Taking the blinders off the trading mind

After investing significant personal and financial resources into your commitment to trading, what stops you from breaking through to successful trading? Is it your methodology? Is it your platform? Or is it the way you interact with the markets through your methodology and platform?

Until you stop chasing trading success externally (believing that the right methodology, the right guru, or the next indicator “out there” will be the secret that transforms your trading) you will remain locked in a mindset that keeps trading success at a distance like a mirage in the desert. You know the potential is there, but it is never realized. Most traders stay stuck in this illusion until they have experienced significant pain that jars them into re-examining their beliefs; beliefs that stay beneath the radar of their awareness, but that torpedo the development of these traders’ potential in trading.

Traders avoid dealing with these hidden self-limiting beliefs because they are uncomfortable to acknowledge. After a number of years wandering in the desert of their denial, vigorously holding on to the belief that success is “out there” in the form of things, traders either (1) continue the pain of losing as a way of life, (2) get out of trading, or (3) wake up to the understanding that they need to change themselves – not the outside world. This is the nature of a self-limiting belief.

The third option, that they must develop a different trading mind, opens the door to a new way of understanding the self and the world that the trader lives in. What does this world look like?

Re-examining the World You Believe You Live In

If beliefs are such an important part of successful trading, why don’t all traders simply examine and change the beliefs that shape their understanding of the world and of their interaction in the markets? It seems so simple, however, you can’t see what you can’t see. You, the trader, remain blind to the very self-limiting beliefs that keep you from moving to the next level. Yet these self-limiting beliefs are hidden in plain sight. You just haven’t developed the eyes to see them. Until mindful awareness is developed, the self-limiting beliefs operate in the shadows of your mind, out of sight of your capacity to change them.

When mindfulness is applied to trading, a powerful new understanding takes root. All perception of reality

is observer-generated. This is the assumption that forces the trader to re-examine his or her beliefs from a different perspective. In this way of understanding the world you find yourself in, you live in worlds that are created by your beliefs. There is not a world “out there”. Based on the beliefs that you bring to life and trading, your world of experience is created. Change those beliefs on a biological response level and you change the way you use your methodology and platform to engage the markets.

As an example I worked with two traders who trade side by side. They share the same methodology, the same indicators, and the same platform. The difference between them is that both brought different beliefs about the management of uncertainty to their trading. One became successful while the other continued losing. They shared everything outwardly, but as they evolved as traders, they did not share the same beliefs about themselves and the beliefs they brought to trading in the markets.

One had an AHA! moment and became open to the notion that all perception of reality is observer-generated. This allowed him to move from a mindset that tried to predict what the market was going to do to a mindset that became comfortable managing probabilities (and their probabilities) detached from a biologically-driven predisposition for certainty. The other trader held on, entranced by his biologically-driven need for certainty, to the notion that there was a reality “out there” full of objects that he could define rationally and therefore, could allow him to predict with relative certainty what the market was going to do next. In his perception, there was a set of rules, once discovered (read, the Holy Grail), that would produce certainty in the face of ambiguity. He was held in a mindset that was organized around a belief in the certainty of his feelings.

The trader who opened himself to change stepped out of an ingrained way of seeing the world to a new way of seeing and interacting with the world that allowed him to trade from a new position, the management of chaos or the lack of certainty – of an observer-created world. An acceptance that chaos and uncertainty are simply part of the human experience of life. Although this was a difficult shift in his mindset, it also opened the door for him to manage uncertainty rather than look for certainty. Do you see the difference here? The one who stayed stuck in his old ways kept looking for the Holy Grail that would allow him to predict reality.

This is where many traders stay pinned down by their blindness. They keep believing (in the face of continuing losses) that there is a world “out there” that can be defined and manipulated. Certainly the rise of rationalism and the scientific method laid down the assumptions that reality could be defined as objects “out there” for many centuries – until quantum theory blew the certainty of Newtonian physics away like smoke from an extinguished match.

In the same way that rationalism and Newtonian physics breaks down at a certain moment, so does the mindset (and the beliefs creating the mindset) that you bring to trading. The order of thinking that you brought to trading worked in domains outside of trading. But when that order of thinking was applied to trading, it was no longer capable of producing effective action on a consistent basis. At that point, the assumptions of your beliefs have to be re-examined and re-invented. In trading, the art and science of trading is more akin to the uncertainty of Heisenberg and the “observer-created” world of Schrödinger than to objective reality. (So much for an ordered world to believe in!)

Re-examining Emotion and Thought 

Have you ever heard the expression: “You must leave your emotions at the door when you trade.”? It seems like common sense. Bringing emotions to trading is risky business. But not bringing emotions to trading is simply not possible. Without emotions, there is no thinking (or life for that matter). Even what most traders aspire to trade from (dispassion or impartiality) is, in actuality, an emotional state that leads to a particular kind of thinking that is highly effective for trading success.

The neo-cortex in humans grew out of other older brain systems that are emotional in nature. Because of this, thinking and emotion are inexorably linked. All thinking is emotional-state-dependent. Once a trader wakes up to this highly validated assumption from neuro-biology, emotion becomes something to manage and use to build a way of thinking (observing) that allows the possibility of effective trading.

This may sound far fetched, but consider your trading and your state of mind while trading. Before the threat of real loss (risk) becomes palpable (entering the trade), the mind that you, as a trader, bring to evaluating set-ups is commonly rational. With no threat in view the emotional state of fear is not present to influence your thinking. But as the trade warms up and confirmation is evident by your indicators or methodology, the chance of real monetary loss becomes cogent.

