Avoiding Implusive Trading
02/12/2013 6:00 am EST
Psychologist Rande Howell explains how you can avoid impulsive trading, which leads to losing trades.
I am here with Rande Howell. Rande, in the act of trading, we all have to confront impulsive trading. What is that all about?
Wow. Impulse is trying to prove to self and it is actually what I would call, something I call the inner critic tempting you. If you notice inside your mind, there is a voice in you that is either judging you or tempting you all the time. It will say, get in this trade, get in this trade, and it is not even in your trade, but the untrained trader in the mind doesn’t hear that. All it hears is just get in the trade, prove yourself, I’m going to take advantage of this, and then they jump in and neurology has already absolutely hijacked them, they’re gone.
So, when a trader realizes that they are making decisions based on impulse, are there steps they can take to limit that activity, that impulsive trading?
Oh, gosh, yes. The way I train is I train first on breath and relaxation because there is a buildup to impulse. You will see it in a mirror. You will see it in the body. That is the first thing. The second thing is I also use a process of systematic desensitization. Big word. What that really does is that you find the impulse and you understand that it starts building right here and then what you do is you build another network right beside it, a neural network beside it, and as your impulse grows, and it is a growth in energy, that arousal, so does the other one and suddenly the new program pops and it collapses the old one. That is how I will train. I will train an impulse-based trader that way but long before allow him to go into the mind. It is very important to do that.
How long does it take a trader to conquer some of these limiting beliefs, these fears and these impulses, to really get to the stage? Is there an average length of time that it takes for a trader to go through that process?
Well, I can tell you about magic wands or I can speak truthfully with you.
To change a belief system takes three or four months. If you have ever worked with addictions like alcoholism, you darn well know it is about three months before you get the brain ready to be able to change beliefs. Same thing happens. Same thing happens in trading and in life. What you are doing is, if you start working and you get the emotional regulation elements down, then you have to get down the mindfulness elements of where you recognize that you and your thoughts, you and your beliefs are not the same. Rob, that is a powerful moment.
That is important.
You step out of belief and you realize I can construct the beliefs that trade the uncertainty of the markets.