We are what we think
All that we are arises with our thoughts.
With our thoughts we make our world.
The Buddha
Before we get into the three steps of the Happy Venn Diagram I want to talk you through
the different ways in which you use your mind. These are general principles and they
will give you valuable clues about how you may be operating when you are trading.
This knowledge is elementary and will help you to understand all the other information
you are about to read regarding mind control with greater ease.
First of all, I am going to show you how your beliefs are created and why you assume
that these believes are your own when in reality there are no more than inherited
ideas which you adopted as your own throughout your life.
We will then take a look at how you create your own reality through your beliefs.
Understanding how you create your own reality will give you important clues about
you and guide you towards an understanding of your true nature.
Once you understand these principles you will see how you are constantly open to
outside influences in decision making when it comes to your trading. These outside
influences, like television commentary etc. have an impact on your thinking, but you
are seldom consciously aware of just how much they affect your decision making process.
Your mental state switches from positive, negative to neutral in a space of minutes,
or even seconds. Sometimes you can experience two of these states at the same time.
Naturally, you will not as yet be aware of this amazing roller coaster which plays
out to varying degrees in everyone mind. It will be quite a surprise when you finally
wake up and actually notice for yourself that this is what happens inside your head.
Becoming aware of how easily your mind is swayed will help you make better decisions;
it is as simple as that. This entre book is ultimately about one thing only: It is
about expanding your awareness to allow you to see more of the entire picture. This
entire picture includes how you operate in the world, as a trader, and how you filter
your view of the market as it unfolds in front of you.
Expanded awareness gives you more choices and ultimately control over your emotions
and actions.
The goal posts start changing when you begin to see more of yourself and your trading
world. Gradually, the one thing which was of utmost importance to you becomes just
another aspect of a much larger whole. You will be able to deal with a greater influx
of information and handle more complex information at the same time. Control over
yourself and your actions expand in line with your increased cognitive awareness.
Remember, what it was like when you went to play school for the first time as an
infant? It was a big event. So much to learn, so much excitement. Your world revolved
round playschool. Later on, you went to prep school and probably progressed on to
high school, maybe you attended university or college. Each time, as you moved on,
your field of experience grew, and you became more worldly as your view of your world
broadened. In line with your expanded worldview your vision of yourself expanded also.
The same principle is at play when I talk about expanding your cognitive awareness.
Okay, now let us take a look at your conditioning
So, here you are, probably quite opinionated, most traders are and they have to be to some extent, in order to make quick decisions. Naturally, you think that you are acting on your personal beliefs, which you have formed through study of the markets. Well, this assumption is incorrect and an illusion.
In order to understand the above statement fully I am going to take you on a journey
which begins with your conception.
Your mind is active form the day of conception and very likely even before, but this
is another discussion. For now, we will start with your conception. The newly evolving
foetus partakes in all the emotions, feelings and thoughts of the mother. In this
way the foetus partakes in the world. It is a known fact that the first stimulus the
foetus reacts to is sound. Sound is nothing but vibration, or I could say a manifestation
of a vibrational frequency. As science is proving now, we live in a vibrational universe.
Our vibrational level determines which other vibrational frequencies we have access
to. This basic way of interaction goes for every energetic particle in the universe.
Every thought and every emotion of the mother sinks in at cellular level, all her
emotions are stored in the cells of the unborn child for later re-collection, but
none of this learning is critically evaluated until several years later when the unborn
child has evolved into a young child. Critical assessment of your programming typically
begins at the age of around seven. Until the age of seven your mind acts like a sponge
soaking up every stimulus in the environment.
From the moment we are conceived until the age of around seven we operate mainly
in a theta brain state initially and gradually move more into an alpha state. These
states are also referred to as the states of super learning. The Japanese education
system is built on so called “hot housing” infants, because of this well known fact.
The Japanese systematically imbue their children with their culture and the laws of
their society by the age of seven. The same happens in western culture, but it is
less of a conscious approach.
By the time, you are seven your mind is readily conditioned. Everything that enables
you to function fully as a human being is in place. This is what I refer to as your
basic conditioning.
You learn to perform everyday tasks by example and by trial and error. In the early
stages of your life you expand your cognitive awareness through experimenting with
new things. For example, if you burn your hands on a hot stove you will know not to
repeat this behaviour. Now, that you have learned that hot means danger this knowledge
is stored in your mind and programmed, just like a computer would, for later recall.
You also learn through your parents’ behaviour and through the rules they set for
you. For instance, you learn that running out on a busy road results in being severely
told off. You will remember that being told off feels unpleasant, and store this experience
in your mind for later recall. There is no assessment as yet about whether crossing
the road without looking out for traffic first, is dangerous and could be potentially
hurting you. These evaluations happen later in life.
