The trading psychology conversation has many major concepts; such as, managing your internal state, self-awareness, becoming internally aligned, having a results orientation in your thinking and holding yourself accountable for all of your results.  Another concept that I’d like to explore in this missive is the very important notion of being in and trading in the moment … or in the NOW.  How often have you found yourself at the crossroads in a trade and rather than paying close attention to the task at hand in your trade, you become distracted by all the things that happened in your last trade.  It doesn’t much matter whether it was something good like a profit or disappointing like a loss.  The long and short of it is that you became distracted (by accessing the past) in thought and feeling resulting in a “bone-headed” move on your part in the present.  You may have revenge traded, became seduced by illusions in the chart, exited prematurely or whatever behavior that in all likelihood caused you to experience another disappointment.  Now you are really stressed out because that singular distraction a moment ago  has morphed into a two-headed monster and if you don’t take heed by refocusing in the NOW that two-headed monster will turn into a multi-headed hydra that keeps expanding at every failed attempt to deal with it.  But, of course, “dealing with it” for most means doing the same thing over and over … and expecting a different result.

Being everywhere but in the present moment almost guarantees that you will not only become distracted due to ruminations on the past and/or worries about the future; neither of which can you do anything about; but as well you fragment your efforts and deteriorate your resolve.  Rather than optimizing your internal and external resources you are left “cursing the darkness” while out of touch with the reality of the charts and unaware of your internal motivations (usually limiting beliefs).  Being in the moment is not just a concept; it is a powerful relational presence between you and your environment (internal and external).  It is the realization and recognition that truly this moment is the only one that is real; the past is history and the future a mystery.  In fact, you cannot “undo” any past event in that time frame.  In this respect there are no do over’s.  Your only viable options are a) learn from the event – which could also entail analysis and processing the event, b) accept it as a matter of record – meaning that you embrace it as the unchangeable fact that it is and c) move on!  On the other hand, you can’t live in the future, it is futile to try.  What’s infinitely more helpful is to plan for the future by anticipating what challenges might be between you and your goals and maintaining a strong “Towards” filter in your mind.  A Towards filter means that you are using your brain/mind to envision how the identified goal will look, sound, feel, smell and taste when it has been achieved thereby galvanizing your strength and endurance to do what it takes to in fact accomplish that goal.

When you are in the moment, for the moment, fully available, fully present and in the NOW of the trade potentially 100% of your system is online and ready to be tapped.  You are firing on all cylinders and your highest and best trader is fully engaged.  Let’s be clear, it’s not easy.  Being in the moment requires self-awareness and a fierce focus on the task at hand.  It means necessarily that you are on purpose, on target and on top of what needs to be done … now.  It requires that you be deliberate in your thoughts, emotions and behaviors making sure that you are managing your internal state and anticipating what could throw you off.  Monitoring your internal dialogue is very helpful to being in and remaining in the moment.  Also, taking a few moments early and often to take a deliberate deep breath and note what you are doing in that moment, what you are looking at, and what you are hearing, (taste and smell could be tracked as well).  When you are in the moment you put yourself in a better position to be aligned in body, mind and emotions to go in the same direction and for the same goals.  So do your A-Game a favor by orienting your brain/mind/body to the present.  Begin to train yourself to be connected to the NOW of your trading.  Also, get my book, “From Pain to Profit: Secrets of the Peak Performance Trader.”

May all your trades be green.

