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Introduction:
Welcome. Rather than grabbing yet another piece of free stuff in the pursuit of trading knowledge, my
hope is that you are looking for more - more in the sense of the question, "What does it take to really
gain competence as a live successful trader?” After all the dazzling promises end up on the trash heap,
read these articles carefully, if you are really looking to get to the next level in your trading.
These articles represent the most talked about topics that I have written about over the last several
years. They are packed with the information you need to learn about regarding what a successful
trading mind really looks and how it performs. And also, how that trading mind is different than the
mind you brought to trading. Success in another endeavor means nothing in trading. The needs of
trading are simply different than anything else you would have experienced thus far. In fact, success in
another field often is counter-productive in trading.
Mark my words -- there is no easy way out. And there is no special knowledge that will instantly make
you a successful trader. The brain that evolution gave you will have to be re-calibrated so that a new
kind of mind comes forward to meet the new challenges of trading. Not the old ones. The landscape of
trading is littered by hard working people who wanted to elevate their trading game and performance,
only to lose their capital.
The key is that once you realize that effective trading is an inside job (and an inner game demanding
emotional control), you are responsible for developing the mind that embraces uncertainty as the norm.
The markets do not care what you think about prediction of outcome. Until a Probability-based mind is
built, the old short-term preservation mind you inherited from evolution will steer you wrong again and
again until you really do learn - or get out of trading altogether.
These articles will show you what it takes to become a trader. Letting go of control and the need to be
right are the first casualties of this new mind. It's a great voyage of discovery. These articles will show
you the lay of the new landscape of Probability. Being in control is given up as an artifact of a bygone
era. Come and expose the brave new world of the successful trading mind. And good luck.
To your Prosperity
Rande Howell
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TABLE OF CONTENTS – ARTICLES
MASTERING THE TRAINING MIND: LETTING GO OF THE ILLUSION OF CONTROL ............................. ...4
GOOD EMOTIONS GONE BAD: CREATING EMOTIONAL BALANCE…IN YOUR TRADING..........................8
THE THIEF IN THE TRADERS BRAIN: WHY YOU GET BLINDSIDED AGAIN AND AGAIN.......................11
LOOKING GOOD, BUT STILL INCONSISTENT IN THE HEAT OF THE MOMENT.........................................14
HOW TO DEVELOP THE DISCIPLINE TO STOP IMPULSE TRADING.............................................................17
MASTERING THE HEAD GAME OF TRADING…………………………………………………………………………………21
THE 4 SELF-LIMITING BELIEFS THAT SABOTAGE YOUR TRADING PERFORMANCE……………………..25
MASTERING THE EMOTIONS OF MONEY AND LOSS……………………………………………………………………..29
THE SECRET TO BREAKING THE CODE OF SUCCESSFUL TRADING UNDER PRESSURE…………………33
THE TRAGIC FLAW IN GOAL-SETTING IN TRADING…………………………………………………………………….37
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Mastering the Trading Mind:
Letting Go of the Illusion of Control
Where is your mind when you are in the heat of a trade? Is it right there with you, working hand in hand
with you, or is it someplace else? At the end of a trading day, when traders are reviewing their trades,
they often comment “What was I thinking?”, “Where was my mind?”, or “Why couldn’t I see that? It is
as plain as day now!” It’s like the mind surreptitiously skipped out the back door during the heat of
battle (just when you needed it) and snuck back in when the coast was clear.
What is perplexing is that the mind that traders bring to the trading review is a very different mind than
the one with which they were trading. The missing link between knowledge of trading and success in
trading is found here. But why – isn’t there just one mind? And where could it go anyway? If they are
so capable of “seeing the trade” when they are armchair quarterbacking in their review, why can’t they
“see the trade” with the same mind while they are in the act of trading?
If this problem of the missing mind is solved, the potentiality of trading’s financial possibilities becomes
tangible rather than an elusive dream. It also opens the door to a whole new way of understanding the
interface between brain and mind – and emotion and thinking. And to open that door, you will need to
learn how to “see” in a new way. You will need to learn how to become mindful of emotion so that you
are no longer mindless of the nature of emotion and mind – and the escaping mind.
And, often, prior knowledge of how to produce success in another field before trading sets the stage for
failure in trading. The skills needed for working with emotions and mind are very different than those
needed in other endeavors. The evidence is that the mind keeps escaping when you need it most, and,
consequently, your trading account balance does not reach its potential.
Where Did The Trading Mind Go?
When in a calm and curious mood, it is easy to be in a state of mind that accepts probability – there is no
risk or cost to the uncertainty of outcome. That is the mind that you bring to your review. There is no
threat in the perception field of the mind, so it is able to stay in the present moment. The perceived
dangers of the trading day are gone and a relaxed brain/mind is able to be in the present moment when
you are reviewing your charts and the actions you took. And then you, the trader, sees with clarity and
things seem so easy to manage. It would be an ideal mind to bring into trading - but that relaxed and
calm mind does not have to deal with the uncertainty and pressures of the trading day. Notice the
connection between the relaxed and calm brain in the HERE AND NOW generating the mind that can
handle probability thinking.
The brain and the psychology-called-mind collectively are in the Present Moment – the Here and Now.
It is not looking to the future for trouble nor remembering the past negative experiences to be avoided
in the future. It is this connection to the future and past that robs the trader of being in the Present
Moment while he is trading in real time.
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But this is not the circumstance that existed during the trading day. Here, the mind is emotionally
thrown out of the relaxed and calm Present Moment and is confronted by the potential cost of
uncertainty. Now, unless trained differently, it will start living in the future or the past – not good for
the trader. To the brain, uncertainty is a bad thing to be avoided at all cost. Uncertainty, in the
ancestral brain we inherited from our ancestors, was linked to biological fear. If you experience
uncertainty of outcome, your brain is hard-wired to trigger to anxiety. To our ancestors, it was a life or
death proposition and the avoidance and hyper-vigilance of worry was a successful solution for survival.
This is the biological bias you bring into trading, no matter what.
Just as today’s deer are skittish, always looking for signs of danger – so are we. Bad things can (and will)
happen if ambiguous conditions are wired into us as a trait. This means these conditions have been so
successful to our survival in the past that the learning has been burned into our very DNA. So when we,
as biological beings, with a genetic disposition toward avoidance of threat, are exposed to uncertainty
and ambiguity, our biology (and the mind that emerges from it) is predisposed to hyper-vigilance toward
things that could go bump in the night. This is the exact worst thing that could happen for a trading
mind.
In effect, when you expose an untrained brain/mind to the risk of uncertainty found in trading, you
automatically generate the hyper-vigilance that produces self-doubt. The trader, through the hypervigilance of anxiety, produces a mind anticipating the future. (This is the mind that skipped town on you
in the heat of the moment.) And it is a fearful future when the trader realizes all sorts of things could go
wrong. To the ancestral brain/mind, you need to avoid the possibility of threat no matter how remote.
You, the trader, can suddenly “see” trades that are perfectly good set-ups – but are full of uncertainty.
And the hyper-vigilant brain/mind swamps the thinking mind (the one that you had at review) with
cortisol. Self-doubt and poor decision making under pressure is the cost.
Your trading mind has officially skipped out on you at this point. Your mind, under the influence of the
hyper-vigilance of foreboding, can no longer “see” the potentiality of trading set-ups as “good risk”. It
can only see the downside. The mind is now living in the future, anticipating all sorts of bad things. Or
as Mark Twain once quipped, “I have experienced a travesty of horrible things in my life. And a few of
them actually happened.” Notice, in dread of the future, the trader is blind to the Present Moment.
Instead, the trader’s mind is focused on the future, looking to avoid the Saber Toothed Tiger lurking
behind his trading screen.
Also, if the trader has experienced loss in the past and felt traumatized by it, there is now another dread
– the fear that the past may repeat itself. Both the fear-of-the-future anticipation and the fear-of-thepast coming back to haunt you take the trader out of the Present Moment. It is in this Present Moment,
after the past and before the future arrives, that the trader can control one thing – the mind he brings
to his performance of execution.
The future has not arrived, and you as a trader have no control over outcome – so it becomes a useless
artifact of your evolutionary past in the brave new world of trading. The anxious mind is attempting to
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control outcome, which is beyond its capacity to control. Meanwhile, your awareness of the Present
Moment is lost to the anticipation of the future or is held captive to the past.
And in attempting to control the future by anticipating it (which the markets prove everyday cannot be
controlled) the trader loses control over the one variable he can control – the mind he brings to the
Here and Now of the Present Moment.
How Do You Get the Mind Focused on the Present Moment?
Talk is cheap. It makes perfect sense that a trader needs to prevent his mind from anticipating the
future and maintain its focus on the Present Moment. But talking about it as an intellectual concept and
doing it as an available skill set while under pressure are two different things.
First, notice (become mindful) that it is happening. Notice that fear- and euphoria-based minds actually
come into play as you are trading. In their denial, many traders live in the delusional assumption that
emotions are optional – that they should be able to be “turned off" while you trade. This is impossible,
because emotions create the quality of thinking that you bring into a particular moment. If you are
thinking, by definition an emotion is governing the quality of your thinking. The key is to consciously
manage the emotions that give rise to the mind while you are trading.
What many traders try to do is push their emotions down, believing that by suppressing them they are
controlling them (mindlessness). This is how traders get hijacked by their emotions in the heat of the
moment. The mind has not skipped out on you so much as you have chosen to ignore the emotions
that give rise to the mind that you bring into the heat of the moment.
Notice the kind of thinking you are doing. Are you full of “What if’s”, “You could be wrong’s”, or “You’ve
got to be right’s”? That will tell you that you have an anxious mind that is being brought into the
moment – one that is anticipating bad things happening. Conversely, your inner chatter may be more
euphoric in nature. “I’ve nailed this one”, “I’m going to ride this one”, “I’m on a run – I’m in tune with
the markets” are good examples. You are still in the future counting all the money you are going to
make. Notice both fear and euphoria take you out of the Present Moment, where the trade is actually
happening.
Second, learn to regulate your emotional nature. You cannot pretend that emotions are not present
and still win in trading for long. But you can become aware (mindful) of the emotions that are present
and then regulate their intensity (Emotional Regulation). To stay with the emotion and regulate it does
take practice and vigilance. But it is better than the alternative- to continue losing your trader's mind
just when you need it the most.
