Rewiring the Trader's Mind

10/25/2013 6:00 am EST


Rande Howell

Founder and Owner, Trader's State of Mind

In daily life, traders can cover up their inadequacies with various coping mechanisms, but in trading, they are forced to confront them head on, says trading psychologist Rande Howell of

"It's never going to happen for you. You're never going to see the performance you see trading simulated with your real money account," erupted the intrusive thoughts into Bill's awareness. It sounded so final. And it sounded so on target that I believed it without question—yet part of me fought back.

“Whoa! Where did that come from?” astonished, Bill jotted the thought down into his trade log. Later while he reviewed the thought and emotion log portion of his trade log, he realized, “I've obviously have been dealing with that voice for years, but, out of my discomfort, I’ve avoided dealing with it.” The distinction of separating thought from identity was opening up a whole new can of worms for Bill. Now he was being asked to become mindful of the different characters present in his thoughts.

“This mindfulness stuff is beginning to make a whole lot of sense. I had no idea that so much was going on in my mind while I’m trading—I just thought it was my dumb thoughts,” Bill recounted. And as he reflected on this new revelation, he discovered another voice also. Focusing hard he thought, “That’s the voice that continually tells a very discouraged part of me, "you’re gonna do it, keep fighting, keep going, it’s gonna happen." But it’s not as loud as the Inner Critic and it gets drowned out. When I make mistakes or have a losing trade, the Inner Critic berates me, "you’re an idiot; you’re a stupid ass."

But then there is an accompanying voice that says, "It’s ok Bill. No big deal. Making a mistake, and losing on a trade is part of the game. You have the skill set to make it up. Forgive yourself and let’s get in on this next trade." But the critical voice is louder and drowns it out. I think the fear of pulling the trigger on my analysis stems from me not wanting to make a mistake and be wrong. Being wrong adds fuel to the Inner Critic’s beratement of me – gives it confirmation.
“It’s this battle going on between this Inner Critic and this part of me that wants to prove himself – and the critic is winning. This fearful part of me seems to want to prove himself to this critical part of me – to prove that he matters; that he has purpose. But no matter what he does, it’s never good enough. It just goes on and on. And I get exhausted by the internal struggle and my trading day gets blown up,” came Bills analysis of this internal trading dialog going on his mind.

The most prevalent thought to pop up in my mind is that I'm basing my self worth on my success or lack of as a trader. As embarrassing as it is to admit, I want the accumulation of things and power that trading can give me. I want the recognition of family, friends, co-workers. I want them to see that the years of sacrifice reaped a reward. The crazy thing about this is that I'm a well liked and loved person by these people with or without trading but obviously its not good enough. I also want the recognition for my professional and financial success which I still haven't attained through my trading. I do have a sense of entitlement. I worked my ass off. I gave up everything to go after this dream. Six years of sacrifice, thousands and thousands of hours over this 6 year period of studying and honing my craft. Sitting in front of this damn computer and I still haven't gotten what I think I deserve.

The thoughts are there, but I’m not being swept away by them as much as I used to. But I don’t feel detached from them either. The difference is that I’m not observing them and am aware of them. And I’m beginning to realize that I have been mindless to this conspiracy running around in my head. Because of my blindness to it, it has been able to sabotage my efforts with relative ease—I’ve been asleep at the wheel. I haven’t been directing my life. This person inside my head that is not “me” has. This has to stop.”

NEXT PAGE: Uncover the Internal Dialogue


Using Mindfulness to Uncover the Internal Dialogue
Bill is making progress in his evolution as a trader. At first he sees no difference between his thoughts and who he is. Now, it is beginning to be different for him—and his trading. He is waking up to the powerful, and unseen, forces that drive his trading—his hidden beliefs about himself and his worth. It is these unseen beliefs, showing up as conversations in the mind, that has stymied Bill’s trading for years. Remember from previous chapters how beliefs become embedded into your neural circuitry. Once wired into, they become the oh-so-familiar voices that you come to identify as “you.” Because they are so familiar, the brain pushes them out of your awareness—where they bias your perception without your knowledge. It is here, out of your awareness, which they blow up your trading.

It is through these unseen and unexamined assumptions, that we interpret and understand the world. In Bill’s case, and 95% of traders, it produces mediocrity. To break free of these unexamined assumptions we must first become aware of them. Becoming mindful of these shadowy, hidden, conversations within the self is the first milestone of waking up and becoming the trader you can become. No amount of fundamental or technical analysis will substitute for awareness of the self organization you currently exist as.

In the vignette above, taken from a trader’s psychological trading log, you can see this in bold relief. Bill has experienced powerful financial success before he began trading. But in the course of trading for six years, he lost hundreds of thousands of dollars before he concluded he needed help with his psychological organization. He has a methodology trading coach. And when he is trading simulated, he is a master trader. Yet, when real money is risked, he is possessed by an internal struggle of self doubt after losing nearly all his life savings. Now, far removed from the large-and-in-charge persona he had developed to cover a deep sense of inadequacy, he discovers a fight going on within him. That internal struggle has been going on for his entire life. But it did not come to the surface until he began trading. It is the structure of this deeper fear that he needs to become mindful of.