So, you this how you learn initially: Through experience. These learnings are stored,
just like you store files in a computer. Most files will simply sit there. Many may
never be used while others may be recalled later in life as and when appropriate.
And here is the rub with this re-collection process: You will not, consciously relate
to the inherent dangers of crossing a busy road until perhaps much later in life,
when an event may trigger that particular part of your programming and gets you to
act accordingly. The action happens automatically, without conscious recall of the
original learning that triggered the action now.
Over the years a fully functioning program is produced that lets you operate in the
world without having to consciously evaluate all the many tasks we repeat daily.
This is a very good thing, because if you had to remember how to move the muscles
in your leg in order to walk each time you took a step, you would never walk anywhere
very quickly, not to mention all the other tasks you have to perform at the same time,
like watching where you are going, talking to the friend who is walking with you,
handling the dog accompanying you and so on.
Our mind’s operating system is built in such a way that it performs the many tasks
necessary to function in daily life automatically. Once you have learned how to walk,
move your arms to lift something, wash your hands and so on you will do it without
thinking. The complication arises when your mind makes incorrect associations.
For example, when you were a baby you may have learned to cry for attention and you
might have received a response to your crying from your caretakers. You would have
been comforted, your nappies may have been changed, or you were fed. You learned that
crying produces an outcome, namely attention. Therefore, you would repeat this behaviour
because you learned that it got you positive results. You are learning the basics
of cause and effect in this manner. If you continued that behaviour into adult age
though, you might have a problem or two, if the people you are mixing with now have
a different representational system, as is very likely to be the case, and will not
respond in the same way to your attempts to get attention as you were used to.
If all goes well and there are no major problems or traumas in the early stages of
your life you will find that your mind automatically re-assesses old programming and
makes the right new associations that result from new or changed experiences. In other
words, your mind constantly adjusts to provide you with the best service relevant
to your present circumstances. It does so automatically. You are unaware of this process.
You simply develop new programmes to achieve the new outcomes you desire in life.
However, if there has been trauma in the early stages of your life, as is the case
for many of us, this process may not run smoothly. In that case, your mind will act
out an old programme which was perfectly viable until now, and trigger the old response
to an event that would require a new programme, or a different response.
This is what happens when you experience unexpected emotional problems when you first
start trading, or are suddenly experiencing problems with your trading, even though
you may have traded successfully for quite some time. Somewhere along the line an
event happened that causes you to make incorrect neuro associations. You will experience
this incorrect association as stress, anxiety, depression, fear, self doubt or even
illness. These wrong associations can happen at any time, but they are more likely
if there is unresolved trauma from early childhood.
However, as you will see later on, when you are going through transitional periods
in your development, or when you experience relationship problems your brain may react
in similar undesirable ways.
Here is another important point to remember. Whatever problem you think you are reacting
too, be it a trading problem or a relationship problem, you are only seeing the tip
of the iceberg. You are just viewing the end result and not the cause of the problem.
I could also say when you think you have a problem with the present market conditions,
a relationship problem, or any other kind of problem, and you believe that this issue
is causing your lacklustre trading performance, you are wrong. In fact, you are making
assumptions on a wrong factual association. If your trading goes off for some reason,
the root cause is always to be found in some unresolved past trauma or event. In other
words: The problem is always inside you.
Once you have identified the period in which this trauma was likely to have occurred
you can neutralise it and your trading will probably be back on track.
Likewise, if you are new to trading and you are experiencing all manner of unexpected
hitches, like procrastinating before putting on trades or impulsive trading, running
positions, or getting out of positions too early you will probably have unresolved
psychological issues that make you react to the markets. The fact that you believe
that you react to what is right in front of you is one of the biggest tricks your
mind plays on you. So, get this: When you think you are reacting to the markets you
are wrong. You are never reacting to the markets but to your internal stimuli from
conditioning and possibly to wrong neuro associations caused by unresolved trauma
and distress at some point in your life.
Let me briefly clarify what I mean by “being new to trading”. I assume that you have
taken the time to learn how to trade but are finding that your trading is not progressing
as it should after one or two years of playing. I sometimes get calls from so called
traders who have been working on their strategies for three or four years and still
do not trade, or they may have only put on a hand full of trades. There is always
another problem to be sorted before they can start trading.
Many professionals simply will tell these people that they are not cut out to trade.
I disagree with these assessments. Unless you have removed your shadows you do not
know whether or not you are cut out to trade.
I think that it is a great shame when budding traders take such advice. They may
be cheated out of a very rewarding and ultimately empowering career and possibly regret
the decision for the rest of their lives. After all, the issues that may have prevented
them from trading are still there. They never got resolved. You cannot assess whether
or not you are able to learn trading, unless you have successfully managed to get
in touch with your true self, removed your shadows and assessed your strengths and
weaknesses correctly. If this sounds like you, take heed.