These skills are learnable – to be in the Present Moment with the trade. It appears as a flow state,
trader's mind, peak performance mind, and/or a sense of attunement with the market. It is not the
mind that you brought to trading that seeks to control outcome. It is the possible mind that embraces
probability and has accepted the truth all along – life is uncertain. In accepting life as potential that is
brought forth into reality by the beliefs and biases of the observer you bring to the Present Moment,
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you gain the edge you have been seeking with all the acquisition of the knowledge and “stuff” of
trading. You become the difference in the trading world you are creating.
Rande Howell
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Good Emotions Gone Bad:
Creating Emotional Balance for Sanity and Performance in Your Trading
Tom was in the zone. He had a string of winning trades over a period of weeks that brought in
substantial gains. Sure he had a few losses, but his capital was well protected with good risk
management. And, in addition to his risk being managed well, he also had a number of big gainers that
also brought him a rush of deserved excitement. It felt good, particularly in the competitive
environment in which he was operating. Other traders and managers were noticing, with a mix of
approval and/or envy.
He seemed to be in attunement with the market, totally in step, and his performance proved it. His
confidence built step by step as he saw the risks he was taking on reward him with strong winners. His
confidence felt great. It felt so good that, in fact, Tom did not see the slippery slope that he began
sliding down.
Over the next week, confidently all fired up to extract more capital out of the markets, Tom fell into a
tailspin. He started taking risks that simply were not good risks and he paid the price. Somehow, the
very risk management rules that had proven so effective seemed to have fallen by the wayside. His risk
manager saved him from plunging off the cliff by putting a brake on his trading, forcing him to take a
time-out, so he could regain his composure. Once he cooled down, Tom wondered what on earth had
possessed his thinking. His actions had been out of character.
The Delicate Balance Between Calculated Risk-Taking and Irrational Exuberance
How did Tom's confidence turn against him and go so wrong? Traders have to be risk-takers. It is built
into the nature of the profession, and traders are rewarded for taking risks that others cannot stomach.
Why is it so easy, then, for a trader to be sucked into a state of mind that miscalculates risk when he is
trained to manage risk?
The answer starts in the risk/reward system of the brain. From there, the emotions associated with
risk/reward take over the mind of the trader and corrupts his or her perception. That is what happened
to Tom in the vignette above. It is the lack of understanding of emotional nature and its influence over
thinking that gets a trader into trouble, without the trader recognizing any signs of trouble before he is
consumed by it.
Risk-taking, so vital in trading, is fueled by the male hormone testosterone. Without adequate
concentrations of it, risk-taking is minimized to the point that the rewards do not motivate the action
needed to seek reward. Too much testosterone and risk-taking is enhanced to the point that risk
management is corrupted in pursuit of the reward. Somewhere between too little and too much
testosterone lies a balance that allows a trader to manage risks within acceptable parameters. That
balance is what the trader seeks.
Going back to the vignette above, everything (emotional balance) was fine with Tom until the reward
was gained from risk-taking. Then the reward centers of his brain were activated and a flood of
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dopamine was released to course through the brain. If you want to know what a flood of dopamine is
like, compare it to cocaine usage. Usually, as a neuro-transmitter, only a certain amount of dopamine
(the reward neuro-transmitter) is around in the synapses between neurons, but the chemical agent
cocaine changes all that. In the presence of cocaine, dopamine is not reabsorbed, so the brain’s
chemistry is flooded by dopamine. This is why cocaine produces such a euphoric state and is so
addictive – the reward stays on and apparent risk disappears.
This same principle is at work in the brain of our trader in the vignette – except that the risk-taking and
then the reward of winning produced the exaggerated levels of dopamine. Dopamine and testosterone
together are major chemical elements of the emotion of euphoria or “feeling good”. The problem with
euphoria (irrational exuberance) in trading is that it causes the mind that emerges from the brain to
believe with certainty that the good times are going to roll on forever – thereby minimizing perceived
risk.
This is the slippery slope. You take risk. You win. And you are rewarded by the thrill of victory, which
triggers the dopamine rush – feeling good and gaining confidence in the risk/reward management. The
more the trader wins, the more the reward. The reward begets more dopamine so you feel more and
more good and the testosterone enhances the trader’s willingness to risk – win by win, resulting in a
compromised mind that trades.
The problem is the balance gets warped without the trader ever recognizing that the emotional cool-aid
in the brain is being spiked – gradually corrupting the emotionally stable mind that can manage risk and
reward calmly and effectively. The euphoria is ubiquitous to the trader so that he does not recognize it
creeping into the balance of the emotions that govern cognition. As a species, humans are so
conditioned to seek the “feeling good” sensation created by dopamine that the trader never considers
that too much “feeling good” moves him/her emotionally from confidence to over-confidence. The
emotional cocktail of dopamine laced with testosterone, so sought after, becomes the sabotage caused
by hijacked thinking in the calculation of risk.
Notice that the trader does not see that he is being sucked down an emotional vortex. Most likely he
will not even register that he is in an emotional state, much less consumed by one. Euphoria is that
diabolical and dangerous as an emotion to manage in the face of risk. Even when the risk manager stops
the trader from trading, the trader does not understand why. To him, another victory is just around the
corner. This is how drunk on euphoria he is. While in the cloud of euphoria, he does not see that his
mind is incapable of managing risk effectively. He still believes he is in the zone, while the risk manager
(not influenced by the same brain chemistry) sees a different story – a runaway freight train that needs
to be stopped before it spirals out of control and creates a train wreck.
Becoming Aware of Emotions and Managing Them for Optimal Performance
It is not the elimination of risk-taking emotional states that is sought in the optimal trader’s state of
mind, rather it is the effective management between risk and probability. In the vignette above, the
trader began with a proper balance between the level of risk he was taking on and the probability of
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success that allowed him to execute trades optimally. It was the lack of awareness (mindfulness) and
emotional state management that led him down the slippery emotional slope of sabotage.
If he had had the mindfulness skills that allowed him to notice the tell-tale signs of an emotional
hijacking and the emotional regulation skills to have interrupted the arousal of euphoria, he could have
maintained a disciplined and impartial mind that would have led to better long-term management of
risk. However, because he had not developed these skill sets, irrational exuberance clouded his risktaking perception. In a more stable state of mind, he would never have taken the trades (based on
acceptable risk) that he ended up taking. Instead he never saw he had been sucked into euphoria so
thoroughly that he was incapable of effective risk management.
Some interesting clinical studies with traders have demonstrated this very fact. In one study, when
testosterone levels were measured by saliva samples (as an indicator of euphoria), it was common
among the sampled traders that the levels were so high that they were incapable of rational risk-taking.
Yet, when given self-assessment emotional measurement tools, the traders reported feeling no emotion
at all. Imagine being so thoroughly compromised by an emotional state to the detriment of your
performance capacity and not recognizing it! This is the formula for a train wreck in the making. And it
happens every day.
Fortunately, emotional intelligence can be developed. Traders can be taught that there is no freedom
FROM emotions. The trader is always in an emotion that is generating the quality of mind he is bringing
to the management of risk and uncertainty. This is not optional. And ignoring it and staying ignorant of
the connection between emotion and states of mind will cost in the performance in trading.
However, what is possible is freedom OF emotion. Learning to recognize the arousal signatures of
emotional states (i.e. breathing style, body tension, and heart rate) before the thinking mind is
compromised allows the trader the time to disrupt the escalation of the emotion before it takes over
the trading mind and takes trading performance over the side of a cliff. It is at this point that emotional
state can be managed to bring forth a mind very capable of managing risk/reward in the heat of the
moment.
It is here that the trader can develop a performance mind rooted in the emotions of discipline and
impartiality. Here is where freedom OF emotion becomes the skill that manages the delicate balance
between risk-taking and reward for peak performance.
Rande Howell
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The Thief in the Trader’s Brain:
Why You Get Blindsided Again and Again
“I can see hijacking in hindsight, but not in the moment as I am trading. I’m in full control until
after the fact when the thief has already come and gone and robbed me blind, again. Then I
notice it, but I don’t see the thief coming. If I had known he was coming, I would be prepared –
but that’s not the way it works. Before I know it, something takes over my mind and I am no
longer in my right mind to trade. It’s puzzling – it is so subtle that I can’t detect it. I only see the
aftermath of the poor decision-making in my trading account.”
Intellectually many people know how to trade. But, like the trader quoted above, this does not make
them consistently profitable traders. Often their very "smartness" becomes a serious barrier to
achieving success in trading. On the surface that’s really counter-intuitive. After all, we are taught that
being bright and knowledgeable and taking control of the situation is the ticket needed for success. Yet
every day we see smart, knowledgeable traders fail in trading.
How can this be? The truth is that most traders are missing essential skills for success in trading – and
they don’t see that they are missing the skills. The very desirable trait of being smart blinds them from
seeing other criteria just as necessary for consistent success. Yet, the trader’s smartness precludes them
from seeing what they need to see in the time frame they need to see it. In the explanation of the
trader in the vignette above, that’s the very clever thief who keeps stealing the trader blind. So
smartness (both high IQ and knowledge) applied to trading can be both bad and good.
To be useful in trading, smartness has to be harnessed to help pull rather than lead. Or as Albert
Einstein noted [paraphrased] the rational mind was the servant and the emotional mind the gift. He
further observed that we get it wrong by ignoring the emotional mind and giving all the credit to the
rational mind – the proverbial cart before the horse, much to our own detriment. Nowhere is this more
obvious than in trading.
Understanding the Thief in the Trader’s Mind
First, let’s start with the brain. The brain is an enormously adaptive organ constantly attuning the body
to successfully negotiate survival with environmental experience. Electrical patterns, not thoughts, are
the language of the brain as it negotiates this individual dance with life. Before symbols, sounds, smells,
or feelings is this bio-electrical language that precedes the mind’s language as thought. As the mind
arises out of the brain’s language, humans begin to think. But it is this primitive chemistry that is the
primal force behind taking action under pressure.