Have you ever emerged from a trading session in a fog and found yourself looking over the trading carnage of violated rule after violated rule; and heard yourself say, “Who made those trades?” And, as the fog lifted it became clear that you had been trading like a crazy person?   It was like someone or something had control of your mouse and you felt as if you were in a trance; a negative trading trance to be exact?  Well, if this or something similar has happened to you then listen up…you are not alone.  I call this situation a “negative trading trance” because it happens when you are caught in a series of bad patterns.  These bad patterns of thinking,(ex. I gotta take this trade even though I’m chasing it), feeling (ex. anxious and impatient),  and doing (ex. impulsively entering without a setup or plan) are like pre-recorded tapes that frequently are out of your awareness and therefore once they’ve been triggered you lose sight of reality.   Now, the bad patterns grow out of programming (also called learned limitations) from negative events (pain filled experiences where you had been shamed, humiliated, neglected, etc.) in your life going back as far as your childhood.  The programming is also connected to mental states that are emotions, thoughts, memories, and responses that are all tied together.  These programed states, for example, the state of anxiety, or the state of fear, are not just emotions but include anxious or fear based thoughts, memories, and responses that are connected so that they all get triggered together.  When enough of these patterns fire together long enough, they also can be the foundation of a “sub-personality” or “part” of yourself that reflects a way of “showing up” when a trigger (something that happens in the present that resembles a wound from the past) initiates the program or pattern like losing in a trade.

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 then 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, 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.”

When ego investment and emotion rise, trading becomes a reflection of the ego, in other words defensive reactions to negative triggering events that really distort reality.  Overly invested egos create a sort of delusion, and consequently, what we thought was a great trade was in reality a “fake out” or something that came from internal bias not the objective reality of the charts.  For example, one of my students, after trading in a position on the Dow e-mini futures the YM, violated their rules and failed to maintain a hard stop.  It was on a day when the Dow lost over 300 points.  The second rule that they violated was to “think” that the daily ATR (Average True Range) had been breached and that since its average daily range was violated, it would “come back.”  The third rule they broke, after finally closing out of the trade for a significant loss, was to believe that increasing their position size and essentially “doubling down” would bring them back to break-even in another trade attempt.  Now that was delusional thinking.  The analysis was distorted by the emotional upheaval taking place after experiencing the original loss. 

So, my friend, your ego is not your amigo.  You’ll want to get the internal observer involved early and often as you aim to create a positive trading trance.  And, you’ll want to use mental and emotional “state shifting” tools that can shake you out of that delusion.  Remember; as you aim to develop a positive trader trance you will be intentionally honing your focus on what matters most in the trade.  It could save you from a lot of loss.

Happy Trading,

 

The trading psychology conversation has many major concepts; such as, managing your internal state, self-awareness, becoming internally aligned, having a results orientation in your thinking and holding yourself accountable for all of your results.  Another concept that I’d like to explore in this missive is the very important notion of being in and trading in the moment … or in the NOW.  How often have you found yourself at the crossroads in a trade and rather than paying close attention to the task at hand in your trade, you become distracted by all the things that happened in your last trade.  It doesn’t much matter whether it was something good like a profit or disappointing like a loss.  The long and short of it is that you became distracted (by accessing the past) in thought and feeling resulting in a “bone-headed” move on your part in the present.  You may have revenge traded, became seduced by illusions in the chart, exited prematurely or whatever behavior that in all likelihood caused you to experience another disappointment.  Now you are really stressed out because that singular distraction a moment ago  has morphed into a two-headed monster and if you don’t take heed by refocusing in the NOW that two-headed monster will turn into a multi-headed hydra that keeps expanding at every failed attempt to deal with it.  But, of course, “dealing with it” for most means doing the same thing over and over … and expecting a different result.

Being everywhere but in the present moment almost guarantees that you will not only become distracted due to ruminations on the past and/or worries about the future; neither of which can you do anything about; but as well you fragment your efforts and deteriorate your resolve.  Rather than optimizing your internal and external resources you are left “cursing the darkness” while out of touch with the reality of the charts and unaware of your internal motivations (usually limiting beliefs).  Being in the moment is not just a concept; it is a powerful relational presence between you and your environment (internal and external).  It is the realization and recognition that truly this moment is the only one that is real; the past is history and the future a mystery.  In fact, you cannot “undo” any past event in that time frame.  In this respect there are no do over’s.  Your only viable options are a) learn from the event – which could also entail analysis and processing the event, b) accept it as a matter of record – meaning that you embrace it as the unchangeable fact that it is and c) move on!  On the other hand, you can’t live in the future, it is futile to try.  What’s infinitely more helpful is to plan for the future by anticipating what challenges might be between you and your goals and maintaining a strong “Towards” filter in your mind.  A Towards filter means that you are using your brain/mind to envision how the identified goal will look, sound, feel, smell and taste when it has been achieved thereby galvanizing your strength and endurance to do what it takes to in fact accomplish that goal.