Only once this inner work has been accomplished successfully; and only then can you
decide if trading is for you, or not. Unresolved psychological issues throw so many
spanners into the works we call our lives. We have the tools these days to sort these
issues and create much happier and more successful careers for ourselves. So, avail
yourself of these tools before you jump to hasty conclusions about what you can or
cannot do in life.
I believe we can learn to do anything reasonably well with good training and proper
tools. You may not be in the top 10 league, but you should be able to trade and make
money on a regular basis. Believe me, trading successfully is not rocket science,
being truthful and honest with yourself though is and the latter will always be one
of your biggest challenges.
So, if you enjoy trading don’t give up too early. This is why I recommend that new
traders learn about the psychology of trading first, before they learn or do anything
else. It will help them assess their personality correctly and choose a trading style
which is right for them or indeed decide that trading is not for them at all.
Un-learning the things we have learned plays an important part in good trading. This is often referred to as going against your instincts. This is at best a misleading statement. Since you perform most of your tasks on automatic pilot and subconsciously, as we have already seen, it is very hard to adopt new behaviours and new thinking. The problem is mainly your conditioning and your instincts have nothing to do with your conditioning.
Your lack of cognitive awareness though has a lot to do with your ability to adjust
quickly to unusual or new situations for which you may have no reference points. I
know that some of you may resent the mere thought of unlearning everything they learnt
in the past. Holding on to all these good old values is of no use to you when you
trade, particularly in today’s challenging market environment. Good intuition comes
from cutting out all the noise that stops you from getting in touch with your true
self and the world around you. Your instincts develop in line with the ability to
let go of the noise. Your conditioning creates a lot of unnecessary noise and presents
you with false pictures upon which you act as if they were the truth.
To demonstrate this point I want to take you through a simple exercise: Fold your
hands. If you are right handed your right thumb will be covering your left thumb.
If you are left handed your left thumb may be covering the right thumb. You will fold
your hands automatically in the way which feels most comfortable to you. Now, fold
them the other way round. If you are right handed the left thumb will be covering
the right thumb now, and vice versa. You will notice that it feels slightly uncomfortable,
because you are not used to folding your hands in this way.
Now, change from this position to the original way in which you folded your hands
and keep alternating the way you fold your hands. To begin with, you may notice that
it will take you a tad longer to fold your hands in the way you are not used to. It
feels slightly awkward. However, once you have done this four or five times, you won’t
notice a difference any more. If I asked you to play this game for a minute or so
for several days, you would be able to always fold your hands either way; and it would
feel comfortable. You got used to it. Your mind, which is there to serve you and will
do what you ask of it, got the message. It also recognises that you are consciously
fully congruent and are not harbouring fears or anxiety when you fold your hands in
the new way. Consequently the new behaviour becomes automatic because it has become
familiar and it feels safe.
This simple exercise shows just how easily we can be conditioned, even as adults,
if we allow the process and we are free from fear and anxiety when adopting new behaviours.
The message is clear: You can train your instinct.
You see, our mind is actually very obedient. It will do what is asked of it. Initially,
as we have seen, this process works mainly through learning from others. Later on
in life, the process works more and more through your own conscious commands. You
will consciously decide what you want to learn. The levels of new learning will depend
on your ability to deal with the unknown.
The problem we have dealing with our mind is twofold. First, there is potential interference
from old unresolved issues which cause your mind to make incorrect associations which
you experience as negativity, fear or anxiety. Then there is the problem of communicating
properly with your mind in such a way that you and your mind understand each other
and are in harmony with each other. Since most of us have never learned to understand
the basics of their mind’s operating system they simply do not know how to enter the
commands that make the system run smoothly.
Working with your mind is no different from working with a computer. If you understand
the basics you will be able to perform most tasks and get a lot out of your machine.
God help you though if you are totally clueless. Your machine will not work very well
and it will do things you did not expect and probably crash sooner or later. Provided
you know how to use it correctly, your mind will do what it has been trained or programmed
to do, it is as simple as that.
Really, we are not that different from Pavlovian dogs. Yes, we can think and perceive
things independently by our own volition, but this happens far less often then you
may think.
It may come as a shock to you to learn that you take in a massive 4 million pieces
of information at any given time, yet you are only consciously aware of about 40.
The rest gets stored away in the vaults of your subconscious mind. Nothing disappears,
all the information is still there for re-call if need be, but you will never ever
be consciously aware of a vast portion of your information input, or your conditioning.
If you have been programmed correctly from the day of conception you will not have
many problems. Alas, this is not the case for many of us as we have already observed.