So underneath all of this elegance of the rational mind is a brain running on electrical patterns with a
mandate for self-preservation in the short term. This is the basis of the emotional brain from which
thought arises. Depending on how the emotional brain sees a given situation, it is going to dictate how
the rational mind is going to explain it. The thinking brain is not independent of the emotional brain.
Rather it serves the emotional brain by producing explanations that support whatever decision it has
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already made. The thoughts and possibilities you perceive at any given moment are governed by the
emotional state that currently controls the brain in that moment. Emotional decisions made under
pressure make sense in the moment based on ancient survival mandates, but not after short term
survival instincts cease triggering the fight/flight response.
This is why the trader in the vignette didn’t see the thief coming. It was an inside job. The emotional
brain of the trader had already made a decision and all the thinking mind could do was to produce an
alibi that supported that decision. And the story of being “smart” clouded the trader’s ability to get at
the problem in his performance. “Smart” was the alibi that covered up the evidence that the thief was
at the crime scene. The trader believed he was smart (and by IQ standards, he was) and that bias
blinded him from seeing what was going on right in right of his eyes. He was simply too smart for his
own good.
Learning How to See What You Are Blind to
Until the trader could look at himself with new eyes he was stuck in this vicious cycle. Prior to trading,
his pattern (remember that the pattern was electrical long before it was thought and belief) was to get
every last drop out of a deal. At one time this was not an established pattern. It was simply a solution
that he fell into during a critical moment in his professional life prior to trading – and it worked. This
solution had worked for him under pressurized situations for many years and had evolved into a deeply
habituated pattern of survival and financial success. And it made him a successful business man.
And like successful emotional patterns will do, it naturally migrated to his trading style when he
expanded his business into trading. The problem is that it didn’t work in trading no matter how
successful it was in business success. The markets were different than the other side of a negotiation –
they didn’t care one way or the other. No matter how much pressure he exerted on the other side of
the trade, there was not give and take, like in business. Now the trader was simply fighting himself –
hence the thief in the night.
What had been a very useful adaptation to a tough situation at one moment in time and a successful
solution to building a successful business from the ground up over time had turned against him in
trading. Suddenly the urgency to get every last little drop out of a deal was hijacking his capacity to
produce success on the level he sought in trading.
Notice that at one time his brain simply tried out this success strategy as a possible solution, and it had
worked. In truth it was a pressurized situation where he negotiated a hard deal and was fortunate
enough to win. That didn’t lock in the pattern, but it did set the process in motion. After many reps of
this solution it was hardwired into pattern and came to be considered a personality trait. He became a
tough negotiator under the stress of business negotiations.
Because it was historically so successful for such a long time, it became a familiar pattern that easily
fired when engaging uncertainty and the similarity of the stress existing in business negotiations and the
trading environment (where nothing is certain). The commonness of the pattern caused it to be pushed
under the radar of the trader’s awareness. It became a hidden assumption or belief that drove thinking
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during stressful moments. Until it was brought into awareness, it simply operated on instinct as pattern.
If it were not for his trading account showing that there was a problem somewhere based on his trading
results, it would have continued to go unnoticed.
Then his need to control uncertainty was uncovered.
New Leadership at the Helm
This trader has to teach his brain a new leadership style for success in trading. There is nothing wrong
with his current leadership style applied to business negotiations. He has proven successful in business,
family, community, and church life – nearly all the domains that are important to him. The problem is
that success in trading is a different animal than success in these domains. It’s really a matter of
personal growth and whether or not he is motivated to adapt his leadership style to a new domain with
different rules. The major renegotiation is his stance toward the management of uncertainty. For him
uncertainty has always been something he could control by his cunning, his willingness to engage risk,
and his will to win. This formula worked for many years, and still does in the rest of his life – just not in
trading.
Now he has to harness even his leadership style for success in trading. Whereas he was always able to
control outcome by personal force, he now recognizes that in trading he cannot control outcome. What
he can control, he recognizes, is the mind he brings to the performance of execution. The new leader
emerges here. Instead of getting the last drop of blood out of a deal, his task is to take profits when
targets are hit or when structure begins to break down – rather than forcing his will upon the market
gods.
He becomes a steward to his brain and his mind that arises out of it. It is a brain/mind that can be
designed (rather than waiting for his ship to come in). He is moving from what became (through
experience) an instinctual response to stress – taking control – to a mind that has control over only one
thing – the mind that is brought into a particular moment in time to manage performance.
Rather than external leadership, he is now focusing on internal leadership. As useful as the old
leadership style was for success in the past, it had to be adapted for success in the world of trading.
Trading required a different kind of leadership for success. Not better or worse than the precepts he
brought to trading – just different.
Now he has the tools and skills to see the thief approaching from a distance. He is no longer so easily
robbed. The very urge to get the last drop of profit (and not be satisfied till he did) was, in fact, the thief
who used to sneak up on him and pick-pocket him. He actually came to wonder how he could have
been so blind to have missed it. It was not his IQ and external knowledge that won the day, it was his
internal knowledge of what made him tick and learning how to change it that got him past his selfimposed road block and made him a successful trader.
Rande Howell
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Looking Good, But Still Inconsistent in the Heat of the Moment
The "Group-Think" of Traders that Blinds Them to What Really Matters
Have you ever listened to groups of traders talking about trading? If you have, you’d think (particularly
to yourself) that everybody was hitting homeruns and driving in runs. But that’s not the reality. The
reality is that they all are covertly participating in a form of group-think called looking good to others.
Have you ever noticed that no one talks about the real task of producing sustainable, consistent income
from their trading? Instead, they talk shop in a vacuum refusing to address what they are ultimately
seeking. The one thing that is most important to the financial health and long term survival of a trader,
they do not talk about. Their eye is not on the ball – their eye is being distracted by talking about the
minutia of trading, saving face, and the self-deception of looking-good.
Meanwhile, another year goes by – and it’s January of another year already. Time is ticking by (do you
hear it in your internal clock), chipping away at your capital (sometimes chomping) and your timeline
(just how much time can you fritter away before you feel the financial noose tightening?). And, right
there, hidden in plain sight, is the answer they you avoid acknowledging. This is the place where the
vast majority of traders stay stuck – being blind to their blindness. And the cost of this blindness is their
trading success.
Their trading performance keep giving the struggling traders feedback about their performances in the
form of drawdowns from their trading accounts, underscoring the real problem they are avoiding in
their trading -- them. Yet, despite all the evidence, the "wannabe" traders refuse to look within
themselves for the source of their performance problems. Instead, they focus on solutions outside of
the psychology of performance. That’s not nearly as uncomfortable as acknowledging there is a chink in
their armor that allows them to maintain their looking-good even while their trading capital erodes or
stays stagnant. And the clock keeps ticking as the trader maintains their self-deception.
Meanwhile, they stay where it is safe – they talk around trading as if they (the one who is actually doing
the trading) were not a constituent part of their trading. They talk the details of trading and, listening to
them, a by-stander might be led to believe that everybody is making money. But what you’ve got is a
bunch of really good Monday-morning armchair quarterbacks talking about the game from a spectator’s
vantage point rather than from actual performance.
Waking Up to the Problem and to the Solution
The real question for the life-blood of an evolving trader, “Are you making consistent money?”, is not
asked. And, if you are not making consistent money, another question begs to be asked, “How do you
diagnose the problem and fix it?”. Once a trader has learned technically how to do his/her business,
these are questions that take you to the core of the issue.
There is really no risk in the moment of performance to a spectator’s game face – only his looking-good
in the fantasy league of fellow retail traders. What you will notice is that traders talk the game of
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trading, but not their performance in the game of trading. It is so much more self-effacing to talk about
the game of trading (as if they were fans of the game, rather than participants), rather than to evaluate
their performance as a function of their competence as a trader.
This discomfort of evaluating personal performance is so ingrained into traders' thinking that they will
avoid dealing with it as long as the capital they bring to trading will allow it - or until they have felt
enough prolonged pain and discomfort that they come to the conclusion that they are the problem in
their trading. (And they are also the solution to their trading performances.)
For most traders to wake up to this pivotal moment, a tremendous amount of time and money may
have been squandered needlessly. So much short-term energy was focused on saving face by looking good that the long-term development of the mind that can embrace and manage ambiguity without a
sense of dread of being wrong was never embraced.
And this is what is required to become a consistently successful trader. Once this is recognized at a core
level, it seems simple, until you realize that your biology and your psychological underpinning conspire
against the development of this kind of mind. Your biology and the psychology that arises out of your
brain’s survival adaptation to its environment is biased toward the self-preservation of the status quo,
rather than developing a higher functioning human being.
What Got You Stuck in Performance Limbo in the First Place
The power of this primordial drive for self-preservation needs to be understood in a different context
from a civilized conception of man’s recent history. The brain builds a self that is adapted to survive in a
particular environment. It doesn't care if that self thrives in that environment or not. It cares that the
self (the bio-cognitive system that you have been organized into) survives. To the ancient brain that self
needs to survive until sexual maturity, prevailing in your environment, and perpetuating the species
through your survival success.
All successful strategies for dealing with the challenges of survival are hardwired into neural-circuitry as
they are learned. Once wired they become an automatic response in the organism’s bio-cognitive
repertoire. This means that successful adaptations to survival situations become a reactive dance
between the environment and the self.
This is called the stress response. And this adaptive response mechanism was essential to our ancestors
where danger lurked constantly in their environment. That danger was biological and life threatening.
And the stress response, being reactive in nature, allowed our ancestors to have a better chance at
surviving in an environment loaded with saber-toothed tigers and other predators. The problem is that
this biological system of stress responses was built for another time and another environment than the
world that the trader now lives in.
Unfortunately for the trader, the ancient brain (the emotional brain where all this stuff is wired), cannot
distinguish between a biological threat and the psychological discomfort of uncertainty found in trading.
And here is the kicker: When under stress, the brain is going to revert back to old familiar patterns
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learned long ago for the avoidance of pain. Remember, the emotional brain cannot tell the difference
between biological threat (pain) and the psychological discomfort found in the management of
uncertainty. The moment that the emotional brain perceives uncertainty (stress or the challenges of
living life), it falls back to old familiar reactive patterns that have produced survival success in the brain's
formative period.