When you are in the moment, for the moment, fully available, fully present and in the NOW of the trade potentially 100% of your system is online and ready to be tapped.  You are firing on all cylinders and your highest and best trader is fully engaged.  Let’s be clear, it’s not easy.  Being in the moment requires self-awareness and a fierce focus on the task at hand.  It means necessarily that you are on purpose, on target and on top of what needs to be done … now.  It requires that you be deliberate in your thoughts, emotions and behaviors making sure that you are managing your internal state and anticipating what could throw you off.  Monitoring your internal dialogue is very helpful to being in and remaining in the moment.  Also, taking a few moments early and often to take a deliberate deep breath and note what you are doing in that moment, what you are looking at, and what you are hearing, (taste and smell could be tracked as well).  When you are in the moment you put yourself in a better position to be aligned in body, mind and emotions to go in the same direction and for the same goals.  So do your A-Game a favor by orienting your brain/mind/body to the present.  Begin to train yourself to be connected to the NOW of your trading.  Also, get my book, “From Pain to Profit: Secrets of the Peak Performance Trader.”

May all your trades be green

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

“Success is not final, failure is not fatal: it is the courage to continue that counts.

– Winston Churchill”

Part of the definition of “rule” is that it is a “governing action” or “procedure.”  When you consider governing action it really encapsulates the way that rule based trading relates to results oriented trading.  This is because rules are essential to the trading process.  Actually, if you are trading either without rules, or if you are not following the rules that you have established then you are gambling.  Trading rules can be said to govern because they represent the procedures and parameters of your thoughts, emotions, behaviors, strategies, setups, entries, stops, money management, trade management, and exits.  In this way well thought out rules make the difference between being successful and blowing up your account.

Now, the other thing to consider as we discuss rules is that humans live by the stories that they have constructed from early in life much like a script to a play.  These stories or scripts can be termed rules as well.  They form the foundation of your behavior.  In fact, as humans grow, they develop a set of typical response patterns to reoccurring events.  These typical responses or patterns of behavior could be termed a list of rules that you live by.  For example, if you incur a debt, you are expected to pay it back.  If you are driving, there are rules to follow for both safety and the orderly movement of traffic.    These lists of “rules” are reflected in your every decision.  These rules or life stories also involve the lessons learned from the earliest years, and those lessons have created the lenses through which the world is seen and judged – rules about money, privilege, power, worthiness, winning, and losing.  So, not only are rules essential to trading, it is also important to have rules that are in your best interest.

For the most part, core, belief connected rules are out of your awareness.  You make important choices based upon these life rules and when you get results that you don’t want, changing those results can be very difficult if you’re not also changing the rules that those results were based upon.  In other words, if your choices go unchallenged then the awareness of why you made the choice remain out of conscious touch.  However, once the rule is identified, it can be challenged and modified.  Also, as you challenge each rule you uncover other assumptions that were based upon that rule to be myth rather than truth.  The interesting thing about mythology is that if you believe it to be real, it is not mythology,  it is truth to you, even as it doesn’t serve you.  Consider this example: trader Dan believes in “taking advantage of every opportunity in life.”  This belief becomes truth in his mind and generally may not be a problem for him.  However, in the markets if at every turn of the price action you are looking to impulsively enter then there is a distinct susceptibility to the disadvantage of overtrading.  In fact, this simple yet powerful “myth” can cause your downfall in trading even though it can serve you in other parts of your life.  This ineffective rule leads to behavior that is not your A-Game.  It can be termed a “Fool’s Rule.”

