Where you are in your development plays an important part in how you react to other people and how you see your world. Naturally, this extends to the way you view the markets too. Together with your conditioning your developmental stage dictates how you get on in life. (We are mainly concerned with the cognitive developmental stages here.) Your cognitive development stage dictates your emotional state and how well you interact with others.
Trading is a form of interaction with the outside world. Remember, I have likened
the markets to looking at life on a graph before. You may be sitting in front of a
screen, but you are still having a relationship with the information that you see
in front of you. You process this information in line with your internal filters.
Your level of development influences your filtering processes.
The more developed the cognitive side of your development is the more you will be
able to control your emotions and also understand those of others. This fact has got
major implications on your career and in particular on your understanding of markets,
cycles and crowd emotion. It also becomes obvious why it is important that you understand
what the individual developmental stages tell you about yourself.
An emotionally healthy person will have been through the first three stages without
experiencing trauma. However, if there has been trauma, particularly in the first
two stages of development it can be very difficult to remove the resulting emotional
problems, which tend to last into adulthood. Identifying at what developmental stage
a trauma occurred can go a long way to clearing it.
You may recall that I said that you are unable to decide whether trading is for you,
unless you have cleared out any shadows you may have. Your shadows are the unresolved
issues that lurk largely in the subconscious mind. In order to assess correctly which
trading method would suit you best you should be free from old emotional trauma. Using
just your logical mind to assess what trading style is right for you means that you
are using only a part of the entire evaluation process. It is like saying that you
decide which car suits you best when you have only ever driven a VW in first gear.
Identifying your personal developmental levels and clearing your shadows will get
you in touch with yourself.
In order to trade well you do not only need a trading method that suits you, but
you should ideally identify those markets which reflect your personality and trade
those instead of trading anything on your quote board that has a ticker. Once you
understand where you are in your cognitive development the information can help you
to find markets that match your personality. So, let us look at the different developmental
stages next.
The developmental stages:
Different developmental experts have developed different models. In essence. there
are five basic stages of development. For the purpose of this discussion we are concerned
with only four of these stages though, as outlined by Jean Piaget. The four levels
are: sensori motor, preoperational, concrete operational and formal operational.
In addition to the four levels there are the fifth levels which are the levels of
enlightenment. There are several levels within these levels as outlined by other researchers.
Since very few people reach the levels of enlightenment, we are not going to concern
ourselves with the fifth levels in this book.
In the first stage, the sensori motor stage, (0-2 years) the infant is unable to distinguish between itself and the environment. This stage is also called oceanic oneness. At the age of around 9 months the infant begins to develop a relationship with its environment. The infant experiences his environment only in the now and reacts to stimuli with sensori and motor senses. At this stage consciousness begins to develop.
If a trauma occurs at this stage psychosis may develop that will last well into adulthood,
often a life time. This lack of grounding in the body leads to an inability to differentiate
between the body and its environment and subject, object boundaries.
A person who has these problems in adult life will be stressed easily. Their fight
and flight responses will be triggered more often than in a person who has not experienced
any trauma at this level, which can lead to difficulties in all their relationships
and cause many problems trading. They will feel easily spooked whenever the market
makes swift moves and will either freeze or panic. These reactions go back to creating
incorrect mental associations. The old trauma gets triggered, but the trader cannot
see this and thinks he is reacting to the markets.
When the infant is about 18 months of age he starts developing his own emotional
self. The infant starts separating his feelings from his mother’s feelings. This is
referred to as the “psychological birth”.
Traumas occurring during the transition period lead to an overload of emotions. This
can continue into adult life and people with these problems will always be overwhelmed
by their emotions. They will be totally immersed in their feelings every time an unexpected
situation arises and it will be difficult to deal with even simple challenges.
The opposite is also true. Trauma at the end of the sensori motor phase can lead
to a complete disassociation with the body causing problems with intimacy in later
life. If you have unresolved trauma from this period you will either go constantly
into fight and flight responses and certainly short term trading, or intra day trading
may prove a major challenge, or you would tend to be reckless, putting on positions
without any concern for proper risk reward strategies.