This is what the trader perceives as falling apart in the moment of emotional uncertainty. And an
emotional hijacking is triggered instinctively long before the thinking mind can begin to manage the
uncertainty of a critical moment, unless the trader re-trains the body and mind to respond differently.
The Psychology of the Trader is Railroaded by Primitive Emotional Belief
This is where the bio-cognitive system that “you” are (responding instinctively to stress) and the deeply
held beliefs about your capacity to manage uncertainty (that give rise to your trading psychology)
conspire against you.
The Emotional Brain makes a decision and the Thinking Brain produces an explanation to support that
decision, no matter how irrational. Your Emotional Brain on stress (managing the uncertainty in a
moment of ambiguity in trading) reverts back to primitive stress responses learned long ago. And then,
your Thinking Brain (rooted in beliefs learned in your family of origin, culture, and circumstance)
demonstrates those beliefs under the stress of the moment.
If you are a human being that trades who tries to save face by “looking good” to the outside world, you
are operating from a belief system rooted in a sense of inadequacy, not mattering, unworthiness, and/or
powerlessness. And as long as you avoid engaging those beliefs head on, your Emotional Brain will
continue to hijack your performance mind in the clutch. It will instinctually avoid the danger of not
being able to survive in the environment in which it lives. Short term, this strategy works because it
avoids the threat - and that is all the Emotional Brain is interested in. Long term, this biologically
induced strategy keeps you, the trader, locked in the limbo world of perpetual mediocrity.
Toward a New Construction of the Self
When a trader learns that self-honesty is the most powerful tool he/she can possess, then the game of
performance can change. There is no shame in being a fallible human being. It is our nature. It is also
our nature to learn from mistakes. It is this openness to making and learning from mistakes that must
be cultivated. Attempting to avoid mistakes simply keeps us stuck in old self-limiting patterns.
These patterns were successful solutions when certainty of survival was the driving force. But now, in
the brave new world of trading, the trader has to step out of the old comfort zone that has become his
prison. And now it is time to embrace self-honesty as a tool and reconstruct the mind that trades. It is
your choice – stay stuck in old self-limiting patterns or intentionally and consciously grow new ones,
adapted for the world of uncertainty found in trading.
Rande Howell
16
How to Develop the Discipline to Stop Impulse Trading
“I don’t know what happened to me. I had been doing so well – I was on fire. Then I took a
couple of losses and a need to get my money back seized me. I lost control and my trading rules
flew out the window. I wanted to make things happen, but I got creamed and took some
drawdowns that I should never have been sucked into. I know better than this, but in the heat of
the moment, I can’t seem to help myself.”
Willpower Is Never Enough
Whether its revenge trading, over trading, over confidence, or chasing trades, many traders experience
a world of hurt when discipline fails and impulsivity short circuits the rational trading mind. How many
times have you declared, “I’m going to be a disciplined trader and trade my plan?” – only to be
ambushed by impulsivity again and again. If you are like most traders with an impulse tendency, this
has happened more times than you can count.
Why is chasing trades such a difficult behavior to break? You would think that experiencing the pain of
drawdowns would be more than enough motivation to stop impulsivity in its tracks, but it’s not. And if
willpower alone could stop the bleeding caused by an impulsive mindset, then the problem would have
disappeared long ago. But for many traders, that is not the case.
The problem is a complex mixture of both biology and psychology. It starts with your unexamined
beliefs about work and action. A trader’s notions about work will drive how they trade, for better or
worse. Let’s first examine how impulsivity and work are interlinked. How many times have you started
the trade day with thoughts like these, “Okay, it’s time to get to work, it’s trading time – it’s time to
make something happen”? After all, you have got to be doing something, working, if you are trading –
right? You cannot just sit there and expect things to happen. You’ve got to do something to make
money.
Wrong. The very urgency to act, to make things happen, that probably afforded you success in business
or corporate life becomes the destructive basis of chasing trades in the brave new world of trading. In
your work life before trading, being in charge and in control was such a strong way of proving your
mettle and of proving yourself a winner that it became ingrained as a habit that you did not question.
When you encountered uncertainty, you forced your will and made things happen. Many a self-made
man or woman owe their success to this notion of work as doing.
This very bias to act sooner rather than later is the basis for chasing the trade. With the bias to act
already in place, the trader’s mind is fooled into believing he is seeing solid set-ups where a rational
mind would not see set-ups that are worthy of the risk. The bias to act (chase) produces an over-eager
trading mind that sees acceptable trades where a seasoned trader would see none.
The successful trading mind has to be retooled from the "success mind" that the trader brought into
trading. The mind that produced success in other endeavors ( a bias to act and get things done)is simply
not the mind that produces success in trading. Success in trading is built upon the learned bias to be
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patient. Instead of going and getting the trade, the experienced trader waits for the trade to come to
him. Patience becomes the driver of success – not "doing". And the quickest path to trading success is
the development of patience as a skill. The successful trader practices patience as he trades, even if it is
not natural to him. And he regulates the bias to act on impulse because he has learned that this urgency
clouds his trading mind, and he no longer has the patience to think clearly. This usually is a learned
process because it does not come naturally.
The Biological Motivation to Chase will Set-Up the Trader to Act Impulsively
Have you ever experienced the “rush” traders get when they jump into a trade expecting to win? It
feels good, powerful, and confident. Everybody wants to feel this way. But it’s dangerous. How can
something that feels so good be so bad for you? In many other areas of your life, this is the signal that
you are in control and in charge of your destiny. But not in trading.
That “rush” that feels so good is a chemical cocktail composed of testosterone and dopamine. The
testosterone has you believing you can control (by sheer will power and momentum) the outcome of
the action you are taking. (In this case, a trade). The dopamine has you feeling good and confident and
powerful. It also causes you to distort risk. In hunting game and in battle, you truly need to believe you
are invincible and will prevail. And that is what this chemistry of the mind is all about.
It is not a mental chemistry of managing risk. It is a chemistry of being in control of risk. In trading, it is
called over-confidence or irrational exuberance. The thrill of conquering, of prevailing against all odds,
has been a good adaptation for the survival of the human species, but not for achieving success in
trading. Historically, if the human lost the battle, then his life was gone. It makes sense to believe in
your capacity to prevail in cases like this. But the trader wants to live to trade another day.
What does this look like in trading? Let’s look at revenge trading. You take a couple of losses. The first
one you took just as an everyday hit that every trader learns to take as part of the game. Then the
second and third ring your bell. “I’ve got to get back what I’ve lost. I’m going to get revenge.” In the
midst of this danger, testosterone for the courage to fight and dopamine for the confidence that you
WILL win, pulse through your veins and get to the thinking brain.
Now you’re in a fight that you have to win. A surge of energy catapults you into action. You are going to
beat the enemy and take back your ground. You are going to prevail. Clouded by reactive thinking, you
sink deeper and deeper until you are fried. There is no enemy that you can see. The evolutionary brain
and mind were fighting a war with a phantom menace. Your mind has conjured up the entire battle.
There is no enemy. There are only the beliefs that you bring to the management of uncertainty.
The impulse chemistry was seductive and powerful. It made you believe you could win in that moment.
Yet the rules of trading are contrary to the rules of biological survival. In trading the rules are built
around probability and applying a consistent standard method to manage both loss and reward. In the
brain you brought from the past, losing was equated with biological threat. Probability was not an
environmental pressure that shaped your reactive responses to stress.
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The Messy Part of Impulsive Trading – Personal Psychology
We have examined how past performance and biology greatly influence impulsive forms of trading, but
what is going on in the psychology of the trader that keeps him locked into destructive impulsive
patterns in trading? In over-trading, the thrill of the chase overcomes your good sense and produces
disastrous trading performances. In revenge-trading, the motivation is to get back what has been taken
from you. What’s the common denominator that hijacks a rational mind and produces impulsive
trading?
It is the failure and the meaning of that failure that counts more than the pain of loss. Logically, it seems
that if you feel pain, you would stop the behavior that is causing the pain – the drawdowns caused by
over-trading and revenge-trading. But that is not the way it works in the complicated psychology of
performance.
The trader sees the failure or loss as personal inadequacy. He or she takes it personally, as if the
performance resulting in the loss was, in fact, a reflection of the trader’s inadequacy, mattering, worth,
or powerlessness. And avoidance of seeing yourself as bad or flawed is far worse than the pain of a
single loss. In that avoidance the trader has to prove himself by winning. Reacting to perceived threat,
the trader has to prove himself and instinctively reacts in anger (a sense of power) to take back what is
his. The problem is that anger mixed with fear is driving the thinking of the trader now. Clear thinking
has been thrown out of the trading mind until he regains his senses (after the smoke clears from the fire
fight).
In over-trading, the trader feels the thrill of winning (of proving how powerful or adequate he is), which
creates a chemistry of irrational exuberance that leads to minimizing the potential of risk driven by a
belief that the good times are going to roll on forever. By ignoring the pain, the trader jumps in again
and again without first soothing the pain of loss. This starts the avalanche called revenge and over
trading.
It is the psychological vulnerability experienced by the exposure to uncertainty that causes the
avalanche to become dangerous. It is the trader’s myth of control over outcome (so important to the
trader’s untrained psyche) that is busted. And it is this belief structure that has to change for the trader
to evolve to a higher level of trading performance.
Only after all the magical thinking about success in trading has proven useless can the trading mind
really be built. It is rare for someone to come into trading with a mind that is suitable for trading. Most
fail at trading because they realize way too late that they have to become the change they want to see
in their trading. Or as an experienced trader once said, “You can fool yourself, but you can’t fool your
trading account into fooling itself.” Your trading account will show you where to look for the problems
in your trading and where you need work.
It is possible to retool the mind specially for trading success if you are willing to listen to your trading
account as it speaks to you about the pain of loss. This is the beginning of the end of impulse trading in
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whatever form it takes. You train yourself to separate your personal worth from your performances.
This is the great psychological leap that has to be made to move from impulse trading to patient trading.
In the process your understanding of work as "doing" something transforms to the work of patience –
waiting for the market to give you what it is willing to give. And for the mature trader – that is enough.
More than enough.
Rande Howell
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Mastering the Head Game of Trading
Everyone has seen it happen. Something snaps and knowledgeable traders start falling apart and
blowing it in the heat of trading. You probably have experienced it personally more than once. Retail
traders and professional traders usually have different routes to the failure of their highly trained minds.