Other “Fools Rules” or trading myths:

• Trade at least 20 positions a day to make a ton of cash
• Do not use stop losses
• Try to use economic news releases as trend indicators
• Keep all of your losing trades open and add to your losing positions until market comes back and get out at break even or profits
• Only try to catch market tops and bottoms and do not trade in the middle of a trend
• Trade just before the news to make hundreds of points in couple of seconds
• On a price action pattern, jump in early to make the most profit
• Make sure your position size is big in order to make big money

So, it’s important to ensure that your rules support your A-Game, your highest and best trader while in the markets. That’s why you’ll want to have a list of rules that are geared toward your Internal Data (thoughts, emotions, and behaviors that underlie your trade) as well as your Mechanical Data (setups, price action, indicators, news, economic reports, etc.).  In other words, you want to support your trading mind-set and emotional stability in order to focus with laser precision on what-matter-most in the trade.  Below are a number of rules that are designed to support your Internal Data

• Move: Flexibility is the key (both literally and figuratively).  Learn to change if necessary. If you always do what you’ve always done, you’ll always get what you’ve always gotten.  And, if you always think what you’ve always thought, you’ll always do what you’ve always done.
• Learn to exit when necessary:  If you find that you are violating a rule, exit the trade…even if you are making a profit.  If you stay in you are only reinforcing bad behavior. Especially if you are making a profit.
• Hope is a 4 letter word: Refuse to take that trader drug “hopium” it means that you’re gambling and putting your hard earned money up to pure chance.  Remember, there is a reason why Las Vegas is full of casino high rises.  They don’t call it “Lost Wages” for nothing.
• Know your risks: Always calculate your risk to reward ratio and stick to the parameters.  This is the way you can have a 33% hit rate and still be profitable.
• Be accountable for your performance:  Set goals and document your thoughts and emotions (Internal Data) and as well your Mechanical Data (the mechanics of the trade).  You are responsible for your own decisions.  Own your mistakes.
•  Mind-Set:  Learn to manage your negative emotions and harness your positive emotions (ex. Determination, inspiration, passion, joy, etc.) and understand the emotions of those around you.  Always remember what General Patton said: “if everyone is thinking the same then someone isn’t thinking”.   Also the famous Buffett quote: “Be fearful when others are greedy and greedy when others are fearful.”
• Your Clan (the what-matters-most in your life): There is more to life than trading and investing.  Don’t live to trade.  Being the richest man or woman in the graveyard does nothing for your quality of life.
• Remain Consistent:  Do not adjust a strategy, a rule or principle in order to conform to the market. Instead, let the market conform to your strategy. Have a target, set a rule, let a particular part of the market conform to this rule, follow the rule without deviating. “If you stand for nothing, you’ll fall for anything.”  Alex Hamilton

Remember, your A-Game and trading from your highest and best self is all that matters to your trading results.  The trading trenches are not a place to venture into unprepared and unfocused.  Trading is a 100% mental game and if you don’t have mental and emotional tools it is like driving without a steering wheel – you’ll crash and burn without it.  So, let your rules be your road map to consistent trading results.  Also, get my book, “From Pain to Profit: Secrets of the Peak Performance Trader.”

Happy Trading,

 

In September 1947, Reader’s Digest published the following quote by Henry Ford; “Whether you think you can or you can’t, either way you are right.”  This quote has become quite famous as it describes the essence of beliefs and how they impact every aspect of our lives.  From health, to relationships, to business and finance, how you think fundamentally directs all that you do.  Of course, it follows that beliefs greatly affect your trading as well.  Beliefs are simply thoughts that you accept as truth.  You view them as non-negotiable, especially when they concern you; such as, beliefs about your worthiness, intelligence, attractiveness, and/or your abilities – or lack thereof.  You begin to form beliefs as soon as you begin to experience; and as you interpret experiences (emotionally, at first, and later around 5 or 6 years old, cognitively) you form the foundations of beliefs.  They become the lenses through which you see the world; also known as programing and conditioning because these interpretive foundations are strengthened by repetition and often bear little resemblance to reality – as in “limiting beliefs.”  Limiting, irrational or negative beliefs usually don’t coincide with facts but you still hold on to them with an iron grip even though these learned limitations are mostly unconscious.  They represent core beliefs and the earlier they are formed the stronger they become.   These internal structures develop the building blocks of your relationship to the world.