These traders will also be inclined to risk the farm, when they post big losses,
trying to make back the losses. Interestingly, there are also very successful traders
in this group, since they do not have any problems with nerves, they can trade high
risk reward systems and make a fortune very quickly, if they are lucky. Either way,
this behaviour tends to occur of course when one is disassociated from ones’ self
and is not healthy.
A healthy sensori motor stage will see the infant able to make distinctions between
self and the environment. The infant will experiment with objects in their environment
and learn in simple terms about cause and effect.
The preoperational stage (2 – 7 years), is the stage where the mental ability to think starts to evolve. The young child begins to create mental images. Initially, the child confuses these images with the outside world. This is why magical thinking dominates at the preoperational stage. The child believes that images cause things, but is unable to fully understand the order of events, or causation.
Many adults, particularly those in tribal societies have this magical relationship
between an object and their powers. Talismans, photographs, the lock of a hair, the
bone of a saint are good examples which we are seeing quite often in new age groups.
The preoperational mind believes that these objects have innate power, rather than
being able to observe that they themselves give power to these objects.
If there is trauma at this stage the magical thinking continues into adulthood. This
can lead to total detachment from reality and will make it difficult to see things
in an objective way.
The child does not realise yet that there are other ways of seeing things and that
other people experience things in a different way than they do. This stage is characterised
by egocentrism, an inability to see anything else but the self. The world centres
round the child and everything in it is there to please it. When two children talk
to each other their talk is solely ego based, there is no real communication between
the two children yet.
You can observe this tendency in adults who tend to suffer with A.D.D. If problems
occur at this stage the ability to communicate and relate to past present and future
concepts is often severely impaired as well.
Focusing and relating to more than one situation at a time is difficult and often
impossible, causing anxiety stress and frustration. Planning for the future is a foreign
concept and these people often live from day to day. Planning a week ahead, let alone
for that holiday in three months time are major challenges. If a trader has problems
from this developmental stage they will trade their view of the market rather than
allowing the market to tell them where it is going. I hardly need to point out that
this attitude can lead to total trading disaster. If magical thinking persists into
adulthood a trader will often trade on hope, without realising this. Alas, hope is
not a strategy and certainly does not make for good trading.
A healthy preoperational stage will lead to a gradual disappearance of magical thinking.
Concepts of past and future develop and from the age of four speech becomes more social.
The child is not yet able to connect two types of relationships though and how they relate to each other.
Right and wrong are only understood if the child receives punishment for a wrong-doing.
The child has no model for right and wrong. Right and wrong comes from authority,
and that is all there is to it at that stage.
In the final stage of the preoperational phase the child begins to make connections
between two relationships. The child also realises that their thinking alone does
not create what they want, but instead God or Daddy can magic up dreams and turn them
into reality. This stage is also called the mythic stage and represents advancement
from the magic stage. Mythologies derive from this stage. The miracle powers of saints
also fall into this category. The mythic person believes that miracles are possible
and cannot yet understand that there are natural causes that make “miracles” possible.
The mythic believes that it is possible to supersede the laws of nature through miracles.
They have no concept of their own power of creation.
As I have already mentioned, many adults are stuck at this level, at least partially.
People who are stuck at this level will be more likely to follow a guru.
They will look for a clever broker with authority, or seek a well known trader they can follow. They will trust this person implicitly, believing that they are infallible. Trading like this can work for a while, even quite a long time, if the trader they follow is good. Alas, true trading mastery does not come from following blindly in another trader’s footsteps.
Traders in this category give little or no consideration to the fact that we are
all human, and that even the best of traders can make costly trading mistakes, just
like every one else. The followers are quick to place blame on the person whose advice
they follow. The concept of taking full responsibility for one’s actions is but a
spurious one at best.
Typically, people at this developmental level congregate in religious groups, or
new age gatherings. They thrive on ritual and symbolisms and are often members of
secret societies.
The concrete operational stage (7 – 11 years), produces a further differentiation between self and others and the environment. At this stage the child learns to perform concrete tasks, like learning to write, maths, ride a bus and so on.
The majority of adults, 70 percent, in the western world, are stuck at this level.
They are able to perform very complicated concrete tasks, like building computers,
flying aeroplanes etc.
In this stage the child moves from egocentric to socio centric. The child begins to identify with a role they are assuming, like playing soldiers, for example. The child will identify totally with their role.