But on the P&L statement of both – it shows up red.
The retail trader usually comes to the game of trading with a lack of tolerance for risking capital
(expressed as a need for control over outcome) and believes ardently that superior knowledge is all he
needs to win. Meanwhile, the professional trader sooner or later gets ambushed by euphoric overconfidence (irrational exuberance) and mismanages risk till it bites him hard. Euphoria smashed by
serious threatening consequences, the memory of those losses then begins to foreshadow his
calculation of entries. It’s hard to shake once the trauma of losses become real. Either way, both the
retail and the professional traders end up with compromised minds at the very moment they need their
A-game to perform.
This cycle is the never ending story of both Main Street traders and Wall Street traders. At least until
the trader begins to wise up to the "head game" aspect of trading. It is this inner game of trading that
separates the wheat from the chaff. Mere knowledge versus performance-tested knowledge – being
able to act coolly under pressure. And not being seduced either by fear’s irrational pessimism or by
euphoria’s over-confidence and irrational exuberance.
This need for emotional state management is what we examined in last month’s article, The Emotions
of Money and Loss. There the necessity of calming (regulating) emotions was addressed before they
could compromise your trading mind. Once the mind has been hijacked by emotions – it’s too late. The
damage is done. But let’s say that you have learned to regulate emotions so that you are not being
sucked into the vortex of either irrational pessimism or irrational exuberance (the two horsemen of the
trading apocalypse) - what happens then?
The Mind in Conflict You Never Thought You Had
Let’s say you have succeeded in calming your emotions. What does that get you? It gets you to the
door of the mind. It is here where you need to step back for a moment and ask the question, “What is
the mind, anyway?” Most likely your perception is that the mind is where “your” thoughts take place.
Just “you” and “your” thoughts. How could it be more complicated than that?
Let’s re-think mind so that you have a different, and more effective, way of understanding of what,
exactly, is going on in your head as you trade, when you get out of your comfort zone. Have you ever
really noticed your thoughts while you are trading? Have you noticed that a heated and spirited debate
often breaks out in your head when making a trading decision? Suddenly, “you” are of two minds, or
more. It’s like a tug of war going on inside your head. There are at least two sides (actually a good bit
more as you will come to learn) in competition to win the argument. So now “your” thoughts are
divided into two armed camps (or more) trying to control the direction of decision making – of what you
are going to do.
This is where the trader gets in trouble. Often, the voice of reason gets pushed aside during the conflict
going on inside your head. Imagine, here you are in the thick of the moment, and reason (what you
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need most to trade effectively) is no longer heard over the cacophony ramping up to an emotional
meltdown. Reason, drowned out by louder voices, results in reactive emotional thinking taking over the
mind.
What and who are these other voices trying to get control over your decision making under pressure?
Until you stop to notice the debate going on in your head, it just passes beneath the radar of your
awareness. And in this mindlessness of what is happening right under your nose, you stay stuck in the
self-limiting patterns that negatively impact long term trading performance.
You can deny that this internal struggle goes on consistently in your mind, but you can’t deny the
consequences (drawdowns in your trading account) of denying this reality. It's your turning a blind eye
to this internal struggle that keeps you stuck in self-limiting patterns. Whether or not your problems are
at trade entry, trade management, or exiting trades (beating yourself up for losing), you will find a
raging debate going on beneath the surface of your awareness. Sometimes that debate is of a
judgmental or critical nature and sometimes it is euphoric in its temptation to throw prudent risk control
to the wind, but the fact remains that your mind is engaged in a heated debate about managing the
uncertainty about future consequences with which you are forced to deal.
This is where the biology of the brain intersects with the psychology of the mind. Since the mind
emerges from the brain – let’s take a look at your trading brain/mind.
It’s a Crowded Place Inside Your Head
To David Eagleman (an eminent neuro-scientist and author) the brain is a community of rival programs
"duking it out" for control of the adaptive forces in the brain. These rival programs are emotional in
nature and are seeking your short term survival. They seek control of outcome – survival in the
moment. They do not have the capacity to think long term (to manage probability). Once a coalition of
these emotional programs, embedded into neuro-circuits, wins the battle of survival dominance, their
reactive patterns BEGIN TO MAKE YOU. This is what you are experiencing in the heated debates in your
head while you are trying to make trading decisions - the probability of long term gain in your trading
decisions versus the short term survival patterns that have become powerful and reactive.
David Rosenbaum (another eminent neuro-scientist) takes it even a step further. He asserts that the
brain is a jungle (occupied by all sorts of critters) governed by Darwinian laws of competition and
cooperation. There lies the rivalry of competition and also the cooperation of team building that
ultimately form the brain/mind that you bring to trading. Now let’s take it one step further.
When the mind emerges from this community of rival programs called the brain, the programs of the
brain are given voice as thoughts in your mind. So “your” thoughts are the product of various emotional
programs that have established control over other emotional programs and are given voice in the
thoughts of your mind. Except for the “rational” program (which is not one of the primitive emotional
programs), all have a bias for short term survival.
And in your lack of understanding of the brain/mind, you have come to believe (by default) that a
particular organization of these programs given voice in your mind REALLY IS “YOU”. Until these more
primitive programs can be understood and regulated, there is very little chance that the “rational”
program – or the Sage Archetype – will seize the control of the thinking mind and trade successfully for
the long term. And this is why people continue to fail at trading when they, in fact, know how to trade.
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They cannot get the rational program on line (and maintain order) in the heat of stress. To do that, you
are going to need to come to a new understanding of the forces that make up the mind and you are
going to have to learn how to observe these forces.
Activating the Dormant Skill of Observation
Have you ever been stressed to the point of not being able to think straight and taken a break (i.e. a
walk, a weekend getaway, or talking to a trusted confidante) and come back with a fresh perspective on
the problem that was giving you so much trouble? Of course you have. What you may not realize is
that, unbeknownst to you, the talent of mindfulness was activated. And in that moment of calm, you
were able to re-organize your thinking. Moving that raw talent into a refined skill is essential for
rebuilding the mind for trading.
Stepping back out of the situation for a moment allowed you to see the problem from a less cluttered
observation point. This is mindfulness, or awakening the observing self. And it can be developed as a
skill so that you don’t have to physically step out of a situation to see the situation differently. Instead,
you develop the skill of detaching yourself from the comings and goings of your thought life and begin
questioning (examining) the evidence from which an assessment springs. This way, you no longer get
ambushed by emotional hijackings and can choose which mind you bring to the management of
uncertainty that defines your trading success.
As you begin to really practice this mindfulness, you discover that many of the unquestioned “truths”
running around your head (i.e. declaring the sky is falling or that there is gold at the end of the rainbow)
that urge immediate action have no grounding in fact. It’s humbling for a trader to come to grips with
this. This is because, while under pressure, he or she has been acting on ungrounded assessments
masquerading as irrevocable truths. This is what happens when you calm the emotions down through
emotional regulation (which is essential) and see your thoughts through the lens of observation.
Suddenly you, the trader, begins to see that old established emotional programs in the brain have been
given unfettered access to the decisions of your trading mind. These old emotional programs, given
voice in your thoughts, were probably successful in another time and place where they adapted you for
survival. But in the here and now of trading, where probability-based (rather than reactive survivalbased) thinking is essential for long-term success, they are an artifact of an earlier mind that is no longer
relevant in the brave new world of trading.
As a start for awakening the observer and becoming mindful, I invite you to keep a specific journal of
your trades. Start and focus on the internal debates you have at critical times. Ask these questions of
the voices in the argument:
1.
2.
3.
4.
5.
6.
What is the thought saying?
What emotion is attached to the thought? (All thinking is emotional state dependent.)
What is the evidence that supports its assessment?
Is it true as a fact or is it only an assessment that may or may not be grounded in evidence?
Is the thought trying to help you or hinder your progress as a trader?
What happens to the voice of the thought as you un-fuse with it and examine it?
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The survival part of your brain is always going to want to control outcome – even if it is only an illusion.
The brain/mind, for trading success, is going to have to be reorganized around the one thing it can
control – your performance of execution. The outcome of a trade cannot be controlled, but the mind
can be organized to control its performance – that is the peak performance edge. Next month, we will
take a closer look at the community of the mind. We will learn who the players are and what their
intentions are. Remember, it’s a jungle in there waiting to be cultivated - if you have the eyes to see and
discern.
Rande Howell
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The Four Self-Limiting Beliefs that Sabotage Your Trading Performances
You see it all the time – traders who intellectually have great knowledge and understanding of
trading, but who fall apart when they try to apply their knowledge while trading live and risking
capital. Intellectually in the classroom, they are the best students. They can talk the game of
trading. Then when put under the pressure to perform live in an uncertain environment, they
come unraveled and cannot walk the walk of a consistently profitable trader. All that
knowledge, in the heat of the moment, becomes unavailable to them – just when they need it
most. Why?
But a better question might be: What is being revealed by a trader’s performance under
pressure that needs to be mastered to become the trader who can use his/her knowledge of
trading in the midst of uncertainty?
You Do Not Have Beliefs – They Have You
Beliefs that served you well before trading can easily become roadblocks to success in trading.
The evolutionary path of being a consistently profitable trader is littered by the debris of
traders who relied on beliefs that drove prior success but did not work in the environment of
trading. The need to be in control or the need to be right is often associated with effective
strategies for success that people experienced in careers before trading.
Unfortunately, in the world of trading, control over outcome and the need to "be right" has to
be given up as an artifact of a time gone by (a real shock to a control freak or a perfectionist).
In trading, you can do everything right and still be wrong. Trading is about the management of
probability rather than controlling certainty. Yet, when you look closely at the need to be in
control and the need to be right, you can drill down to the beliefs that are behind the need for
control and certainty. This is what has to be re-examined for success in trading. Trading
becomes the collision course for testing beliefs in action due to the near instant feedback of the
trading account. This new reality is where it begins to get interesting.
First, what is a belief? Let’s look at how the adaptive brain organizes you to survive in the
environment in which you live. You, as an adaptive brain, are born into a particular
environment and circumstance where your brain organizes you to survive in that environment.