So, if you still think that you are in charge of your thoughts and in control of
your feelings, think again. This belief is a huge delusion. The very nature of conditioning
is such that you will become so immersed in it that you are fooled to believe that
many, probably most of your thoughts are your own. You probably believe when you say
things like: “I hate the markets going down”, that this is one of your truths. Until
now you probably assumed without ever questioning it that this statement is YOUR belief
which you have made up from your own experience. Well, you are wrong. In all likelihood,
you will have inherited a dislike for falling markets, maybe because your parents
lost money and you may have heard your parents talk about their diminishing investments
and so on. This belief will have become deeply engrained into your belief system.
It has been there, unchallenged by you since its first programming. The same is the
case with all the other countless beliefs you hold. You think they are the real you,
but they are simply “borrowed” from other people and the collective consciousness.
Are you beginning to understand why it is so important that you unlearn all those
things you learnt?
It is probably becoming more evident that the naked reality of your world is a very
different one from the one you held in your mind until now. Let me illustrate this
concept to you with a typical example that you will encounter many times as a trader:
Let’s assume that when you look at the markets you dislike the fact that they are
still going south. You would much rather see the market moving up. It appears to you
that the economy is in a seemingly endless downward spiral. You sense the doom and
gloom out there and it may put a damper on your trading as you empathise with the
hardship of other people out there. You have been told before, up or down, it makes
no difference. Logically you know that there is absolutely no reason why you should
think that falling markets are less, or more pleasant than rising markets.
In fact, it makes no odds. You can trade either, long and short. The markets don’t
care; they just go up or down. The only thing that counts is that you are positioned
correctly. However, your conditioned mind may tell you are very different story as
you feel uneasy and may not even want to short the market.
Let us take it a step further, and assess why the above statements hold an eternal
truth that you should internalise, because this truth rests on a basic universal law.
Consider this: The evolutionary process of life just unfolds whether you have an opinion
about it or not. Just like the markets, the universe does not give the evolutionary
process any meaning. It just is. You are the one who gives the process meaning. And
you do this according to your internal representation process which I call your conditioning,
or programming..
But there is more to this process: You also evaluate everything through a dualistic
evaluation system good and bad, rich and poor. Well, imagine flipping a coin. Tail
or heads have no meaning, unless of course you have a lot of money on either position.
The coin, in order for you to see it, has to have two sides. Otherwise you could not
see it, or even recognise it as a coin. This kind of duality which makes up your world
is quite a piece of genius. It lets you experience everything in unlimited richness.
However, only your conditioned beliefs make you react, often inappropriately, to this
duality.
Think about it: How much easier would your life be as a trader if you just traded
without the constant interference that makes you judge things as good or bad, excellent
or rubbish, etc. Add to that the fact that you are also judging events from a totally
false vantage point, which is your personal filter system, this kind of evaluation
system humans have adopted for millennia makes even less sense. If you stopped thinking
in these old, inherited ways imagine how much energy you would free up to get on with
your trading life. And as an aside, the above also goes for all the other areas of
your life too. Remember, we are dealing with fractal patterns which repeat everywhere.
Have you ever checked where your beliefs originate? Have you ever considered how
your conditioning fits in with your true personality? Dare I ask, do you really know
what your true personality is? The answer is probably “no” to all three questions.
I will show you how to examine your very own core value system in one of the following
chapters.
For now, I want you to understand the fact that most of your thinking and acting
is not your own. This may be hard to take on board, if this is the first time you
have heard about this concept. As you continue to read this book, this and many other
new ideas will fall into place.
It is common and quite natural for us to reject new ideas with disbelief when we
are exposed to them for the first time. The average person has to be exposed 50 times
to a new thought until they accept it. We have no reference point against which to
measure the new, seemingly outrageous statement and it is much easier to go into denial
than staying open minded. Such behaviours are safety mechanisms which are in place
for many of us. It is the way our mind attempts to protect us from ourselves. The
mind has learnt through old programming to fear change and view it as uncertainty.
Most people view uncertainty as danger instead of seeing the opportunities uncertain
transition periods invariably contain. Therefore, very few people can embrace new
ideas right away. You, of course, are not the average person, or you would not be
trading.
Considering that we are individuals each with our own individual representational system, it is quite astounding that we manage to communicate our needs and desires with reasonable ease most of the time.
No two beliefs are the same. This is because your past experiences and my past experiences
from which we both form our opinions and beliefs are very different. This is so, even
if we went to the same school, university and lived in the same neighbourhood. Every
time you and I communicate with each other on a particular subject our internal representations
feed us different internal pictures. Similarities are at best superficial.
For instance, if you always see a lot of common ground with your friends and colleagues
your mind’s filtering system sorts by similarity, while when you see many differences
between you and other people your mind sorts predominantly by identifying what is
different between you and them. Both evaluations have their place, but since they
are used subconsciously for the most part they are another of the many illusions we
have when assessing reality. Basically, you will use your filters how you have been
conditioned to use them, instead of choosing them consciously. The self aware person
notices when they are using these filtering systems on auto pilot and then train themselves
to use the filter system which is most appropriate for the situation they are evaluating.
