​Mastering Trading Psychology

Mindful Trading:  Mastering Your Emotions and the Inner Game

by J. Rande Howell, MEd., LPC

all rights reserved

​Articles on Trader Psychology by Rande Howell, Trader Psychologist









​​

Introduction - Part I
___________________
“I have never worked so hard for easy money in my life.”
A long suffering trader
____________________
Six Months Prior


“I give up. I quit,” Jacob writes in the midst of despair
to his online trading community, “I’m losing more now
than when I started. When I was working and trading, I
made money. Trading wasn’t a problem. I didn’t depend
on it; I always had the fall-back position of my job. Then
when I quit my job to devote my time to trading full time,
things started going downhill. It has consumed me. After
three years of researching, demo trading, live trading, webinars,
trading groups, books, magazines, I have finally
decided to throw in the towel. My life has been turned into
a mess. I’m smart – I thought I could learn how to do this
successfully. I hate giving up, but I have a family to support
and this just ain't workin', so back to looking for another
9-5 hum drum job - oh well.”


In response to his on-line trading friend’s dark night of
the soul, a successful trader compassionately inquires,
“Have you ever considered that the problem is in you
head? Maybe you’ve missed the obvious. Maybe trading
success is not in methodology and trader tricks. Maybe
the problem is your mindset. It’s your mindset that uses
the tools of methodology and platform. Maybe you need to
find the courage to challenge yourself, rather than cut bait
and run. Trading will force you to face your demons – the
very ones you’ve been avoiding. It takes courage, but it
opens the door to a new world of possibility. Wouldn’t
you want to look into that before you give up your
dreams?”


Jacob responds, “I’ve read all the trader psychology
books – even had a coach. Went so far as to have someone
tell me my stars and planets weren’t in alignment –
how weird is that? They were able to tell me what I
needed to become and what I ‘should’ be doing, but they
couldn’t teach me HOW to change.”


“Try one more time – you can always quit later” came
the reply. Finding inspiration in his friend’s words, and in
a moment of courage, Jacob reevaluated his thinking and
decided to do just that before he admitted defeat. This time
he was really going to take a good look at himself as the
responsible party.


Six Months Later


Chatting with the trader who had encouraged him to
train his mind rather than avoid his discomfort, Jacob reports,
“I am at 50% wins with my wins being 2.3 times
bigger than my losses. I always said if I could be at 50%
with a 2 to 1 ratio, I could make a lot of money trading. I
feel like the percentage and the ratio will both continue to
increase.


Since I first started working with my trader psychology
coach less than two months ago, I have gone from bad
trading patterns and growing more fearful every day, to
having my team of inner heroes in place. I had no idea
how inter-related trading and my psychology were. All of
this is a direct result of the change brought about by learning
how to face my fears courageously and to establish a
calm assertive state of mind. For the first time in a long
while, I feel optimistic about the future. And each day I
look forward to my trading – that’s quite a change. It’s a
great way of developing the potential I have as a human
being..”


What Happened to Jacob’s Trading?


Did you miss anything? What happened in those 2-6
months that changed Jacob from throwing in the towel to
trading confidently? How on earth does Jacob (or any
trader for that matter) go from a deepening despair about
his prospect for trading success to a growing confidence
that his trading skills have opened the door to his financial
freedom – with a trading account that reflects this change?
Essentially this book addresses the huge breakdown I
hear from traders all the time:


“I know HOW to trade, but my emotions keep getting
in the way and sabotaging my efforts. How do I change?”


The answer to this question is the difference between success
and failure in trading.


To answer these questions, let’s start in the beginning.
Most traders lose long before they make a trade. They
enter their trading day with their thinking already clouded
by a fear of loss, a fear of not being able to make up for
their losses, or an urgency to make up for prior losses. Entering
a trading situation in this state of mind is a set up for
losing that can become an avalanche. Learning to manage
this is the difference between success and failure.