The child learns to distinguish between himself and the group and identify with his
role in the group. The child can see another’s viewpoint but is totally immersed in
their own role. In later life, as an adult, the trader identifies totally with being
a trader, the accountant identifies with being the accountant, the lawyer identifies
with being the lawyer. There is no identity outside their role as yet. The roles may
change, from student to trainee, to accountant, to father, lover, wide or husband.
In other words, in the concrete operational phase people will always identify with
the roles they are assuming at any given time and are totally immersed in them. They
have no concept of the idea that they are more than a trader, a layer or whatever
else they identify with. The spiritual concept of being one is not part of their reality
as yet. Identifying fully with the role one plays creates an artificial sense of separation.
Trauma at this stage often leads to self pity and self degradation. “I am no good,
I am incapable, I am unloved”, are typical beliefs that result from trauma in that
phase. Difficult relationships with parents, difficulties at school or university
and a succession of failed relationships in can trigger this behaviour. Later in life,
divorce or repeated problems at work are possible further triggers.
Changing a belief, even if it is un-resourceful, is challenging at this level. The
concrete operational mind seeks concrete evidence and forms beliefs based on concrete
evidence.
People immersed in this stage have difficulty visualising or imagining something for which they have no concrete evidence. In order to adopt new beliefs they will need to find proof that the new belief works. For example, they may find other people who have the new belief and their lives are evidence that the new belief works.
In the trading environment these traders tend to back test everything. Their system
will be based on solid back data and they will in all likelihood be better intra day
traders than swing traders or position traders. Trading a proven automatic system
may well suit a person at this level.
However, the tendency to feel self pity whenever the trading going gets tough can
be very exhausting and stop these traders from fulfilling their potential and be consistent
with their trading.
The formal operational phase is characterised by abstract thinking. The formal operational mind can imagine what something may be like in the future. It can imagine what the new belief will be like without having concrete evidence. The formal operational mind notices patterns and can make connections between events the concrete operational mind is unable to make.
The formal operational person is one step further removed from themselves. They are able to think about thinking and are thinking outside the box. All visionaries are formal operational thinkers.
While the concrete operational mind learns to apply rules the formal operational
mind goes beyond this and figures out how the rules come about. Logical and abstract
thinking are the hallmark of the formal operational stage. Such a person will experiment
with new ideas by careful deduction. They are able to imagine the outcome of a project
while they go through a systematic plan to establish the best way to get the results
they desire. They are able to see the many different possibilities and the ways of
testing them.
The formal operational mind does not identify with their role any longer, but develops
a world centric perspective. From this perspective a person is more concerned with
the good of the group rather than just himself. At this stage true self-esteem begins
to develop for the first time, as the person fulfils their needs as an individual,
rather than fulfilling the needs of the role they play. They have stopped identifying
with the group.
At this stage a person also begins to dis-engage from immersion in the self. They
can see that the world does not revolve around humans, but instead that human existence
is part of a much larger picture involving the cosmos as a whole.
Option traders can be found in this group. They have the ability to develop intricate
systems and develop new indicators and new systems. Traders in his group have the
potential to be true trading masters, who have mastered their system as well as using
their vision and intuition to trade. These traders have no need to follow a disciplined
set of rules. Yet they are disciplined in their approach while also bending the rules
to suit their deeper insights. True mastery is about knowing the rules and then interpreting
them to suit your own requirements. Traders who are integrated at this level will
be at home with any kind of trading and have a good sense of where the market will
be in a year or even five years from now
A world of all possibilities begins to open up at this stage.
About 30 percent of the western population reach the formal operational level. If
there is a problem during the transition from concrete operational to formal operational
an identity crisis develops. One may temporarily be unable to find a role in society
as one is searching for the individual self and how the new self may or may not fit
with society.
Such identity crises can be very testing for a trader, because all of a sudden nothing
seems to make sense any more. Things that seemed to work stop working, one does not
know which way to turn or where to look for the right answers. Finding one’s identity
is a bit like chasing after the ever elusive Scarlet Pimpernel.