It is true, that we may speak the same language and use the same words, but when
I say “I am trading” and you say, “How interesting, so do I.” What appears to be the
same on the face of things could actually mean two very different things. You may
be a professional floor trader, are used to dealing with market makers and put on
large positions in a big trading room. Oops, “large”, that is another word open to
many interpretations. And what about the “big” trading room?
I am a private individual and trade “large positions” from my computer. Maybe my
trades are on average five to ten DOW contracts, and when I occasionally trade fifteen
contracts that is a very big position indeed. By contrast, for you, the floor trader,
who is used to dealing in hundred plus S&P contracts, the word: “large” has a very
different meaning. Consequently your internal representation about what it means being
a trader trading large positions will be totally different from mine. You have to
consider getting in and out of the market “unnoticed”, so to speak and therefore your
strategy will differ hugely from mine, even if we hold the “same view” of the market.
Unless we clarify the meaning of words like “large” and “trading” before we continue
our conversation we could be wasting time talking to each other as our expectation
of each other will also differ considerably.
Is either of us wrong? Of course not. Could we have a meaningful conversation about
trading? Perhaps, but with certain limitations. We would have to be very specific
about our respective trading experiences and even then it is doubtful that we would
have that much in common. Yet, we are talking about the same thing: Trading, large
positions, and so on. When we get deeper into the subject matter, your problems as
a floor trader will be very different from mine trading from my computer at home.
Our beliefs about trading will also be very different in many respects. Well, I am
sure you get the picture.
All our internal representations which make up our beliefs have several built in
filter mechanisms, which vary for each of us according to our experiences of the past
and how we create our present view of things. In addition to sorting by sameness and
difference there are basically three main ways in which we filter incoming information
which determine our beliefs and how we view the events in our lives.
In essence, we delete, distort and generalise any information before it comes out
in conscious form as an opinion based on a belief.
I have already mentioned that nearly all the information you receive at any given
moment disappears into the vaults of the subconscious mind. This is what we do when
we delete most of the incoming information from our conscious minds and sort it subconsciously
with our mental filtering system. It simply would not be possible for us to process
all the 4 million pieces of information we receive at any given moment in time on
a conscious level. Therefore, your filter system does the job for you. It automatically
sorts through what information you are going to keep and what to delete from your
conscious mind. If you have a belief that the markets are going to go up, for example,
you will look for information to prove this view. Your filter system will oblige you
by obediently deleting every scrap of information that might contradict this view.
Likewise, if you believe the market is about to go down, your filter system will
help you to find the right evidence for this belief and keep any information that
might prove the contrary well hidden from your conscious awareness. I am sure, that
you are beginning to see why having an opinion on market moves could be a potentially
dangerous game, unless you have certain safety measures in place, like a sound stop
loss and risk reward system.
If you are likely to generalise you will in all probability be good at seeing the
big picture. This is the case for me. I had to learn to also think in more detailed
terms in my trading and look at shorter time frames, market internals etc. to get
a better understanding of the overall market direction and trading range and individual
market behaviour.
If you are a “big picture person” you may be right in your views on the market most
of the time but have difficulties trading them choosing an appropriate strategy. Choosing
and devising a strategy may be difficult for you since going into too much detail
is a challenge for you. You may have a strategy, but in all likelihood, it is not
that well defined. This can make you procrastinate unnecessarily and also enter into
positions too early, or exit too early.
Your mind will also distort incoming information to prove to you that your beliefs
are right. It does that by seeing things which may not be there, literally. You will
interpret what you see in a way to fit your beliefs. I might also say that you are
unwittingly manipulating your mind. This is very common and most people play this
game of manipulation all the time without realising that they are doing it. I could
also say that they choose to see one side of the coin and completely ignore the other
side. Of course, we have already established that a coin always has two sides, or
it could not be a coin. Lopsided opinions are not only false, because they ignore
the dualistic principle of our existence, they can also cause you many problems in
your trading and, by he way, in your relationships. When you fall into the trap of
distortion you are likely to over emphasise a particular aspect of a situation and
completely miss the other pieces that may give you are clearer and more comprehensive
view. It is like seeing only one colour in a picture.
The media is full of examples of lopsided thinking. In fact, reporters make their
living out of manipulating events to suit their own beliefs which they make up consciously
or subconsciously to provide you, the listener or reader, with a suitably dramatic
story to satisfy your mind’s need for drama. And, if you allow your trading decisions
to be swayed by the likes of CNBC you are inadvertently fully immersed in that manipulation
trap. My heartfelt advice to you is to stay away from CNBC and the likes. The news
is a waste of your energy.
