Articles on Trading Psychology by Rande Howell, Trader Psychologist

Mastering Trader Psychology

Discovering Your Hidden Strengths that Transform Your Trading



It’s confounding.  You know how to trade, but, under the pressure of the moment, your trading mind falls apart – time and again.  And the potential that trading represents for you goes up in flames.  Fear seizes you, or you get too aggressive.  All that potential gets swept away in an emotional hijacking.  Yet, deep down, you know you can do it.  Something stands in the way of your fully developing your trading potential.  Even though you want it, and you know it’s possible – you just cannot figure out how to bring this part of yourself into the action of trade management when the money is real.  This is the situation with just about every trader.  You are close, yet you are so far away. 

            How do you go about closing the gap between your potential as a trader and your current level of performance as defined by your trading account?  The first condition is that you have to acknowledge that there is a problem that is not going to magically disappear.  The second condition is that you have to understand the problem in a way that allows you to truly change.  To do that, you are going to have to come to the realization that you are the weakest link in your trading system.  For the purposes of this article, I am going to assume you have recognized that you are a major contributor to the problem that you are having in trading – and that you are serious about solving this problem you are having in your trading performance.

Your Caveman Brain Needs an Overhaul

            This second condition, an effective understanding of the problem, is twofold.  You bring an evolutionary psychology into trading from your ancestral caveman ancestors that works against you in trading.  The brain you inherited from your history was built around controlling fear.  To do that, early humans had to control their environment (as a trader you would know this as controlling outcome).  They had to be right (and not wrong), and they had to predict occurrences.  These three requirements were tantamount to survival (living and not dying).  Our caveman ancestors developed biases that made them believe that they could win against all odds (even if it was not true).  This allowed them to doggedly pursue survival. (Have you ever moved stops in the hope you would not lose?).  If they controlled outcome, they won (survived another day).  And if they lost, they died.  You can see how these biases helped them prevail against harsh conditions and become the humans we are today.  This is the genetic predisposition that you bring into trading. 

            What worked then is dangerous now.  In the world of trading, traders armed with optimism bias believes that they can control outcome on a deep level below conscious threshold.  They also believe that they will win and not lose, and that they can predict turns in the market.  But, in reality, the trader has no control over these factors, as actors on the stage of the markets.  The great traders have learned they do not have control over the markets, that they don’t control winning and losing, and that predicting turns in the market are simply guesses that may or may not be right.  Bottom line, you are equipped with a brain that is trading’s worst nightmare.  No wonder it freaks out at all the uncertainty it is faced with in trading.  The brain you bring to trading does not control outcome – but it can learn to control the mind that it brings to the performance of trading.

            Your personal psychology further shapes your evolutionary psychology.  Alphas learn to win – to control outcome – as a demonstration of their power to produce the desired result.  Losing is not an option.  Even worse, they learn that they can make things happen. This becomes the psychology of winning.  This too, is a dangerous mind to bring to trading.  The inherent biases of controlling outcome, winning and not losing, and predicting occurrences has to be reforged into very different ways of engaging the markets.  The old ways are not going to work.

Are You Stuck or Can You Grow a Trading Mind?

            Yes, you can.  Though your brain is built around fear and aggression as instinctual responses to the threats posed by Uncertainty, a new brain/mind can be shaped that behaves very differently around Uncertainty than your Caveman brain.  In the same way that there are emotional programs like fear, anger, lust, impulse, greed, and urgency – there are also emotional programs, built into our very being, that bring forth discipline, courage, patience, and clear thinking.  They are not what evolution wired into us as first responders, but they are there.  And they can be developed. 

            In my work with traders, I teach how to build a mind that engages Uncertainty from the emotional position of the discipline of a ruler, the courage of a warrior, the self-soothing of a caregiver, and the impartiality of a sage.  These emotional programs are alreadythere.  They simply were not the ones that got wired into our habitual and instinctual responses to encounters with Uncertainty.  Remember, for our Caveman ancestors, encounters with Uncertainty was serious business.  They lived in a dangerous world where they could be killed at any time.  No wonder fear and aggression became the first responders to Uncertainty.  Surviving the moment was a challenge.  It was successful and therefore got wired into the Caveman’s genetic predisposition – the same one you bring to trading. 

            If you are to thrive as a trader, you are going to have to reconstruct how your brain responds to Uncertainty.  Instead of fear and aggression (fight/flight) as the instinctual response to the perceived danger of Uncertainty – you need to train your brain to respond to Uncertainty from discipline, courage, calm, and clear thinking.  These emotional programs are the ones that lead to an intentional mind that can deal with probabilities over a longer course of time, rather than an instinctive reactive mind that arose because Uncertainty was equated with the fear of death.  Serious stuff.  The key to remember is that money, in the emotional brain, is linked to power and safety.  For, in the emotional brain, if you win, you have perceived power and safety.  If you lose, you lose power (life) because safety has broken down. 

Toward the Intentional Mind Built for Trading

            Through neurobiology we now know that all thinking is emotional state dependent.  That means that whenever emotions are programmed to fire when exposed to a stressor – your thinking will follow.  That’s why it is important to train the brain to trigger to certain emotional programs (rather than others) when you are experiencing uncertainty and risk together.  We don’t want your Caveman brain responding to critical moments in the trading process.  If that occurs, the result will be instinctual and reactive and based upon fear.  

            Instead, the trader wants the mind that arises from the discipline of a ruler, the courage of a warrior, the calm of a Caregiver, and the impartial clear thinking of a sage.  The aim is for these emotional programs to trigger when engaging the uncertainties found in trading.  Out of that emotional cocktail comes the intentional trading mind – the one that is comfortable dealing with uncertainty.  There are various ways of attempting to create this particular outcome.

            The one that I teach starts with emotional regulation.  Until you are able to manage the emotions that fire when encountering Uncertainty, you will never progress, because you are continually being emotionally swept away.  The purpose is getting to the door of the mind, where your beliefs about your capacity to manage Uncertainty are to be found.  It is these beliefs that govern how you react to Uncertainty and your trading account is the indicator telling you from what beliefs you are trading. 

            To find these beliefs, I teach mindfulness as a way of stepping out of your thoughts and no longer identifying with them.  You learn that you and your thoughts are different from one another.  This is a big deal.  And you learn that there is no “I”.  “I” is only one potential organization of a Self that your brain arrived at many years ago before you had a say-so in it.  And through Memory Reconsolidation, you take experiences you have had where discipline, courage, self-soothing, and impartiality were present and you reorder the way the mind encodes the experience into memory.  It is here that you gain access to the emotional program from memory rather than by visualization or affirmations.  Memory Reconsolidation is far more successful than these other methods in accessing powerful emotional programs.

            This is where the emotions are called forth in order to build the intentional mind.  It takes work to reconstruct what nature and time have fused together, but your brain is plastic and can be remolded to summon the trader’s mind when under pressure.  It is this great hope that traders strive for.  It’s not making the money.  It is the emotions behind the performance that you are seeking to control.  You do not control outcome.  But you can control the mind that you bring into the moment of Uncertainty.  This is the trading psychology edge you are seeking.  It is not a winning psychology – it is a performance psychology.  Self-mastery is the aim – not winning.  Winning by engaging the performance mind.