Even then outside of his awareness in his mindlessness, the large-and-in-charge mask he wore drove his trading. The problem was that underneath it all was a sense of unworthiness and inadequacy that he had never had to address—until trading. This is his deeper fear—deeper than his fear of loss—that he has been avoiding for years. It is inescapable in trading. In sales, he learned he could bluster his way through—producing a false sense of self confidence that he hid from others and himself. Like a surgeon’s knife, trading exposed it. What, exactly, did trading expose about Bill internal landscape as it relates to trading?

People avoid dealing with their psychological demons very successfully before coming into trading. People, including you, distract themselves, they busy themselves, they bluster, they drink, they talk sports, they talk business, or they con themselves. They even do this as they enter trading. They talk a game. Then they discover, to their dismay, that the very psychological demons that they invested heavily in to avoid before trading are now stalking them. In trading, there is no room to hide from our self limiting beliefs. You find them in your fear based trading. Now that they can not be avoided, let’s look and see what you have been avoiding.

Locating and Deconstructing the Internal Dialogue
As Bill builds the skills of breathing, relaxation, self-soothing, and mindfulness—he learns how to slow down his thinking and discover powerful hidden beliefs that shape his trading—behind his back. When he first begins, his thoughts appeared to him as a blur (after all, he has avoided getting to know this part of himself for a long time). As he developed relaxation and mindfulness skills, the speed of his thoughts began to slow down. First they showed up as a blur and were of little interest to him. His belief was that all he had to do was learn fundamental, and particularly, technical analysis. From here, he would be able to trade and make buckets of money to fulfill his dreams.

NEXT PAGE: Redirect the Internal Conversation


The problem was that when he went from simulated trading to actually risking his capital, his trading fell apart. His putting capital at risk triggered his deeper fears of inadequacy and failure as a human being. This very fear he was able to cover up by developing a large-and-in-charge persona. Trading was merciless in exposing this hidden belief. His trading coach encouraged him to explore his psychology as it related to trading. But Bill, and most traders, brushed this suggestion aside believing (self deception) that they had the psychological part down—all they needed was methodology. They were going to find the Holy Grail, and it was going to be in methodology after trading platforms failed to deliver the goods. From many years of avoidance of discomfort, they ignored the sage advice. They ignored their thought life.

They ignored it until it smashed them in the face. This can come in the form of tens of thousands of dollars lost or, in Bill’s case, hundreds of thousands of dollars lost. For Bill, and for you as a trader, thoughts have to be slowed down from the blur used to avoid the discomfort of unsettling thoughts. That is what Bill has learned to do by following the skills management guide presented in this book and through training.

As he developed the skills to slow down the blur of racing thoughts, they still raged by as a torrent of uncontrollable thoughts. But, even at this speed, he could begin to feel the emotion and meaning attached to the thoughts he had been trying to ignore. With a little more work, he was able to slow them down until he could identity them.

This moved him from simply using emotional management tools to calm the self down to using observation skills to detect the dominant emotion/thought/belief patterns (internal dialog) driving his thought life—and his trading life. And it was not a pretty picture. He could understand why he had avoided it for most of his life. It made him uncomfortable. Apparently they had been an active underworld going on beneath his awareness that had powerful impact on his sense of self and his decision making—particular when risk was involved. What was this underworld of thought composed of?

One thing I want to make clear as we enter this section. All of us have an internal dialog. It is inescapable. We are all faced with challenges or struggles in life—they are unavoidable. Trading exposes these challenges, and your adaptation to them, like a mirror in your dressing room. The mirror in your dressing room reveals all the warts and blemishes that you attempt to hide from the world and from yourself. The difference is that in trading, you are forced to look into the mirror and acknowledge your incompetencies. The very things you have been avoiding in real life.

In real life, you can avoid the mirror by busyness and all sorts of distraction. You can cloth yourself so that you, nor anyone else, see the flaws. In trading, your trading account is the barometer, not the avoidance mechanisms of the mind. Here, we are looking at thought patterns that exist within all humans—this is what I am calling the internal dialogue. Often you distance yourself from the discomfort of these self beliefs showing up as thoughts in your mind. They become painfully real and can become debilitating in trading. That is actually the good news because it actually forces you to examine what your really believe about yourself and trading. As long as you continue to avoid them, they will own your trading. And you forfeit the possibility of learning from your mistakes.

If you recognize that your trading performances are a reflection of the beliefs that you bring to trading, you are in a much better position of finding them. Most traders give lip service to a belief they “should” hold, but when trading performance does not match the surface belief, they do not delve deeper into their personal psychology. Here they would find their core beliefs that they, most likely, hide from themselves. Mindfulness is the methodology I teach to help people to get to this level of understanding of themselves and their trading. Here change in performance becomes an indicator of change in core belief about the self as a trader—and as a human being.

By Rande Howell of

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