Unfortunately, traders ignore or avoid dealing with
their emotional nature and their mind. And in the left
brained, information over-loaded, and emotion ignored
trader education process found in trading today, it is no
wonder. In their ensuing mindlessness they do not see or
understand the linkage between brain and mind – and trading.
They become blind to the unseen forces that shape
perception and create the dynamics of their trading. Mind
and trading cannot be separated. Yet traders ignore the
mind, living in the dangerous misconception that they can
push emotions and beliefs aside. They might as well be
walking on the edge of a cliff wearing a blindfold. It is
only a matter of time before they blindly take a step that
puts them into a free fall.


It does not have to be this way. You do not have to be like
the vast majority of traders who lose because they do not know
or refuse to know how brain, mind, and trading inter-relate.
You are about to take a voyage of discovery into this interlinked
world that shows up in your trading room as “you” coordinate
your platform, your methodology, and the perceptual
map called your brain. Let’s take a look.


The Three Legged Stool of Trading


There are three dynamic inter-related aspects to trading –
platform, methodology, and psychology. In much the same
way that a scalpel is an extension of a surgeon’s mind and hand
in an operating room, so is the trading platform, methodology,
and psychology of mind for a trader. The scalpel in the hands
of an untrained person is dangerous to the outcome of an operation
(or trade). To increase the probability of success, the surgeon
also needs to be located in a platform (operating room)
that creates an ideal environment for successful outcome
(beginning to sound like trading does it not?) The surgeon has
also invested years in learning a system of knowledge (a methodology)
that internalizes a skill set that allows him to make
precise cuts with great confidence. The platform (the operating
room that provides the essential environment for surgery or in
your case – trading) is not really useful to the surgeon if he
does not have a deeply learned methodology.


It all comes together with the surgeon holding the scalpel.
(Think about you as a trader with your finger on the trigger.)
The surgeon’s mind has not only been trained in technique (a
trader’s methodology), but also emotionally so that he is about
to maintain discipline, patience, impartiality, and courage.
These must be maintained because there is little margin for error.
He is able to emotionally manage his mindset in a calm,
assertive state of mind no matter what happens. It is this state
of mind that separates great surgeons from mediocrity. It's the
same with traders.


Trading System ↔ Methodology ↔ Psychology
Now let’s take a look at trading as a dynamic process that
occurs between your trading system (your platform), your
methodology (your method of risk management), and your psychology
(the director of the process).


It sounds so easy when you read the advertisements:
"When you use this system the keys to your future will be in
your hands. You will have the power. Just buy this and you
are on the way to easy street!" And the trader dreams about the
proposition and wants it. Of course there are those pesky little
disclaimers in very small print at the bottom of the page that are
ignored. What began as a laptop mushrooms into an elaborate,
many-screened system that would make NASA rocket scientists
feel envious. Then the trader turns it on and soon discovers that
it is dangerous to his financial health without methodology
training.


Next the trader discovers trader education that is focused
on teaching methodology. For most traders, reading a few
books and picking up some tips is far less than adequate to become
competent in learning to build a methodology that enables
the trader to manage risk effectively. Many thousands of
dollars later, the trader knows HOW to trade. This is an essential
step much like the surgeon has to go to medical school and
take residencies to build the skills to know HOW to cut a human
body effectively.


Now the trader is prepared. Like our friend in the beginning
vignette you, as the trader, have learned a tried and true
methodology that almost assures trading success if you follow
its rules and park your emotions at the door of your trading
room. You have experienced success doing simulated trading
with play money and are confident of your skills. You're ready
to get in on the action.


And then you crash (maybe after some initial success).
The moment real money entered the trading game, everything
changed. Uncertainties, fears, self doubt, and impulsiveness
trigger and overwhelm your carefully laid plans. At first, you
try to push these emotional nuisances to the side. But they
seem to sneak attack you and before you know it you wake up
in the middle of the night with bad trader dreams about losing
everything or you find yourself in a cold sweat. Your mind
begins to ruminate about your upcoming trading day and you
wake up with knots in your stomach, dreading going into your
trading room. You can already predict the doom that is whispering
in the back of your mind. You are already in a fearful
state of mind before you start trading – and so starts your trading
day.


