Making Better Mistakes Leads to Better Trading

01/24/2013 6:00 am EST


Rande Howell

Founder and Owner, Trader's State of Mind

The attitude you bring to a trading loss is the key to transforming your trading, according to trading psychologist, Rande Howell of

How you handle mistakes (and losses) in trading, both emotionally and psychologically, reveals your capacity to grow as a trader. Do you seek to learn from the mistake or do you want to avoid making another mistake (which, by the way, is impossible)? When you make a mistake in your trading that leads to losses or loss of profit potential, how do you react? How do you typically engage the mistake? Do you explore the mistake as a way of learning or do you beat yourself up for making a mistake? What quality of conversation do you have with yourself about the mistake—what does the mistake represent to you as a trader and your performance in the act of trading? When most traders answer the above questions, they discover they work with the mistake in a way that ensures continued problems in their trading performance.

Are you emotionally swept away by the loss and do you berate yourself for making the mistake (the typical way a trader acts), or do you curiously and thoughtfully examine the breakdown in the emotional and mental process of your performance that led to the mistake, and then re-construct the process from a sense of suspended time for a higher level of performance (the path of peak performance mind training)?

Failing Your Way to Success
Most traders are so blinded by a mental attitude of “trading not to lose” or “not making a mistake” that they cannot learn from what the mistake can teach them about the very mind that they, as a trader, bring to the performance of trading. However, if you want to develop the mind that trades, then you need to make better mistakes. The attitude you bring to the mistake opens and closes the possibility that the mistake represents. This is what “making better mistakes” means.

The mistake that leads to loss is simply a breakdown in the flow of coordinated action in the domain of trading. It is not a reflection of who you are as a human being (no matter what your self-talk may tell you), but, rather, an indication of the current organization of the self (your psychology) that you have brought to the performance of trading. Bringing a “trading not to lose” mindset to the breakdown creates a "no-learn" opportunity. But bringing a “curious and thoughtful examination” mindset to the breakdown creates the opportunity of learning—changing the effectiveness of the way the brain and mind engage possibility. From this vantage point, mistakes help you to see where you need to re-engineer the mind that you bring to trading. Mistakes, in this interpretation, become an opportunity for learning.

Mistakes, failures in performance, are going to happen because trading is about managing probabilities rather than predicting the future. There is no certainty to be found in trading, yet, most traders bring a highly biased mind that seeks certainty into the management of their trading (this is the very mindset that has to be re-engineered for increased successful performance in trading). And every time the bias of certainty is challenged, the integrity of a once successful belief (now hardwired into a neuro-pattern) is called into question. Here, you will find resistance to change. The catch-22 here is that if you avoid dealing effectively with the internal conflict generated by the mistake, you stay stuck in the very self-limiting belief and pattern that you want to change.

NEXT PAGE: Rewiring Your Brain
Clearly, a new attitude towards mistakes has to be consciously developed to re-engineer the mind that trades. Your mistakes (losses) point this out and your trading account verifies the need. It is at this point that the trader either re-engineers the neuro-circuitry of his beliefs about the management of uncertainty or he resists change to his already-formed comfort zone (cognitive dissonance). But until the trader develops the emotional intelligence to seize the opportunity presented by the loss or mistake, the historically wired pattern compels the trader to be sucked habitually into a vortex of reactive pattern.

And the more you try to muscle your way through the fear-based pattern by sheer force of will, the more entrenched the self-limiting pattern embedded in the neuro-circuit becomes. Essentially the trader has strengthened the very neuro-circuit that he wants to change. (This is why you keep doing the same stupid thing over and over again.)

Learning to Learn From an Emotional Intelligence Perspective
The very thing that traders have to embrace is that they cannot be separated from their methodology and platform. The mind that you, as a trader, bring to the other elements of trading (methodology and platform) has to be re-trained in order for you to be able to use the tools of trading effectively, in much the same way that a race car driver and his car cannot be separated from one another. (The driver of a Toyota Camry is in no way prepared to drive a Formula One racing machine at 200 miles per hour, as the mental and emotional skills for Formula One racing have to be developed.) It is the same with trading.

The mind you bring to trading is not going to be the mind that produces success in trading. You have a brain genetically engineered by evolution to avoid uncertainty. Uncertainty and ambiguity generate confusion in our brain. And confusion has been melded with fear in an untrained trading brain/mind. This is what has to be re-engineered. Until that happens, every time you are faced with uncertainty in risking capital, your emotional brain “sees” a saber-tooth tiger attacking and reacts to this perceived biological threat.

And your mistakes made in trading are going to point out exactly where the new skills need to be developed. You are going to fail on your way to success because that is the way the brain learns. It learns from failure—it does not learn from success. However, if you are going to re-organize the attitudes and beliefs that your brain is currently organized around, you first are going to have to learn how to manage the biological system that creates the mind.

Cooling the Excitatory System of the Brain/Mind Down
Fortunately emotional intelligence is fundamentally different from cognitive intelligence. It can be developed. Before the trader can begin the journey into re-engineering his mind, he must first learn how to emotionally regulate his emotions so they no longer overwhelm him. This is done by learning to observe (be mindful) of the body and to become more adept at catching and regulating emotions before they develop a head of steam and hijack objective thinking.

Emotions are biological—they are not psychological. They take over psychology when aroused. The really dangerous emotions in trading are fear (in its many forms) and euphoria. Both, once aroused, contaminate your thinking so that an effective mindset for trading is corrupted. Each has a biological signature defined by breathing style, tension signature, and heart rate that are associated with that emotion. Disrupting the arousal of the emotion, before it contaminates your state of mind, is possible by volitionally managing the way you breathe, relaxing the tension in the body, and calming down your trader’s heart rate. This does not solve the problem, but it does get you to the door of the mind.

NEXT PAGE: Developing the Trading Mind

Practicing Performance in Slow, Deliberate Motion
Building the skills to be able to slow the process that your mind was engaged in when the mistake happened is the next step to re-engineering the mind that trades. Most traders do not see what happened to them when psychological trading mistakes occur. The speed of the emotional triggering is too fast and they don’t know what to look for. Fortunately, whenever there is an emotional hijacking, there are precursors that appear before the trap springs and you are swept away. You just have to know what you are looking for.

In a process called performance mapping, you can learn how to slow down the process that the mistake is embedded in so you can see all the elements of the performance. This is done by taking really good notes during the process of your trading and/or making either an audio or video recording of yourself while interacting with your charts as you trade. This process is very revealing.

By doing this, you can slow down the memory of the process that led to the mistake (much like a movie in slow motion) and correct it. This is done in deliberate and slow motion. It is also done with a state of mind that is focused on excellence in the mindset you are bringing to the trade and not on a mindset focused on winning or losing the trade as you are in it. You then practice the new performance (first in visualization, then in your trading environment) so that you are altering the sequencing of the new learned skills into the old pattern.

Developing the Mind That Trades
A sophisticated process is described here. And much has been left out from the complete process so that it can be presented in article form. One of the major keys to the process is managing which elements of your mind (all those thoughts running around in your head) are doing the observing and which elements of the mind are doing the practice. It is the mind that you bring to uncertainty that determines the probability of long-term success or failure. Building the mind that approaches mistakes and failure from a curious, inquisitive, self-confident, and open perspective is the fundamental skill needed to learn how to learn. At that moment, uncertainty and fear have been untangled from the knot that evolution created and you have become a designer of the self—one that can think and act in probabilities.

This is the state of mind that the trader strives to develop. And it is only by learning from psychological mistakes that the trader is able to re-develop his psychology of peak performance trading.

Rande Howell can be found at

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