It is possible and quite common to be partly stuck in one developmental level whilst also moving on to the next level. The vast majority of people, over 85 percent will be stuck at some level at some point in their lives. These periods are always challenging and can last a long time, often for years. If this is the case it certainly is advisable to seek help to move on to the next level more easily and become integrated. Just understanding what is happening though can be a great help.
A person can develop vertically and laterally. Vertical development refers to moving
up into the next developmental level. Often people will still develop laterally at
the level, where they are presently stuck and develop total mastery in this level,
but they are also flirting with the next level simultaneously. These situations can
also create problems. For example, a person in this situation may be a brilliant trader
but have no relationship skills.
Sometimes there are aspects of several different developmental levels present, all
at the same time.
This can be very confusing for the individual and their family and friends. Again, as I mentioned in the previous chapter, as a trader, or in any other profession for that matter, you may well excel, if you are stuck or partially stuck at a level. You may lack in certain other aspects, but it is entirely possible to develop total mastery, say in trading the five minute charts, using a system that suits you and do very well. You may not have much of a grasp when it come to longer term trading or investment decisions but you may still do very well indeed. Likewise, you may be a great strategic trader, yet no good at intra day trading.
If you are stuck in several levels at the same time, you will very likely be trying
out many different trading approaches and not stick with any particular one for very
long, always going back to the old method sooner or later. The mind is searching for
better ways continuously, but cannot quite get into the new niche. There always seems
an element lacking.
Change seldom happens over night. When you are experiencing a transitory phase you
will typically get glimpses of a new reality, a new way of thinking and being, but
you cannot hang on to it. It is like climbing a mountain peak for the first time.
You get to see glimpses of what it will be like to be at the top but lack the strength
or techniques to climb the entire mountain at the first attempt. Alas, if you keep
practicing, eventually you will get there. This is what happens when you are in between
cognitive developmental levels and are finding it hard to move forward.
Your thinking is partly stuck in the old paradigm. You may read about a new way to approach things, and get a hunch of it merits, but simply cannot grasp it fully yet, let alone put it into practice.
I have told you before that learning new trading strategies will not get you the
results you desire unless you sort out the real cause of your trading difficulties.
When you are stuck between developmental levels you must become aware of this fact
and address it, before you look at different trading strategies. Unless you resolve
these development mismatches in your mind first you cannot address your trading strategy
successfully, because your thinking is still the same, confused and chaotic while
you are trying to integrate different stages or are struggling with suppressed early
life trauma.
Integrating the different developmental stages can take time, sometimes years, particularly
if you are not aware that this is your problem. In fact, it is very common for transitional
periods to take ten years or more. Most of us will experience being stuck at some
level of our development, or even several development levels, at some point in our
lives. It goes without saying if one is stuck in several levels at once the problems
are greatest.
This very important aspect of our existence is simply brushed under the carpet, and
yet it is so important to understand this aspect of yourself, because this knowledge
about you can be invaluable when it comes to understanding how you operate and deciding
what kind of trading is right for you. It is also very useful information to have,
when you may move jobs or decide to change trading styles. I urge you to study this
section carefully and examine yourself for clues in your own behaviour and the challenges
you may have trading consistently.
When a person is stuck in more than one developmental level it can feel as if that
person has different personalities and one never knows which hat they are wearing.
As I said before, understanding what is going on can be a great help.
You can help the developmental process along by practicing techniques to unlock your
brain. Certain meditation styles are wonderful tools and will make your mind more
nimble. Self exploration is the best thing you can do to move on and will assist you
in creating harmony in all aspects of your life again. It enables you to feel in control
and step back from your emotions and take control again.
To finish this discussion I want to share a little Zen story with you. This little
story sums up the essence of the evolutionary process we are all going through all
the time.
There was a Zen student who had studied and practiced Zen for years under his master.
One day the master asks the student to tell him what he had learned from Zen. The
student dutifully mentions, oneness, enlightenment, Buddha nature and so on. The master
turns to the obedient student and says: “You stink of Zen.”
You and I are always on the path. Recognise this and become aware that your perfect
performance today is the imperfection of tomorrow. Above all realise just how absurd
it is when you beat yourself up for not performing better, or viewing your recent
trading activities through a critical, judgmental lens.
There are only two basic questions you should ask yourself every day: Are you giving
your best in this moment and if not, what can you do to make the answer yes? Then
take action accordingly.