Today, I plan to share the investment insights Benjamin Graham, Warren Buffet’s mentor, gleane...
Biases Traders Don’t Know They Have
10/29/2011 9:00 am EST
Learned beliefs and attitudes from as far back as early childhood make up an individual’s "money script," a barrier that can greatly hinder profitability. Trade psychology expert Rande Howell explains how to understand and even re-write your personal money script.
Rande Howell joins me today. Rande, good to see you, and you’ve talked about something called a “money script.” What is that?
It’s such an incredible thing that people aren’t aware of. A money script is the attitudes, the biases, and the prejudices that we develop as your brain is in an environment called family, and you start building in all of these assumptions about what money is, and how it’s associated to power, to worth, to mattering, to adequacy, and it just gets totally internalized into your circuitry.
Then you grow up, you become a trader, and suddenly you’re trading and you don’t realize that this money script is actually driving your trading.
And as long as it’s driving your trading, you’re at a real disadvantage because suddenly you’re looking for trading to supply worth, to supply meaning, to supply your sense of mattering, and that’s where traders really mess up.
So, how do they identify that script and then flip it?
What you do is you start looking back into your family history and you start saying, “Well, what was money? What did money mean? How is it active in our family?”
For instance, I worked with a guy whose family grew up in Arkansas and they grew up in the aftermath of the Great Depression. They had already lost huge amounts, and everything was about not losing.
The guy grows up, and ultimately, he becomes a banker in the trust department where everything is about not losing and protecting assets. He got downsized, he started trading, and suddenly this script started showing up in his trading.
He couldn’t pull the trigger; he would hesitate, he would see the set-ups but he’d say “No, more confirmation, more confirmation; I can’t lose….” That’s the money script.
So, what did he do, or how did you suggest that he change that so that he could pull the trigger and become a successful trader?
It was very interesting, and he did. What he ultimately did is first of all, he recognized it. He moved it out of mindlessness and he moved it into mindfulness and realized this is one organization of the self that could be; however, I want something different.
See related: Better Trading Through “Mindfulness”
He started confronting his fears. He was able to confront fear, keep it calm so that it didn’t sweep him away, and he started realizing he had other inner resources and started moving from that script to another script about his inherent worth, his inherent ability to manage things rather than being overwhelmed by the Great Depression.
Suddenly, his trading was no longer about not losing; it was about taking advantage of what the market was giving him.
How do you recognize that and know when to change and then take advantage of what the market is giving you?
Well, if you’re trading and if you’re showing up in fear, that’s where you recognize it.
There is no reason to have fear in trading. Worry is a different thing.
Worry is about negative attribution of the future, and that’s something that happens with traders all the time. Then you start thinking “who is having all of this negative attribution?” and you start to realize, “I was born into circumstances that literally formed my beliefs and now my beliefs are living my life. I’m not living my beliefs. My beliefs are living me.”
Then you start taking charge and you actually start creating new beliefs, and it’s those beliefs that you’re trading.
Related Articles on STRATEGIES
I spend a lot of time talking about block trades. These are the huge trades that show up on your opt...
I have been tracking a set-up for the SPDR Gold Trust ETF (GLD), which I analyze as a proxy for the ...
AllianzGI Equity & Convertible Income Fund (NIE), which yields 6.8%, invests in convertible equi...