Finally, our filters generalise. Whenever you say things like: “These markets are
rubbish to trade” or “all options trades are high risk” you are generalising.
Again, you will use this filter to prove to yourself that your opinion is right.
Seen more objectively of course, none of the above statements can be true.
For one, there is no such thing as an absolute truth, but only a truth as seen through
your filter system. You may well be right that these markets are rubbish to trade,
because your trading system will not allow you to trade these particular markets,
or you have not found a market that is suitable right now for your kind of trading,
but that is an opinion based on your internal representations and hardly a broad based
truth.
Generalisations also lead to pervasive thinking. Pervasive thinking can become all
encompassing. Depression and anxiety are caused by pervasive negative thinking. For
example, if you think the world is rubbish, sooner or later your mind will oblige
you by finding the negative angle in everything you do and in everyone you interact
with. You probably believe in conspiratory theories and have “proof” of this view.
As I said, you can and will prove to yourself whatever you believe in. This is the
amazing fact of your reality: it is intrinsic but never absolute. The real beauty
of this fact is this: You can choose what to believe and in that way you choose your
reality. This naturally is true for your trading and investment reality and every
other part of your life.
Our minds love stimulation. If you choose a belief because it feels good and benefits
you, you should use all the mind modalities available to you to convince your mind
that this belief is real. This methodology has been successfully employed by different
cultures for thousands of years and still holds true today.
Once you can see how you are inadvertently manipulating yourself to prove to you
that your beliefs are true you will become a lot more careful whenever you express
an opinion with haste. Instead, you will want to choose your beliefs from the premise
of benefit to you and not whether or not they are true. Just remember this any belief
is true if you want it to be. Your persistent thoughts and actions will make it so.
You will learn later a number of techniques that will assist you to convince yourself
of the “truth” of useful beliefs.
In addition to your filter system you also engage different mind modalities. These modalities are visionary, kinaesthetic, (touch); olfactory, (smell); auditory,(sound); gustatory,(taste), visual and auditory digital,(internal dialog). Most of us have at least one preferred modality and often two or even three. The modalities we use will vary from situation to situation, but you will be doing this subconsciously. Two traders may be trading the same market but have different prime modalities: For example, when you are talking to a trader whose preferred modality is visionary and yours is auditory, their trading style will be very different from yours.
If you were to emulate this traders’ success you may well fail. This is one of the
many problems you face when you follow someone else’s trading advice. Their strategy
may well be very sound and work for them, but unless you both have similar internal
belief structures, use a similar filtering process and engage the same mind modalities
you will encounter problems sooner or later. You will not understand the reasoning
for trading positions, simply because you both use a different language, you will
find it hard to communicate with someone who uses a different modality or filtering
process from yours, because you both will look at different parameters for the same
trade and come to entirely different conclusions.
Knowing how you create your beliefs through your conditioning and your personal filter
system is extremely useful knowledge for your trading. It will assist you to evaluate
your trading strategies better and form a trading plan that suits your personal make
up. It helps you to understand yourself better and interact with your colleagues much
more effectively. After all, you can only recognise something in someone or something
else if you are aware of it within yourself. Self knowledge is power and it is essential
for good trading.
Observe yourself. Notice which of the modalities you are using predominantly. For
most of us there will be two. Just as an example, I am using auditory digital and
kinaesthetic as my two main modalities and have trained myself to consciously use
the visual modality too in my trading. This is very useful when “imagining” my trading
system and running through the perfect trade in my mind. It also helps me interpret
market action while I am watching the markets and am trading intra day.
As an aside, another great benefit of learning to use different modalities is to
assist you with adopting the beliefs that suit you.
It is essential that you become aware of the main modalities you are using and notice
whether they are appropriate for your trading. Even if visual is not your preferred
modality you should and can train yourself to use this modality. It will help you
to put your trading on auto pilot and improve your bottom line. Studies have shown
that people who regularly visualise their desired performance improve their results
by around five percent.
Mental nimbleness makes for mastery. If you can access different mind modalities
at will to suit the tasks you are performing you will have a huge advantage in everything
you do. You can learn to access the different mind modalities through expanding your
cognitive awareness. One of the most powerful techniques for expanding cognitive awareness
is the practice of witnessing, which we will discuss in detail later.
Knowledge is power. Understanding how your mind works will help you to become more
detached from your beliefs and see them for what they are.
So, remember, no belief is absolute, no truth is absolute. In fact, all absolutes
are an illusion. They do not exist. Whenever you catch yourself thinking in absolute
and pervasive terms know that you are deluding yourself. There are as many variations
on the truths and beliefs we hold as there are people. Your personal internal representations
and your conditioning will make sure of that. Of course, you will not always experience
these many nuances in your daily dealings. When the collective consciousness takes
over and emotions run high these finer nuances tend to get lost in mass exuberance
or in mass panic as differentiation flies out of the window en masse. The recent reactions
in the markets are vivid proof of this. When the more primitive regions of your brain
take over and the frontal lobes shut down any semblance of mental sophistication flies
out of the window.