This one potential organization of the self becomes the “you” that operates in the world and in
the environment of trading. Based on your developing brain’s experience, you both inherit
unquestioned beliefs from family, culture, and experience, and you come to some basic
assumptions about your capacity to mitigate the circumstances in your life and environment for
SURVIVAL IN THE SHORT TERM. These assumptions about your capacity to manage the
uncertainties of life become hardwired into your emotional nature as unquestioned beliefs.
They literally become the lens through which you see and interpret the world in which you live
and interact. This carry-over from this world adaptation into the world of trading becomes the
mind you bring to trading. Notice that beliefs start off as assumptions that are both learned
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and inherited that take on the stature of truth. Most are hardwired into your brain and
emerging mind long before you think about or question your beliefs. They simply become the
air that your breathe and the world that you see “out there”. And it is ubiquitous – it has
become so familiar that you do not recognize it as “only an adaptation”.
Believing is Seeing
The world took shape based on the beliefs you fell into about your capacity to manage
uncertainty. This gets you closer to observing the unexamined beliefs in action that you bring
to trading. In neuro-science there is a tenant that applies directly to trading. This tenant is:
You have never experienced reality (i.e. the market) as it is. Instead, your brain has taken
sensorial information from your senses and organized a virtual simulation (based on these
assumptions converted into beliefs) that represents your best guess of the world “out there”.
You do not see, then believe. You first believe, then you see – based on those beliefs.
This is why two different traders can look at the same information, but see completely different
worlds and take radically different actions in their trading. They can be sitting side-by-side and
using the same data and methodology, but they see different worlds when capital is being put
to risk. This is the pressure of trading. It is this pressure of risking capital that flushes out the
most primitive beliefs embedded in the trader’s brain/mind. And this is where most traders
discover that the mind that they brought to trading (no matter how successful in the past) is
not going to be the mind that brings success in trading.
This is the trader under pressure to perform. And under pressure, the brain/mind reverts back
to its most primitive beliefs about its capacity to manage uncertainty. This is why many
educated traders can perform well when stress is not part of the equation of decision making
and fall apart under the stress of trading. It is this pressure to perform under the risk of losing
capital from your trading account that acts as a black and white barometer directing you to the
self-limiting beliefs that keeps your trading hostage. The potential of trading is there, but until
the self-limiting belief is brought to the light of awareness and reconstructed, consistent
profitability will remain a mirage that sabotages your potential as a trader.
The Four Self-Limiting Beliefs that Hold Your Potential Hostage
Remember, your brain/mind creates a virtual simulation of your beliefs projected onto the
markets. You never see “the markets”. However, your trading account acts as the unbiased
judge about whether your current virtual simulation of the markets is effective or not. If it is an
effective simulation, you will see your trading account grow. If it is ineffective, you will see your
trading accounts take continuous drawdowns or stay stagnant.
So your trading account can help you become your own detective about what self-limiting
beliefs are present in your trading. Below you are going to see the four basic self-limiting
beliefs that are common to all traders. Many traders acknowledge that all four describe them.
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Others find only one or two are dominant. Most do not acknowledge them until the pain of
losses forces them to dig down and see what they have been avoiding.
When you take a draw-down or leave money on the table, do you beat yourself up? Most
traders do. It is this “story” that you tell yourself that reveals the self-limiting belief. What
ones most closely resonate with you?
Inadequacy. These are the traders who have tendencies towards perfectionism. They must be
right, or at least not wrong. If they make a mistake, they take it as a personal reflection of their
competency as a human being. Many traders report that in their beating-up story, they say
things like, “You’re so stupid. Who told you that you could ever be successful?”
Do you see the attack on the adequacy of the person, rather than the focus on realistic
competency and standards applied to trading success? To the perfectionist, one mistake
proves they are not good enough. Notice that this is an assumption learned somewhere that is
being applied to trading and competency in working with probability, not certainty. The
problem is that that assumption has now been hardwired into circuitry as belief and truth.
Mattering. Many traders believe they have to be making money (and a whole lot of it) to prove
themselves to others. Their mattering as a human being becomes tied to the need to be "large
and in charge". This unexamined need for confusing money and mattering is at the core of
over-trading and revenge trading. It is also what drives many alpha personalities.
Worth. In the same way personal worth becomes tied to money (so that self-worth = net
worth), many traders believe they have to work hard for their money, and if they don’t work
hard, they do not deserve to make easy money. Others don’t believe they deserve to be
making beyond a certain level of money. And every time they go beyond that glass ceiling, they
sabotage themselves.
Power/Helplessness. Have you ever seen traders fall apart while managing a trade? They
experience a sense of being overwhelmed (powerlessness) and then become unglued. This
trait is behind many an alpha’s blowing up in the heat of trading. Their illusion of power over
outcome is exposed and the underlying powerlessness is revealed. What they have not learned
is that the one thing they do have power over, even in the midst of uncertainty, is the power to
control the mind they bring into the moment. It is a new paradigm they will need to learn to
become successful in trading.
Building a New Set of Beliefs that Facilitates Successful Trading
Self-limiting beliefs cannot be ignored in trading. They are the thorn that keeps causing pain
over and over again until they are dealt with. Performance beliefs happen in the moments of
acting under pressure. Using your trading account to diagnose them is an efficient way to
discover them. Then you must turn towards them, rather than ignoring or denying them. This
is where the real work of building the mind of a successful trader takes root.
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But until you isolate them, they act like submarines seeking to torpedo your best efforts. It is
this intentional turn toward self-awareness that opens the door to development of the mind
that trades. When mind and methodology work together as one, trading becomes an
enormous adventure into self-development.
The self-limiting beliefs that drive poor performance are not to be avoided. They are to be
approached. These are the assumptions that became wired into your perceptual map long
before you could "think" them. Now trading is giving you that opportunity to redevelop the
mind that you bring to trading and to the management of uncertainty. It is an enormous
opportunity for growth as a trader and as a human being.
Rande Howell
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Mastering the Emotions of Money and Loss
“Traders neglect their emotional nature concerning money and risk at their own peril.
Because they do not honor their emotional nature that they bring into trading, they
continually trade with half a brain and their lack-luster performances demonstrate the
consequences of this course of action.” J. Rande Howell
Money as a Touchstone to Emotion and Belief
When it comes to money, and losing money in particular, traders are very emotional beings. Every
trader experiences the roller coaster ride that winning, losing, and confusion triggers. Due to their social
conditioning, traders may notice the emotion only in hindsight, but it is there, nonetheless, altering
performance. Because of a lack of understanding of the connection between emotions and thinking
quality, many traders do not recognize emotions as they trigger, develop, and suck the mind into a
losing vortex. They become aware of negative emotions like fear, revenge, or lust (the euphoria of over
trading) only after their trading mind has been hijacked from the rational state they were in just
moments before. The problem is that the damage is already done by this time – their trading account
has taken another drawdown.
Consequently, they see their trading performances in their mind’s rear view mirror – not in the here and
now of actual experience. And they rarely can perform successfully in the moment. In hindsight, during
a review or while they are talking trading to others, they can see their failure to follow their plan, but
only after the fact. Mismanagement of emotion is written all over the failure of performance under
pressure. But, like a red herring, traders do not see their emotional nature controlling their mind that
performs. This is where the vast number of traders stay stuck.
And here is the trap. Certainly they do not talk to others about the emotions that are at the core of their
performance problems. Talking about “feelings” (particularly bad ones) is just not acceptable behavior
in this testosterone-driven world. After all, what would people think? Yet, it is one of the differences
you see between mature (and profitable) traders and traders who are still trying to make it. The mature
traders will talk about what is really going on in their head (because they know that is where the real
action is) related to emotion, performance, and their beliefs about money. Being attuned to the
emotional side of trading is an enormous advantage because it gives the mature trader the opportunity
to work with his emotional nature constructively. The consequence is that the mature trader develops
emotional resilience in the face of uncertainty, rather than being prone to emotional hijackings of their
trader’s mind at critical moments.
Being blind to your emotional nature in trading is akin to boxing with one arm tied behind your back.
You definitely are not bringing your “A” game to the contest and are at a disadvantage in the
competition between the players in the market place. In the same way that no one in his right mind
would ever box a worthy opponent from a compromised position, no trader should trade when they
have not developed their emotional intelligence (EQ) for trading.
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Recognizing the Presence of an Emotion
How do you start developing your EQ for trading? First, by coming to a very different understanding of
emotions and their relationship to thought. Every emotion, positive or negative, has a particular
signature that helps define the presence of that emotion. Traders with high Emotional Intelligence train
themselves to notice the symptoms of the emotion’s presence and are pro-active in working with the
belief at the core of the emotional triggering. Traders with low Emotional Intelligence have never
trained themselves to be sensitive enough to pick up on the subtle presence of the emotion before it
becomes a run-away freight train. Even when they are swamped by the emotion (think of fear, revenge,
and lust) they are not aware of the presence of the emotion. So they are blindsided by a habitual
emotional hijacking that has happened many times before. It is this lack of emotional intelligence that
keeps the trader making the same errors over and over again. The brain has used emotion to solve a
problem for short term survival and it has turned the solution into patterned reaction to a stressor. It
will keep firing that way until the trader learns to work with the emotions and beliefs that generated the
patterned response in the first place. This is the heavy emotional lifting that aspiring traders avoid
doing.
Traders talk about the pressure in the heat of the moment, but they do not recognize that the
“pressure” is the emotion that is about ready to explode. By not discerning that the pressure IS the
emotion in action, they are not forearmed to deal with the approaching emotional outbreak. The
“pressure” you feel means that the chemistry of the emotion is pulsing through your blood and brain
and ALREADY is altering your capacity to think rationally. Recognizing the pressure is a starting point in
recognizing the presence of the emotion. Now let’s back up to understand what is creating this pressure
so we can learn how to release it and manage it better.
Before you experienced the pressure of the emotion, it was building up in your body the way an army
builds up before a surprise attack. In the trader’s case, there is a revving up of emotional energy in the
body in preparation for urgent action. You will experience this build-up as tension in your muscle
groups in your face, jaw, neck, back, gut, and/or chest. Your breathing style will also change. You will be
holding your breath or taking short, shallow, and rapid breaths. Then you can hear or feel your heart
accelerating or pounding. This is the arousal of the emotion, as it is readying itself to become a runaway
locomotive.
