Articles on Trader Psychology by Rande Howell, Trader Psychologist

Renewing Hope and Skills for Success in Trading

                                          “There is someone in my head but it’s not me.”  Pink Floyd

Coming to Terms with Your Future in Trading

There comes a time in a trader’s evolution when they “hit the Wall”.  Gone are the dreams of success dancing in their head that lured them into trading.  Where once optimistic blue skies prevailed in a young trader’s mind, now storm clouds appear on the horizon instead.  Turning theory into performance has not worked.  Initially believing that trading can be wrestled to the ground and subdued, he/she plunged into a multi-year learning curve under the assumption that he/she could learn to win in trading. 

Coming back to reality, the trader re-evaluates his capital from a more grounded position.  More humbled now by his precarious situation, what he concludes is the realization that he may not make it – unless there are some significant changes, sooner rather than later.  This is the Wall that practically all traders eventually must face – but resist until they are forced to acknowledge it.

After all the bravado and dazzling potential of the newbie or novice is long gone, traders find themselves struggling with a new concern – Is there hope for me?  This is the fork in the road of professional evolution that all traders are forced to acknowledge in their journey into trading.  This is the Wall.  There is no way around it.  No one gets a free pass.  What happens next is crucial.  The hope in external change in the search for trading success gives way to the need for internal change – the trader must change.  Theory and practice must become one and the same.

The game plan that you brought to trading simply is not working to produce consistent profitability, much less the livable income that seemed so reachable in theory just a few short years ago.  Does the trader just try harder?  Does he or she simply decide to get out of trading and find another way of making easy money?  Or does the trader acknowledge that he has to change to get past the impasse of the Wall?  This is the fork in the road all traders are forced to deal with after the honeymoon is over. 

There is a path that takes the trader beyond the Wall, but no one wants to go there because it is unfamiliar and forces him to travel into the unknown.  Somehow the mind that engages the uncertainty of the unknown has to change.  Biology and psychology has to be dragged into this new paradigm – letting go of outcome and embracing uncertainty.  Everything else has been tried already.  And if the trader is going to succeed, this is the fork he or she must take.

The Intended Life Interrupted by a Wake-Up Call

People starting out in trading really have no idea what awaits them in their evolution as a trader.  It usually takes 2-5 years for a trader to wake up from the pipedream of diligent work leading to supposed attainable financial success in trading.  In particular, they ignore the contribution of the inner game of trading as a component of success in trading.  This is the tragic flaw that seems to simply be part of the journey of discovery in trading.  And it is the last thing that a trader wants to examine.

This need for personal development seems so obvious in retrospect.  Yet, traders get so seduced by the blue sky promises of financial freedom in trading that they ignore this need for psychological education - at great peril to their future. Consequently, trader psychology and their belief about their capacity to manage the unknown when capital is at risk becomes their Achilles’ heel – constantly undermining their best efforts.   

Ultimately, all traders who create the conditions of success in trading discover that the head game is what has to be mastered rather than mere knowledge.  Applying knowledge in the face of uncertainty and letting go of the human need for control over outcome is the real mastery required for success in trading.  It is the difference between theory and practice – of classroom knowledge and applied knowledge. That falls on deaf ears until the suffering caused by holding on to outdated assumptions finally awaken the few that survive their initiation into trading.

Until this awakening, traders pour money into finding the Holy Grail.  They truly want to believe that the elements of success are external.  (If they only learned the right specialized knowledge, got the right stuff, and got the right education – they would be able to master the intricacies of successful trading.)  Never once will they acknowledge that the real Holy Grail of trading lives within them as a potential that has to be developed – even as their capital erodes or their timeframe for mastering trading grows shorter.

Then, a threshold is passed.  And it becomes quite (and painfully) obvious that without developing the head game, there is no success in trading.  Just because the trader has knowledge and facts about trading does not mean that he or she can apply that knowledge in the pressure of performance or the uncertainty of risking capital. 

Just like on the PGA circuit, where everybody can drive and put, but only a few are big-time clutch money players – so it is with trading.  Plenty of traders know how to trade in theory.  Yet, few traders know how to apply that theory under game conditions – while risking capital – and make money.  To learn how to apply that trading knowledge is going to require rewiring the brain so that a new mind shows up to manage all that knowledge dispassionately while risking capital. 