Then it is time to find the entry point and pull the trigger. The moment is now. Suddenly the perceived uncertainty and risk becomes a disruption to the logical and impartial state of mind that guided your thinking minutes before. What is brought to the forefront of awareness is no longer management of uncertainty by a rational mind, but a mind now driven by fear. The closer the entry point, the greater the uncertainty, the more confusion, and finally fear triggers and dominates your mind’s thinking. The trade passes, and you feel relief, and later, disappointment. Then as you review your trading, you wonder what on earth possessed your ability to think rationally and act from logic. The emotional thinking shifted from rationally-based thinking to fear-based thinking. Each emotional state (rational and fear) drove the kind of thinking that was possible for you in any given moment.

The assumption that emotions are in your head is dangerous to the development of a peak performance state of mind. Emotions are biological. They and your body are one and the same. And your brain and the emergent mind are rooted in that biology. Your brain/mind, by its predisposition, seeks the certainty of pattern-recognition and reacts to uncertainty as the fear of death – something to be avoided. When triggered instinctually, uncertainty is biologically interpreted as the fear of death and takes over the mind – or what can be called cognition. That is the uncertainty turned into fear-based thinking that you bring to trading. And now it colors the psychological world of your mind into thinking from a fearfully. Your capacity to trade effectively goes downhill from there.

Your brain, unless you significantly redevelop it, is not built to distinguish between uncertainty and fear. And fear does not allow a probability-based mindset. It has to be trained for this new perceptual world.

Belief, Feeling, Mind, and the World You Trade In

Humans are born into a historical narrative, a kind of ontological soup, to which our brains adapt us. In this ontological world, you do not shop for your beliefs and decide which ones you will wear. Long before your could think or reflect, the beliefs you were born into were already internalized into the perceptual map that

interprets and interacts with the world of this ontological soup – your perception.

Your beliefs, as long as you stay mindless of how your brain and mind operated to work with uncertainty, are simply adaptive responses to the environment of which you are part. And you do not have beliefs – they have you. They create the world you live in and they are hidden from view. They are so familiar that they are not noticed – much like a fish does not notice the water it swims in. But then take the fish out of water and blindness is suddenly erased, and water never seemed so precious.

If beliefs (that shape your perception of the world) become integrated into your emotional responses to the world around you, emotional awareness is crucial. Suddenly the emotions that arise, either denied or acknowledged, begin to force explanations to spring into your mind based on the feeling element of the emotion. This is why feeling is so important to manage as a trader.

First, what is a feeling and how does it affect thinking and perception? Feeling is the subjective experience of an emotion. This subjective experience is also the chemistry that is coursing through your body and brain. In feeling an emotion, your brain and mind are swimming in the current of the emotion. And you (your perception) are being pulled wherever the emotion is designed (by the force of evolution into adaptive responses) to take you.

The feeling does this by creating a sense of certainty based on the direction of the emotion. The chemistry of feeling has now colored your perception of the world based on the belief embedded into the emotion about your capacity to manage uncertainty. What does this look like in trading?

Consider the turbulence of being in a trade, where you are no longer looking for opportunity, but are protecting your position from turning on you and creating a loss. You are in the midst of uncertainty. It is too late to back out without risk to capital – you’re in for the ride now. The trade is bouncing around on you, flirting with your stop, while you are wondering if it will refresh, get some momentum, and produce the predicted trend.

The uncertainty is palpable and your anxiety is building. As the feeling of anxiety builds, all the certainty of this being a good trade evaporates. Suddenly, without trained emotional regulation, you feel certain that you are doomed if you don’t get out of the

trade right now. The sense of certainty has changed directions based on the feeling element of your anxiety. Feeling, beyond its subjective experience, creates a sense of certainty in the direction that the emotion is carrying you. You are now certain that if you don’t get out of the trade quickly, you will lose the meager profit that you have RIGHT NOW.

The prediction is not true in an absolute sense, but it feels true. Rational thought (based on the feeling state of impartiality) has disappeared. And what appears true is the certainty that the sky is falling, although the trade is within the rules of your trading plan. Once a feeling has taken over the direction of your thinking, no amount of evidence to the contrary will turn your thinking back from catastrophic thinking to probability-based thinking rooted in the feeling of impartiality…not, at least, until the chemistry of the feeling of doom rooted in anxiety burns out of your body and brain. This is how the feeling element of an emotion impacts trading and your perception. Ignoring the emotion, so useful in other domains of your life, is a dangerous strategy to employ in trading.

Toward a Peak Performance State of Mind

Emotional illiteracy is not an option if you plan to become an effective trader. And, except for the lucky few who come equipped with the genetic predisposition and social adaptation that puts them into elite trader status, the vast majority of traders who are really committed to becoming successful traders will have to deconstruct their old habits and construct a perceptual map (an organization of self) that embraces the uncertainty and risk of trading with a mind built for performance in this environment. This requires real emotional work and rigor.

Amazingly, my observation is that traders resist the heavy emotional lifting to do this because of their own beliefs and feelings about uncertainty. They would much rather live in their explanations of what “should be” according to their brain’s need to bring order to markets that they outwardly acknowledge defy deterministic interpretation. Historically embedded beliefs and feelings color their perceptual world that keeps them from the very thing they want most.

The deeper question is: are you willing to re-order the way you understand and act in your world for the sake of becoming successful in trading? As you embrace this question (or not), a path opens before you – simply because you ask the question. One way or another, this question is answered in your performances in trading and the impact those performances have on your trading account. And whether you explore new, more effective, ways of understanding the “self” that trades. Trading provides the path you travel. The journey is yours.