It is at this point in the unpacking of an emotion that the trader begins to feel the pressure. Suddenly
the emotion is no longer just revving up. It is leaving the train station. This is when you “feel” the
pressure. What you are actually experiencing is the transition of an emotion from arousing (getting
ready for action) to becoming a feeling. The feeling is the particular chemistry of the emotion beginning
to course through your bloodstream and brain. This is the moment that your thinking is becoming
compromised. Fear begets cortisol that produces avoidant thinking. Adrenaline and testosterone
produce the anger associated with revenge trading. Testosterone and dopamine produce the euphoria
behind over-trading and sabotage. Emotional Feeling – it is something you want to be aware of and
work with, not ignore. By ignoring it, traders get compromised in their capacity to stay emotionally
sober during the pressures of trading.
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Emotions and the Management of Uncertainty
Now that you have a better understanding of the connection between emotion and thinking, let’s apply
that new knowledge to money and loss. First, let’s look at the brain’s prime directive – to keep you alive
by avoiding threat. When our ancient brain (the mammalian or emotional brain) perceives threat, it is
biased to perceive it as a threat to biological existence – or death. It does not have the capacity to
distinguish between a biological threat (saber toothed tiger coming at you) and psychological discomfort
(the experience of the ambiguity found in uncertainty). If the emotional brain interprets data coming in
from the body’s sensorial systems as threatening, it will either trigger to avoid the threat (i.e. not getting
into the trade or getting out early) or attack the threat (i.e. revenge trade to get back what it lost before
it is too late). And, moreover, it is biased to recognize pattern and (through pattern recognition) to
trigger in an attempt to control outcome.
One last thing. The emotional brain makes a decision and the thinking brain produces an explanation to
support that emotional decision – no matter what. That is why, in the heat of the moment, your fearbased mind produces multiple explanations that keep you out of trades. This is also why, in the heat of
the moment after taking some losses and experiencing anger, it seems to make sense to keep attacking
the source of the perceived threats (the markets) until you get back what you have lost. The thinking
mind is simply following what the emotional brain has decided. Rational thought does not exist in the
environment where fear, anger, or lust (greed) are the predominant emotions. This is what the
emotionally intelligent trader has learned how to conquer by retraining his or her emotional response to
stressors.
Money comes to have a deeply emotional basis for your beliefs about your capacity to manage
uncertainty. Money becomes entwined in our beliefs about our adequacy, our sense of mattering, our
self-worth, and our sense of power. Money becomes a symbol of our capacity to prevail or control
outcome. This is a terrible situation to take into the performance of trading, where outcome cannot be
controlled. Unfortunately, many of the beliefs traders claim they have about trading and money are
untested myths. They hold the myth as the truth of their beliefs, but their trading account tells a
different – and far more compelling story.
The health of the trading account becomes the myth buster. All the hope and bravado (a lot of
testosterone also) come face to face with the very different reality found in trading – rather than the
misguided myths you bring to the management of uncertainty. When money becomes the measure of
self-worth, and loss of money becomes a symbol of less worth and powerlessness, trading becomes
either a way of truly coming face to face with your performance beliefs or it becomes a source of
endless misery.
What I ask of you is to really examine your beliefs about the management of uncertainty and your need
to control outcome. Examine them through the light of your trading account. It will not lie or try to
deceive you. It will show in black and white the effectiveness of your beliefs and myths. This is the time
and place to examine what your REAL beliefs are. Strip away the myths you’ve picked up through your
history or by reading books (and parroting them back in your trading diary), and look closely at them.
And recognize that they are only assumptions that help you to see a simulation of the markets. You will
never know the markets. You will only know a virtual simulation of the markets that your brain has put
together through experience, emotion, and sensorial systems. And your trading account is giving you
valuable information back about how effective your particular virtual simulation really is. If you are
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listening, your trading account will help you to truly evaluate your core beliefs about your capacity to
manage uncertainty and separate them from the myths you like to tell yourself that you believe. This
opens up the possibility of re-constructing the core emotional beliefs that shape the mind you bring to
trading.
This is the challenge of trading. And the way you approach this challenge defines the future you create
in the performance of your trading.
Rande Howell
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The Secret to Breaking the Code to Successful Trading Under Pressure
How Highly Intelligent People Are Duped into Believing that Success Is Right around the Corner
Why do experienced traders become unglued when losses occur, though they know that losses are part
of trading? And why do traders slip from confidence into over-confidence (and blow up their profits)
just when they’ve put a string of winners together? Finally, why does a trader’s execution plan fly out
the window just at the moment he needs it most?
An enormous amount of education and training are thrown at traders to solve these common
problems. In the classroom where the trader is taught solutions to these fact-of-life circumstances of
trading, most traders learn how to handles these situations – in theory, but not in practice. But all the
king’s men can’t seem to get it right to prevent Humpy Dumpty from crashing again and again. You will
see this played out in your trading account with denial-piercing regularity.
Armed with all this classroom knowledge about how to bring a reasonable level of certainty to their
trading – and the trader’s desire to achieve success, you’d think that students of trading would move
into sustained profitability, given some hard work and application of sound risk management principles.
Certainly, this is what they are persuaded to believe, because it is what they most want to believe
despite evidence to the contrary.
No matter that the trading account reveals something different, the assumption the trader wants to
believe (and is easily persuaded to believe) is that all he/she needs is more and more knowledge and
that this knowledge will put an end to erratic trading performances. Unfortunately, after many years of
struggle, most traders discover that the dream of sustained profitability remains a seductive mirage for
them – just out of their reach.
Trading Knowledge is only as Good as the Emotional Intelligence of the User
Why? Delivering in the clutch is so different from making good grades in class. Application of head
knowledge to the risk environment of trading is a completely different world than in the classroom. The
real question is: Can you deliver your knowledge in the clutch – or when the money counts? And if
not, would you like to change that?
At the core of your successful trading performance is your tolerance to the vulnerability of being wrong
(or not having the "right stuff") found in uncertainty. That tolerance is defined as the courage to face
your misguided beliefs about your power to control and recognition that you were never in control of
outcome. Trading (and the drawdowns to your trading account) only exposed your illusion of control.
With the illusion of control busted, the vulnerability of being wrong is front and center. It is here where
the trader faces his psychological demons and the fears lurking behind his need for control and of being
right. This is also where successful traders are born – if they listen to their trading account rather than
what they want to believe.
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What makes you vulnerable also makes you human. And trading forces you to accept your human
vulnerability and fallibility. In many other occupations the embracing of vulnerability can be denied by
either being a control freak or being a perfectionist. But by not courageously turning toward the fear
about being unable to control uncertainty, the trader disables himself from becoming the trader who
can psychologically manage the uncertainty that must be managed in trading to be successful.
This is the collision that occurs in trading. That which created success before trading becomes a formula
for disaster in trading. There are people who have had success (in arenas outside trading) in controlling
outcome with unmitigated certainty, thereby developing a sense of being "large and in charge". And in
this way they do not have to experience the vulnerability of being powerless over outcome. Others
develop a perfectionistic strategy to control their fallibility. They want to be right. And by being right
(and with a little persistence and hard work), they control their sense of safety. This strategy becomes a
successful adaptation and is wired into habit by the person’s way of dealing with avoiding the
experience of the vulnerability demon. All goes well ...until they get to trading.
The Dilemma of Experiencing Uncontrollable Uncertainty with the Old Mind
Trading is one of the few occupations where you can do everything right and still be wrong. You will
make mistakes and you will land on the wrong side of probability no matter how well prepared you are.
No matter how good the set-up is that you have chosen or how much you have studied market
structure, trades have a tendency to change right under your nose – and there is no control of this
aspect of trading. You, the trader, cannot force or pretend outcome beyond a range of probabilities. In
this way trading forces you to accept your human vulnerability and fallibility.
The ones who “get this” are the ones that grow into successful traders. The ones who try to control
outcome to prove their adequacy, power, or worth are the ones who struggle with profitability.
Linking performance to your adequacy, mattering, or worth is the all-too-human failure in trading and it
shows up in your trading account. In effect, the trader has given the house (more mature traders) the
odds with this Old Mind mentality.
You can hide behind a façade of control for as long as you have capital to burn. But the mistakes and
unforced errors still happen and it shows with certainty in your trading account, or however your
performances are judged. In trading you are faced with the certain fact that you will be wrong often,
even if you do everything right. It is this jarring fact that shakes a shallow sense of self-worth in trading.
Your whole sense of mattering and worthiness is exposed in your trading performances – win or lose. If
that worthiness, competence, or mattering is defined by your performances, you become a "human
doing" believing that your performance is a representation of your mattering or worth as a human
being. This is where traders come face to face with their vulnerabilities.
A Need for Transition from Old Mind to New Mind
In a successful trading mind you are able to disconnect your sense of adequacy, worth, and mattering
from your performances. And as you are able to do this (which can be taught, by the way), the greater
control you have over the emotions of performance. In short, your authenticity as a human being is not
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externally dependent upon your trading. Instead, it comes from your very capacity to risk vulnerability
as a human being.
Performance no longer is a reflection of your worth as a human being. It simply shows that you made
mistakes in your performance – which can be corrected. In this authenticity you are willing to invest
your energy and capital in something (a trade) that may or may not work out. The fear of being wrong
(or having to be right) no longer runs in your veins as you attempt to enter or manage trades. And the
need to prove that you matter (i.e. "large and in-charge") is no longer tied to your winning a string of
trades.
Would you like to learn how to do this? Instead of trading from fear of making a mistake or
experiencing over-confidence, imagine trading from a mind rooted in disciplined impartiality - where
you honor the fact that you cannot control outcome. BUT you discover the one thing you can control –
the mind you bring to the performance of execution. This is the real edge in trading. This is the
successful head game.
For those traders who have recognized that (once you develop knowledge) trading is a head game –
how do you develop your head game and become able to execute your trading plan with precision?
Because, until you screw your head on straight, all the knowledge you possess about trading is not
worth the money it cost. It is when you honor your vulnerability as a human being and quit running
from it by turning toward it – you can then use it to develop the mind that trades.