Emotional Intelligence:  Turning Toward Stress and Mastering It

There will always be uncertainty and its cousin, confusion, in trading.  The question is what mind do you show up with in the midst of the unknown to engage the uncertainty?  The neural wiring produced by evolution adapted the trader to either avoid or attack perceived threat (hesitate or chase).  And encounters with uncertainty and the unknown trigger your autonomic nervous system to assume that you, the trader, is under imminent biological threat (while, in fact, only psychological discomfort is being experienced).  This triggers the fight/flight response, which is the worst thing that can happen for a trader managing probability with capital at risk. 

The brain that you inherited from your distant ancestry simply is not built to manage probability.  It is built to ensure short-term survival.  To the emotional brain, this is controlling outcome.  Literally triggering to fight/flight gives the organism (that’s you) the best chance of self-preservation when confronted by an imminent biological threat.  And that is exactly what the emotional brain perceives when a trader is challenged by the possibility of financial loss and the lack of control over outcome.

The trader’s emotional responses to uncertainty are built that way.  And a trader’s willpower or perfectionism is not going to change genetic predisposition.  The emotional triggering to fight/flight happens in nanoseconds, while thinking shows up late - a half-second later.  The emotional response is reactive, no time-losing thought is necessary.  Consequently, thinking serves the emotion that showed up first.  This is called an emotional hijacking.  Until the trader learns how to re-engineer this hardwired circuitry, it remains an obstacle to trading under pressure with capital at risk.

Added to this dilemma of the trader’s emotion hijacking the capacity to think are the learned beliefs that the trader brings to the management of uncertainty and the unknown.  Unfortunately most traders really have spent little time examining the beliefs that they are unconsciously projecting upon the markets.  This “touchy/feely stuff”, rooted in the psychology of performance, just seems so useless to the emotionally ignorant trader.

But, based on those beliefs operating outside of awareness, traders interpret the markets in vastly different ways.  The trader does not see “the markets” as they are.  The trader sees the markets based on what he/she believes (seeing is not believing; believing is seeing).   In actuality, the brain takes sensorial data and creates a virtual representation of the markets based on the beliefs and learned emotional responses to encounters with the unknown.  So, the trader really never sees the markets as they really are, but, instead sees a virtual approximation (based on emotionally reactive belief systems) of the markets.  This is what you actually trade.

The only barometer worth using to access the effectiveness of your virtual approximation of the markets is your trading account.   If your trading account shows steady growth, then your virtual representation of the markets is able to extract capital out of the markets (good).  If the trader’s virtual representation of the markets is ineffective, the trading account will show diminishment of capital.

That virtual representation is rooted in the trader’s performance beliefs concerning his or her capacity to manage uncertainty and the emotional reactivity that has grown around those beliefs.  The brain (and your trained mind) is looking for pattern recognition in a vast sea of probability.  When it recognizes pattern, it still has to filter the pattern recognition through your adapted beliefs about your capacity to survive encounters with the unknown.  Based on those beliefs, you brain/mind (on a very primitive level) under stress will perceive the pattern as threat that has to be avoided or attacked for self-preservation…unless it is trained to do otherwise.

Building the Mind that Trades

If trading outcomes were easy to predict, many smart knowledgeable traders would be financially successful also.  But they are not - although no one wants to talk about why this is so.  Trading is a very difficult field for most people to make money in, despite their knowledge of trading.  It has little to do with being smart or knowledgeable.  (There are plenty of people who have a good classroom knowledge of trading.)  It has everything to do with the mind that they bring into the moment of performance and management of the unknown.  That is what trips up close-minded traders.  

Without being able to regulate emotion and manage emotion effectively, traders will never learn how to deal with risking capital while engaging the unknown.  The uncertainty factor will always trigger reactive emotional pattern-recognition based on primitive beliefs about their capacity to truly manage the unpredictability of uncertainty.  The aspiring trader has to become mindful of this primitive level of performance psychology.

It is not easy, but you can learn to use neuro-plasticity to your advantage.  The brain and mind are willing to change if you approach it with the right tools and attitude. You can teach the brain to bring forth a new mind into the mix of managing uncertainty and risk.  But, it does take effort and time and an effective process, plus an open mind for change and adaptation.

I encourage you to explore more at about how to actually go about sculpting the brain and mind for success in trading.

Mastering Trader Psychology