Risk is the nature of life, if you like. It is the nature of our present human conditioning to avoid risk at all cost. In fact, the way society has been developing in recent decades there is an unspoken assumption that we can lead our lives entirely free from risk. The government or other authority figures will take care of the risk for you. As a consequence there are fewer and fewer people who really understand the nature of risk and even fewer people willing to embrace risk.
This farce is causing another big misconception in the market place which is leading
many wannabe traders and investors astray, luring them into trading the markets with
fantastic promises while they are operating from a point of desperation as everything
else in their world seems to be collapsing fast.
There are more and more so called traders who promise the unsuspecting investor 90
percent plus success rates. What’s more they claim that they have these amazingly
fool proof systems that anyone can learn in no time and become a millionaire. If you
fall for these promises, be warned. These systems cannot and will not last. Just consider
this: If trading and investing were that easy there would only be millionaire traders.
The reality though is this: Only five percent of all traders succeed. Even fewer attain
true trading mastery. The numbers for skilful investors are not that much better.
Less than 10 percent of all people retire rich.
There is no such thing as trading without risk, just as there are no guarantees for
anything in life, but just probabilities. If you do certain things under certain conditions
it is more likely that you will achieve a certain result. However, here is your real
challenge: Risk is never fixed. Just like there are no absolute truths, there is no
such thing as an absolute risk formula. Risk parameters change just as everything
else in life changes. We simply cannot get away from the fact that nothing is as constant
as change.
If you have traded and invested following the old rules of traditional asset correlations
you will have been in for a nasty surprise. The old rules are not working any more.
The rules which were good for decades are changing in line with the major paradigm
shift that is all pervasive and will affect everything for years to come.
We need to look at risk in a different way in today’s fast moving and highly volatile
markets and redefine some of its basics. This means we have to add a number of new
parameters when assessing risk thus helping us the get a clearer idea of how big your
risk actually is whenever you trade a position, short term and particularly longer
term.
Please be clear about this: I am not asking you to throw old, sound risk parameters
over board but to expand your views on risk.
I have already mentioned that there are no absolute risks and this means that your
ability and willingness to take on risk will vary. In fact, it can vary from day to
day. The old proverb “some days you are hot and some days you are not” will stand
you in good stead when considering your ability to take on risk. Your risk profile
is a combination of your personal psychology and market action. There are days when
you may feel that putting on a position just using one percent or even less of your
account is too much. When you feel like this it is best to stay out of the market.
Don’t be fooled into the old belief that whenever you allow your feelings to surface
that your discipline is lapsing. Far from it. If you incorporate the assessment of
your personal risk profile into your trading you will be adding a very valuable component
to your trading tool box.
So, what exactly determines your personal risk profile? Your filter system determines
your risk profile. For example if you use the filter of choosing by sameness, you
will only take trades that repeat an exact pattern, while a trader who filters by
his opinion on market direction may trade the Elliott wave patterns that give credence
and support to their belief. The more flexible you are the more you will be able to
consciously choose your risk profile depending on the prevailing market action. You
will be totally comfortable not to trade at all at times while at other times you
will be very aggressive risking even 25 percent of your account on a single trade,
something traditional risk management would advise strongly against.
The message is this, at least for those of you who are experienced traders and investors:
Follow your intuition and listen to your feelings. Your body has something to tell
you. The odds are when you force a trade, just because your system dictates that you
take it, you may end up losing, even if the system may be right. Unless you are very
methodical and just trade an automated system without any feel for what the market
is telling you, you will have to take notice of your intuition and hone it.
Those of you who have been trading for many years will know what I am talking about.
There are those hunches which one cannot explain. Something tells you that the price
action is not what you expect. Maybe price is moving a little too slow, or a little
too fast. The nuances can be very subtle. In these situations your risk is probably
going to be very high, when viewed through your personal psychological risk profile.
If you decide to take the trade in spite of your feelings you will be very likely
expending a lot of energy on your trading, leading to unnecessary stress.
Understanding these subtle differences in your risk profile and honing your sensitivity
to your inner voice and feeling is particularly important in a market where old rules
have been thrown over board in record time. Many technical analysis tools have come
under pressure of late and need to be reevaluated. We are coming back to the old thing
of mental nimbleness. Mental nimbleness and your personal risk profile go together.
Always remember this: You cannot view anything in isolation. Everything is inter connected.
There are fixed risk parameters which you should adhere to, just as you should listen
to your innate, inner filters which are send out more intangible signals. Use all
components in conscious way and choose between them as appropriate and you will become
a true master trader.
In my on line psychology of trading course and my seminars you will learn more about
honing your inner sensitivities.
