, a cell phone in the other still “feeling” capable of manipulating the clutch and stick if necessary. This behavior had then dropped into “implicit memory”, in other words you became unconsciously competent with regard to driving a stick shift car.

Effective routines that are designed around a protocol (a sequentially ordered series of steps toward an aim or goal) or strategy, which then are “tested” using a feedback system that documents and/or verifies that the protocol/strategy is credible, that are then executed over and over and over again to form a habit, are the makings of “skill-building.” If you do this process enough the explicitly based memories associated with having to consciously think about everything that you are doing will drop into your unconscious and become implicitly based memories of “how” to get the same successful results; that is planning your trade and trading your plan while following “all” of your rules. When you do this you have “programmed” your system to act and respond in a deliberate fashion; you are then designing the way that you interact with the markets and your general environment.

Your state of mind (a neural network of all that you saw, heard, felt, smelled and tasted associated with a pleasurable or painful experience – that is most often connected to several/many other similar networks throughout your brain) has everything to do with your outcomes in trading and life. Humans have all manner of states and these states dictate behavior. For instance, states of depression, anxiety, fear, self-doubt, anger and greed, all have the power to influence your thoughts in very negative ways leading almost invariably to self-sabotage.   On the other hand, states of confidence, curiosity, awe, satisfaction, happiness, and optimism can activate your internal resources and align your system to move in the same direction and for the same goals. You can design your states by identifying the behavioral protocols/strategies that will get you the consistent results that you want, visualizing yourself doing those behaviors successfully, and then practicing this process in real time using a demo account in order to test – operate – test – exit the process.   At this point you have established an effective routine that is connected to the protocol/strategy and by doing that over and over and over you go from thinking to doing to “being” the trader that you know is inside of you. The establishment of an A-Game is not an accident. Just like world class peak performers in other disciplines, trading requires preparation, training, mental programming, practice, follow through, vigilance and diligence in order to trade successfully in the trenches. Trading is world class also; you are competing against millions of other traders out there; many of whom are ready for you…are you ready for them? So, reach inside you and bring out the trader you aspire to be. We help you to develop your A-Game in order to compete in world class markets.