Developing the Mind that Trades After Letting Go of Magical Thinking
Though you may want to believe that discipline, courage, patience, and impartiality (the emotions of
successful trading) can be developed magically by a little NLP, hypnosis, positive thinking, persistence,
positive affirmations, visualizations, or the law of attraction – your trading account has to be accepted as
the truth-meter.
If you accept that the health of your trading account reflects the effectiveness of your beliefs about your
capacity to manage uncertainty, trying to avoid your vulnerability experienced in losses and mistakes is
counter-productive. Instead, taking responsibility for the quality of the mind that drives performance
opens a whole new door to your trading. Internal personal change becomes necessary to evolve as a
trader. The vulnerability simply tells you where to look for the emotional monster stopping your
progress.
The good news is that discipline, courage, patience, and impartiality are emotional programs wired into
the circuitry of the brain. They are simply not the ones that are ready-to-hand when a trader first
experiences the vulnerability exposed by uncertainty. With intentionality and emotional learning, you
can re-organize the emotional programs that are brought to bear during trying circumstance. You give
up the lust to have a magic wand to solve your performance problems first. Then, just like a peak
performance athlete, you learn to face your demons causing the vulnerability and claim a different
inheritance. You find and develop the strengths needed to face uncertainty.
The challenge of dealing with uncertainty remains the same. The difference is that the mind you are
bringing to the struggle is up to the challenge of managing the probability of uncertainty, rather than
35
attempting to manage the challenges from the fear of loss of control or the fear of not being right. Fear
is calmed and the management of your vulnerability in the midst of uncertainty becomes real and
empowered by the new organization of the self-rooted in disciplined impartiality. Over time, the
amygdala (the center of your fears in the brain) develops trust that the new organization of the mind is
up to the task. This is the edge you are seeking in your trading.
This is what a mature trader has learned. He/she has evolved from placing responsibility outside of the
self to taking responsibility for organizing the mind to control the one thing he (or she) can control – the
mind brought to the performance of execution. This is the edge that drives methodology and platform.
This is the edge that becomes available in the clutch when money is on the line.
Rande Howell
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The Tragic Flaw in Goal Setting in Trading
It is the end of the year, so it’s time to evaluate and reflect on your progress as a trader. How
have you performed in regards to your goals for the past year? Have you achieved what you
set out to accomplish? Most traders I meet set goals, but never achieve those goals – no
matter how hard they try to push themselves. It’s like there is something that keeps them from
seeing what is stopping them from achieving what they know is possible. But what is it that
stops them?
If this is true about you, welcome to the club of seriously-trying traders who can’t achieve their
goals, no matter how hard they try. If you are not reaching your trading goals and you know
you could be, maybe there is something wrong with the way you understand goals and their
application to trading.
This is a common problem for people who have achieved success in other pursuits, but success
in trading stays just out of reach. Just because you have been a serious goal setter and achiever
in your life before trading does not mean that your concept of goal setting for trading will also
be effective. Trading success requires a very different psychological orientation that mystifies
people who have experienced success in other fields.
Common Success Thinking Comes Face to Face With the World of Trading
Everybody is supposed to set goals for their trading, right? How else do you grow as a trader if
you do not draw a line in the sand and declare, “I am going to achieve this goal!” Goals give
you a direction for achievement and give you a sense of striving that motivates you to stay on
top of things. In pursuit of success, traders set daily goals, monthly goals, and yearly goals.
They monitor their P&L closely to measure themselves as they strive toward their goals in
trading. What could be wrong with this due diligence?
Yet, the very goals that traders set for themselves often become the noose from which they
hang themselves. As an act of review, study your trading goals and ask this question: Did you
achieve your goals – the ones that are really important to you? Did you come anywhere near
your profitability goals or your net income goals? How about your daily or monthly income
goals? The answer for the vast majority of traders is NO. In fact, most traders stay stagnant in
their pursuit of success in trading, or they bleed precious capital. Their failure to reach their
goals may pay their brokers well, but not themselves.
Then, steadfastly, they re-declare their goals for the coming year and hope they find the special
knowledge that separates them from what they know as possible in their trading. They become
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more resolved to make progress and push even harder – only to find at year’s end that they are
further than ever from achieving their trading goals.
Traders live in this pattern for years at a time. They want success, but they stay stuck in the
pattern of staying stuck in unproductive trading – no matter how much they know about
trading - no matter how much they have invested in reading about trader psychology, NLP,
hypnosis, tapping, positive thinking, affirmations, visualizations of success, or the law of
attraction. Why don’t these help?
Confusing Outcome Goals with Performance Goals
Most traders are good at setting external goals (profits, income, win percent, etc.), but never
ask what psychological changes need to be in place in their core beliefs in order for them to
achieve their goals. They simply assume that their psychology of winning is fine and look
elsewhere. Rather, they do not ask the harder question: What is it about them that needs to
change to achieve their outcome goals? They never see themselves as the weak link in
achieving their desired goals. This is the tragic flaw that keeps traders (who intellectually know
how to trade) from applying that knowledge under the pressure of risking capital.
They are looking for “special knowledge” or a quick fix that will solve their problems. They
believe that with that solution, they can get back to achieving the goals they have set for
themselves. What they are neglecting is the difference between Outcome Goals and
Performance Goals. What is the difference?
Outcome goals are objective and measurable results that you want to see happen. An example
of an Outcome goal would be: I will make $250,000 in net income in the year 2015. Or, my
return on investment will be 4% per month for fiscal year 2015. Clearly these goals define a
target to hit. A good planner will also lay out a strategy for achieving these goals. A common
one is: I will follow the rules of my trading plan with each trade that I take. I will take no
trades outside of my trading plan.
The trader has an objective goal that he has set and has adopted strategic goals that will allow
him to achieve his Outcome Goal. Now all the trader has to do is rigorously attend to his/her
plan and he/she is off to the land of milk and honey, right?
Wrong. Like most traders, our frustrated trader gets sucked into the heat of trading in the
moment and the trading plan rules fly out the window. And the trader keeps doing the same
counter-productive thing over and over again that he swears he will not do. Of course the
trader then tries to apply more willpower or other techniques to solve the problem, but IN THE
HEAT OF PERFORMANCE HE STILL REVERTS BACK TO SELF-SABOTAGING BEHAVIORS.
All those external Outcome Goals are laid to waste because of the mind he is bringing into the
moment of performance. Outcome Goals are really just attempts to control the outcome of
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trades over time. And you are trying to control something (outcome) that cannot be controlled
in trading. No matter how right you are in trading, you can still be wrong a good bit of the time.
There simply is no certainty. Yet, you set up your Outcome Goals to attempt to predict and
control outcome where only probability exists.
The missing question is: Who do I need to become so that I bring consistent effective
performance into the moment of trading? This is the question that bridges Outcome Goals
with Performance Goals.
Performance Goals Are Not About Outcome – They Are About What Mind You Bring into the
Moment of Performance
It just so happens in trading that the mind that you bring into the moment of performance is
the missing edge you are seeking to achieve your Outcome Goals. And it is the one that keeps
eluding you because you do not want to hear that you have to intentionally disrupt and change
the comfort zone in which you are invested for self-preservation.
An example of Outcome and Performance Goals: Several years ago I was watching an
Olympic hurdling event. There was one particular American that all the broadcasters
were talking about. Listening to them, he was God’s gift to hurdling and was going to
win by a mile, win gold, and set a world’s record. They promoted him as an athlete who
“could not lose”.
The day of his main competitive event arrived. All the hurdlers lined up. Tension was in
the air. The start gun fired. The racers surged out of their blocks. For a moment all the
athletes were competitive, then the American seemed to become a blur of light and he
left all the others in the dust.
As he raced, all the announcers were beside themselves. They were tossing accolades
at him as he raced. The certainty of their convictions was being proved out. He was
“the best”. It was “so predictable”. And he won by a wide margin, getting gold in the
process.
Then, after the race, as the athlete was still getting his breath back, the announcers
crowded around him, sticking microphones in his sweating face. They asked him
triumphantly, “What did it feel like to know you were going to win? What were you
thinking when you knew you were going to win gold? These questions just kept coming
and coming.
Then, with an inquisitive look on his face, the athlete inquired, “You want to know what
I was thinking while I was competing?”
The euphoric announcers relied, “Yes, yes, what were you thinking? The world wants to
know. Everybody wants to feel the triumph as you experienced it.”
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“You really want to know what I was thinking”, the athlete inquired again, almost
incredulously? “Okay, I’ll tell you. “One, two, three, four. One, two, three, four. That’s
all”
“No, no,” the reporters countered; “We want to know what you were thinking when
you knew you had achieved your dreams”.
“Well, that’s what I was thinking while I competed – just one, two, three, four”, came
the response.
No doubt the mnemonic of “1,2,3,4” meant something to both athlete and track coach. It
represented the coordinated activities of behavior, brain, emotion, and mind that had been
cultivated over many years of training; so that by focusing on the mnemonic, the athlete was
able to trigger muscle memory at a time when thinking was not that important. And no doubt
that a sports psychologist and the athlete had worked with that same mnemonic to maintain a
peak performance mind during the moment of execution.
The athlete’s mind was not in the act of anticipating the future (like the reporters assumed it
was) nor was it in the past, thinking about all the work he had gone through to get to this
threshold moment. No, the athlete’s mind was in the moment, focused on the one thing that
he could control – the mind he brought to the performance of execution (1,2,3,4).
Later, as the gold medal was placed around his neck and he took a victory lap around the
stadium, it was clear he was euphoric. He was basking in the afterglow of this performance.
(This is what the reporters wanted him to say he was experiencing while he was in the act of
competing.) But he was too accomplished an athlete to fall for that trap and he was far too
well coached to let that happen.
Interviewed afterward, he talked about the goals that he and his team has set for him. These
are the Outcome Goals that gave direction to his growth as an athlete. To achieve those goals,
he and his coaching staff also set Performance Goals. Those goals were about what mind (the
beliefs that shaped his perception) he was going to bring into the moment of performance and
execution within that performance. It was the only outcome he could really control. And it was
also what gave him the edge in his development as an athlete.
Rande Howell
In addition to setting goals, it is important for me to design the system rules as well.
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