The mind you brought to trading is not the mind that brings success

After a career in sales and a downsizing, Jack decides to take control of his future by focusing his considerable energy on developing a new career in trading. He is highly disciplined, motivated, goal-oriented, and has a winning attitude – traits that served him well as a professional salesman. After studying trading and becoming proficient in his platform and methodology, he is still a break-even trader, at best. And he does not know why.

What confounds him is that he is not consistently following his own trading rules regarding entry points (getting in late or too early) and exits (getting out early after small profits). In hindsight, while he is reviewing his trading day, Jack recognizes (after doing some research on trader psychology) that he is trading from a mindset rooted in fear. But it does not make sense to him and he cannot see why he keeps losing.

In a consult with me he explains, “I know how to deal with the fear of rejection. To be successful, you get over that in sales. You know it’s a numbers game. When you lose one, you just get yourself cranked back up for the next one. You’ve got to get back to that winning attitude. That is what attracts success.

forex anger

I ask Jack to explain how he produces a winning attitude in trading. He responds, “The same way I did in sales. I use a visualization technique where I see and feel what it would be like to make $1,000,000. It really pumps me up. I can taste the victory. I then take that energy and focus it on my next sales opportunity or my next trade. I have photographs of what that success would provide me. I’ve built a sales career out of being able to create these high-energy states and to attract success.

 

I ask Jack, “How is that skill translating to success in trading?” His answer, “Something’s not working. I’m sure it should be working. But it’s not working. And I don’t know what I’m missing.

Why Jack Can’t Trade

On the surface Jack’s training in visualization and the law of attraction seems applicable to trading. This training has worked in other domains of experience, why not in trading? Jack’s visualization creates a high energy and the chemistry of euphoria to build a desire for the goal. That is a problem in trading, where a very calm, assertive state of mind is needed to manage the tasks of trading. This is a very different feeling state than high energy and euphoric states he called forward to conquer fear of rejection in sales.

When in the grips of euphoria (you might call this state a highly positive energetic mood where you feel like you can do anything), you feel sure that the good times are going to roll and continue forever. The trader “feels” certain that he is going to win. You are positive that you are going to make the next sale by the sheer force of will. From that feeling, rooted in euphoria, the thinking, perceptual mind believes in the certainty of winning. This is a sought-after state of mind in high-energy sports such as American football (and in business) where dominating an opponent and winning is part of a peak performance state of mind.

In that high-energy, euphoric state, the trader’s mind (deeply connected to his emotional state) is no longer in an impartial and clear mindset. It is highly biased to see only the good that is shaping up. This leads to over-trading and over-trading leads to losses. Those losses lead to pattern-recognition and reaction-formation by the emotional brain of the trader. No amount of willpower or having a positive attitude will force the emotional brain not to hijack the thinking brain once a reactive pattern has been formed.

The brain associates these high-energy states with losses and, quite naturally, triggers to avoid them. By experience, the intentional generation of a euphoric emotional cocktail has now been associated with the fear of loss. Suddenly the euphoric feeling (not the performance) of being able to dominate the markets and create a positive future becomes counter-productive. It is now associated with the fear of loss. This is where Jack is stuck.

The State of Mind That You Bring to Trading

To become consistently successful in his new career, Jack is going to have to relearn how to create the mindset that he brings to trading. The old mindset, so successful in sales and business, became a liability in trading. Why?

Highly cognitive endeavors such as chess, bridge, and trading require low levels of emotional arousal for peak performance. You are not trying to produce high-energy feeling states for trading. You are working to produce low levels of emotional arousal so that your trading mind does not get influenced by euphoria or fear (which require high energy states). Getting “cranked up” in a winning attitude produced disastrous trading results for Jack. Low arousal states are required for the methodical, impartial-thinking emotional states of a mindset built for trading.

 

Self-described adrenaline junkie that Jack is, this was a difficult retraining exercise. What he had to do was develop a calm, assertive, impartial state of mind from which to trade. In this state of mind, while in the act of trading, he was not trying to win or lose the trade. Instead he was focused on playing the trade so that he performed it flawlessly according to his trading plan.

 

At this moment probability was on his side. He now “felt” certain that when he traded his plan, he had an edge in his trading. The difference is that he learned to become an emotional manager of what feeling-state was influencing the certainty of beliefs that he brought to trading.

 

The “feeling” element of emotion will always do this. In fear, there is a feeling-state that creates a mindset that believes that it is certain that doom is coming if you do not escape. Hesitating to get in at your planned entry points without massive confirmation is often the resulting behavior. In euphoric emotional states, the feeling contaminates your thinking with a certainty of belief that the good times are going to continue to roll. Calm, assertive and impartial emotional states produce a feeling of being certain that you can take advantage of whatever the market is willing to give you. Low arousal states help keep you in this feeling-state where clear, calm thinking occurs.

 

Jack Learns to Trade

 

Jack is still an adrenaline junkie – outside of trading. When he finishes trading for the day, he now rewards himself by directing his energy into other domains where high energy states are useful to performance (tennis in this case). When he is trading though, Jack now calls forward the state of mind rooted in calm, impartial, assertiveness. In this state of mind, he sees the information on his screens, biased by impartiality rather than biased by the certainty of being worth a $1,000,000.