Getting Out of Your Own Way in Trading

07/01/2010 12:01 am EST


Does this sound familiar? Jack has a high-profile leadership position. His job demands that he create a year-end report. Jack is well aware of how much effort and time it takes to competently deliver this report, and every year, Jack will wait until the last minute, incurring unnecessary stress and mental anguish, not to mention lost sleep to get it in on time. However, due to the sensitive nature of this report, on more than one occasion, Jack has missed important data and except for some after-the-fact machinations, jeopardized the accuracy and reliability of the effort. As a consequence of this behavior, Jack has failed to get a plum promotion to the executive floor even though he clearly has performed in many areas and has the skills to do the executive job.

The power of unconscious/conscious patterns is uniquely strong in its ability to control behavior. Thinking patterns can be so ingrained that there is no immediate perception that they are influencing your actions. In the example, Jack had a pattern of thinking and doing that interfered with what he wanted, notably, a promotion. Humans are usually in a state of flux. We are complex beings with numerous pressures (internal and external) that pull us out of sync at any particular moment. This is especially true in trading. Knowing how and where the actual urge to act develops and how it is acted upon creates a better perception of exactly what controls your performance. The goal is to be in control. You cannot profit unless you are on the right side of the order flow. Anything that prevents accurate perception of the order flow, in real time, increases your chances of loss. And, to state it more affirmatively, in order to get consistently successful results, you must resonate with the reality of the charts while assiduously following your plan for the trade and remaining locked into your rules.

One of my students put it in this way: "…I like to trigger my devotion to my trading rules by continuing to say to myself, 'I am not concerned with the outcome of the trade, only with whether or not I kept my commitment to my plan and rules'…"

A strong trading plan, strategy, and set of rules create a template for consistent performance optimization and put the odds greatly in your favor. But, of course, if this were that easy, we wouldn't have trading psychology challenges. The important thing is to first recognize, then change mental models or paradigms that do not serve us in our trading. This involves personal observation. It is a matter of introspection, or looking at and taking note of thoughts, emotions, and behaviors. This process increases awareness of personal proclivities, inclinations, and motivations. It is also important to become aware of and recognize that market price action is simply a string of events, and events are simply anything that we pay attention to and think about. Behavior is acting on information that we process from events. Interpretations and the meaning that we assign to market events are all a result of our internal mental models of the world, or otherwise stated, our internal thinking patterns. So the events of the market are processed or filtered through our MAPS, which creates trading behavior (entries and exits) that either is or is not on the "right" side of the order flow.

The profit begins in your assumptions, interpretations, and conclusions about the order flow or market event, that's in your head. The loss comes from the difference between the reality of the market event (order flow) and your interpretation of the facts of the order flow. The impetus, motivation, and urge to make the trade is based upon what you're telling yourself, what you are "making up" about the order flow. This conclusion is a reflection of your internal dialogue that is urging you to action or inaction—this is often the source of internal bias. The internal dialogue may or may not be conscious, and is more often not. These internal conversations are between aspects of yourself, different personalities that you have developed as a result of experiences and items learned from your earliest years, and they create your programming. The programming must be uncovered, and the lens must be changed in order to correct the distortion that caused the conclusion that motivated the urge to action resulting in the loss. Once identified, the programming must be modified; if not, then the false conclusions will continue, and so will the losses. You will have a continuance of FEAR, i.e., False Evidence Appearing Real. To avoid FEAR, you must see reality clearly.

If you are generally successful in life, then your programming has generally been supportive to accomplishing your goals. Trading offers a unique set of circumstances, due to its nature, that can undermine even generally supportive programming due to the nature of money and its deep-seated connection to your concepts of survival and self-worth. So, in trading, even folks that have been successful in other ventures often find themselves on the losing side of the order flow; and that is where some of the programming must be modified. You have created a set of "rules" that govern your life. They are based, in many cases, on cultural models. They are beliefs about how the world works and many don't apply well to trading. It's not about good versus bad; it's about what works and what doesn't.

So, get out of your own way, and through journaling and personal evaluation, you will begin to identify the source of your self-sabotaging behavior. After you have become aware of an issue, use special tools like Emotional Freedom Technique and/or Stop, Challenge, and Choose to reprogram your subconscious, faulty beliefs that drive thinking and doing. This is very important to changing your behavior and turbo-charging your way to getting the results that you want. Actually, there are many highly effective, fast-acting, and easy-to-use tools for your toolbox that we teach in Mastering the Mental Game. Through reprogramming, you'll learn to stop sabotaging your efforts, which is trading by default, and start being deliberate in your approach and trading by design—the road to profit.

By Dr. M. Woodruff ("Woody") Johnson, instructor, Online Trading Academy
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