You try positive thinking or some thought reframing technique
with an anchor that you have picked up from a trader psychology
article. That works for a tantalizingly short time then
stops working, so you try rationalize your increasing losses by
telling yourself that losses are part of trading – so no big deal
(another reframing technique). Yet a voice in the back of your
mind recognizes that you are BS’ing yourself. You are in self
doubt. And you continue to trade from this state of mind waiting,
as if by magic, for things to change. They do not.


You Trade Your Psychology


This is about the time that you, as a trader, realize that it is
your psychology that actually is doing the trading. Your platform
and methodology are only tools that your mind uses to
interact with the market (same as the surgeon). And unless you
learn how to deal with your psychology and change it, you will
continue losing. The choice at this moment is a critical juncture
in the journey of a trader. You can either get out, as our
friend Jacob was considering, or you can develop your mind for
trading.


It is at this moment that the separate legs of trading
(platform, methodology, and psychology) come together and
begin to function as a unit. Traders, like everybody else in the
world, have invested enormous energy into avoiding what they
fear. The difference is that trading does not allow you to avoid
your flaws. In trading, your flaws find you in the process of
trading. Wherever there is a weak spot in the integrated system
of platform, methodology, and psychology, trading will expose
it. It is just a matter of whether you embrace change or avoid it.
Short term, avoidance works. Long term it brings disaster.
Platform and methodology limitations are fairly easy to
spot. Psychological blind spots are not. And even if you do
find them, how do you correct them? That is exactly what we
are going to be exploring in this book.


The Organization of this Book


We start here – recognizing that your personal psychology
is what trades. It is not your methodology or your platform.
Both are essential in creating effective trading performances,
but they are only tools. It is the organization of the self,
your psychology, that trades. You trade yourself. And “you”
are what you believe at the core of the self – not all that superficial
fluff that you tell other people. That is why when your
money enters the trading, everything changes. Trading cuts
right though the fluff to the core of what you have been avoiding.
Sorry, but that is the nature of trading.


Suddenly, you are thrown into risk. And depending on the
organization of your psychology, you either
trigger to fear and self doubt or to grandiosity (greed) and impulsiveness.
Trading from this state of mind creates incredible
suffering for traders. Re-organizing the self so that your psychology
trades from a peak performance state of mind is the
essential quest for a determined trader.


Initially we will be looking into the nature of perception.
You will learn why you see what you see – and do not see
what you don’t see (particularly the pitfalls of mindless trading).
To do this, you will be learning about the biological and
psychological nature of fear and how to manage it so that a
more empowered trader begins to emerge within you. You will
be learning about how to emotionally regulate fear and greed so
they do not sweep you, your thinking, and your trading off into
never-never land. Emotional hijackings can become a thing of
the past. It takes work, but every successful trader has to learn
this lesson. The payoff is consistent, less stressful, and disci-
plined trading.


Next you will be learning about Mindfulness. This is
where you discover that you and your thoughts are not the
same. You will literally learn how to step back and observe the
heretofore unseen forces in the mind that have been dominating
your state of mind. With this skill you will see how to find the
discipline, patience, courage, and impartiality so necessary for
effective trading.


This is the moment where you will discover that you can reorganize
your beliefs and perceptions to become a different “you”.
You can become the person who brings forth consistent trading. You
are really learning that these aspects of the self are already there; you
have simply been blind to their existence and did not know how to
develop these aspects of the self. Nurturing and developing them so
that they are center stage during your trading day becomes the skill to
be managed.


Essentially this is a book about hope. You will learn how to
“see” the market from a different perspective. And from that perspective
more positive possibility begins to open to you. So let’s start
with possibility and how we become mindless to our potential to become
consistent traders and blind to how to find more purpose, meaning,
and joy in our lives. How do we come to be living in the lives we

inhabit? It is interesting, let’s take a look.

To purchase this book or for more information, please click here.