Consider a little girl; let’s call her Tammy, with a critical and shaming mother who throws negative epithets at every turn; for instance, calling the toddler stupid, idiot, clumsy, etc.    These labels become engrained in Tammy’s psyche as truth.  She becomes tentative, shy, anxious and risk averse.  Fast forward, Tammy is 8 years old and in the 3^rd grade.  The teacher askes the class a question and Tammy thinks that she knows the answer.   Although tentatively, she raises her hand and is called on by the teacher and gives what she thinks is the correct response.  Unfortunately, Tammy is wrong and the class erupts in laughter.  Tammy feels humiliated, ashamed and immediately although unconsciously her ego in an effort to protect her in the future resolves never to volunteer again and forms a belief that she must be right at all times while concurrently forming a deep seated fear of being wrong.  Fast forward 30 years, Tammy has become a trader and even though she has had successes in her life the beliefs that she formed early on, those internal psychic structures, are just as strong as ever.  While in a trade, the price action edges toward her stop and immediately the belief that she must be right has been activated.  This core, unconscious thought prompts a strong fear of being wrong along with the fear of loss which initiates another belief that she is not good enough.  The fear and anxiety associated with these beliefs drives Tammy to choose to take action on a behavior that is not in her best interest; to move the stop.  After moving the stop Tammy feels temporary relief and she hopes she has dodged that bullet even though her risk has been inappropriately increased.  But, in a few moments, the realization that she has again violated her rules becomes clear.  On the heels of not keeping her commitment to herself, she feels depressed and self-loathing because this has played out numerous times before.  Additionally, she hears her mother’s familiar critical voice in her head again saying; “See, you’ll never win, and you’ll always be stupid.”

The above is just a brief snapshot of how traders become hijacked by limiting, irrational and negative beliefs that cause debilitating emotions which drive bad choices and destructive behaviors.  They are caught in a downward spiral of damaging acts, despite their attempts to self-correct.  They read books, try exercises and promise themselves over and over that they will do better.  Regrettably, until they challenge those limiting core beliefs outcomes will remain the same.  You can begin to change core beliefs by treating them like a bad computer glitch.  You would neutralize, uninstall and over-write the bad code by replacing it with a positive more productive counter-belief.  By changing the conditions underlying how you choose and behave you can change your results.  Like computer code, the beliefs that you harbor greatly influence your trade and your life.

One of the ways to approach re-writing the bad belief code is to use your journal and every time that you commit a rule violation ask, “What am I telling myself or believing to cause me to violate that rule.”  Through self-reflection, pulling back the layers of the onion and introspection you will soon identify the limiting belief(s) that are motivating the bad behaviors.  Once you have uncovered the faulty belief codes then A) ask, “Is this true, is it absolutely true?”  Invariably limiting beliefs cannot withstand this kind of scrutiny and you will have begun the neutralizing process.  After you have neutralized the limiting belief, then B) construct a counter-belief.  C)  Subsequently, close your eyes and request from your unconscious a picture of the new belief/behavior.  D) Take this picture and change it by making it very bright, big, close, colorful, clear and put yourself in the picture while experiencing it through your eyes and hearing through your ears (this is called associating into the picture).  E) Then use the new belief as an affirmation while placing the image of the new belief/behavior on your internal movie screen.  F) Repeat this until the new belief/behavior feels congruent and natural to you.

There are a number of ways to deal with unwanted limiting, irrational and negative beliefs in order to stop them from directing your trading and life in ways that are antithetical to your conscious desires.  The important thing is that you do the work in whatever intervention that will neutralize and uninstall the bad belief code.  Do what it takes to get where you want to be in trading and in life.