Before we move on to the impact environmental factors have on the mind I want to
briefly take you through a map of your brain and where the different parts that trigger
our reactions are located.
It is always a good idea to have a basic understanding of the way your mind reacts to stimuli under any circumstance, and this knowledge is even more important for your trading, because it will further deepen your understanding of the workings of your mind. This knowledge will give you power and control while also detaching yourself from your emotions.
Your nervous system consists of the brain, the spinal cord and the central and peripheral
nervous system. Together they control every function in your body. Nerves send messages
from every part of your body to the brain. The brain receives and evaluates the messages
and sends a response. You feel this response in your body as feeling happy, calm,
antsy, stressed or fearful.
The brain consists of three main parts. The forebrain, midbrain and hindbrain.
Let us begin with the pre-frontal cortex. This part of the brain is situated at the
front behind the forehead and is the most evolved part of the brain. The cerebral
cortex is the largest part of the brain. It is divided in four parts. The frontal
lobes, parietal lobe, occipital lobe and temporal lobe.
The neocortex occupies the larger part of the cerebrum and is only found in mammals. It is a part of the brain that has evolved fairly recently.
All the executive functions of the brain are located in the frontal lobes. This part
of the brain supervises your behaviour and operates tasks like planning, judgement,
analysing and reasoning and organising.
The parietal lobe is associated with movement, orientation, recognition and perception
of stimuli. The occipital lobe operates visual processing and the temporal lobe is
associated with auditory stimuli, memory and speech. These parts of the brain are
particularly challenged when we are working in front of computer screens for many
hours and even more so when we are trading. Trading requires a constant state of detached
alertness and focus.
When we are executing any of these tasks more blood is drawn into the area of the
frontal lobes. This blood supply recedes under stress, anxiety and tension, partly
because we tend to breathe more shallowly under stress. This causes a gradual shut
down of these lobes as the blood and oxygen shift to the more primitive cerebral regions
of the brain. We also refer to those responses as fight and flight responses.
Proper, conscious breathing is an important part of any cognitive awareness practice
and is a very important part of reacting quickly to changes because it helps to keep
the oxygen supply to the brain up. Conscious deep breathing keeps the blood circulating
to all parts of the body, including the different areas of the brain. Keeping the
blood and oxygen supply up to the frontal lobes under all circumstances reduces stress.
Vital life functions, like breathing, blood pressure and your heartbeat are controlled
through the brain stem which is situated underneath the limbic system.
The cerebellum is much older than the cerebrum. It is associated with the coordination
of movement, posture and balance. Simply changing your posture helps to change your
mental state. It is a very effective tool for emotional control, which most of us
have forgotten to use.
The emotional brain or limbic system is part of the cerebrum and is part of the oldest
structure of the brain.
When man was a hunter gather the older parts of the brain were essential for survival.
In response to danger hunter gatherer would either run away or attack the danger source.
This is also referred to as fight and flight response and is still a behaviour pattern
present today in humans which causes stress reaction and contributes to poor problem
solving skills.
As already mentioned when we are under stress the logical part of the brain ceases
to function properly, because the frontal lobes get depleted of blood and oxygen.
The blood moves to the older and more primitive parts of the brain. In this situation
the old parts of the brain take over completely causing unwanted fight and flight
responses. Today, we seldom react by running away or by attacking the danger source.
Instead, we react with anxiety, poor judgement, unreasonable fear, anger, aggression
and eventually disease. These are all behaviours a stressed trader will display. When
positions go against you it feels as if there is nowhere to run, nowhere to hide.
In order for the modern brain to function properly we need to re-educate the mind
to understand when the fight and flight functions are valid and useful and when they
are sending false signals. For instance, when you are in a traffic jam and you get
angry and upset, your flight and fight responses are clearly sending a wrong signal.
You are of course aware of this and try to control the response. This can be stressful
because the older part of your brain is fighting with the newer part of your brain
and this fight causes mental friction.
There are also instances when you are not aware of these fight and flight responses,
as we have already briefly discussed. This is the case when you react on auto pilot
but make incorrect associations, often resulting from unresolved trauma.
In some situations, even in today’s world, your fight and flight responses can be
very useful. For example, if you are on the motorway and a car pulls out right in
front of you, your fight and flight responses are a great help triggering a fast response,
like making you change lane quickly, or hitting the brakes in order to avoid an accident.
In these situations you do not have the time to think logically for many moments but
must act intuitively. Your brain automatically creates the right associations for
you in this situation.
Assessing a situation correctly, quickly and automatically is key to peak performance
in any circumstance and it certainly is a necessity if you are a short term trader.
If you recognise when your fight and flight responses send inappropriate signals you
can react and maintain control instead of blindly giving into inappropriate emotional
reactions and feelings.