“I know how to trade.  I have a plan, and if I followed it, I would be doing well indeed.  I know what to do; its just that I can’t do what I’m supposed to do when the money is real.  I do exactly what I know better than to do.  I tilt, something takes over my mind, and I throw away my plan.  Something takes over me.  And then I see clearly (in hindsight), that I became crazed and started gambling.  When the smoke clears, I am bewildered.  I don’t understand what happens to me.”

Staying Disciplined When Urgency Strikes

Articles on Trader Psychology by Rande Howell, Trader Psychologist

Mindfulness – Opening Your Shut Eyes to What is Really Going on in Your Head

Albert Einstein once quipped that insanity was when you keep doing the same thing over and over again while expecting a different result.  Actually, I don’t believe that Einstein was wrong.  That’s not the definition of insanity.  It is the definition of the norm.  The norm is doing the same thing over and over again – and expecting a different result.  Traders come to me all the time and reveal to me their secret – they keep making the same mistake over and over again.  And they cannot stop themselves from falling into this trap.  And it’s cost them a bundle.

It’s a revelation to them that it is normal for traders (particularly for alphas who are possessed to win at all costs) to fall into a compulsion to act as they are waiting for set-ups to appear and warm up.  The priming for an emotional hijacking is already underway, even before they bring up their charts and begin looking for set-ups.  Notice that they are actively looking for set-ups rather than waiting patiently for them to appear.  At the get-go they are stalking rather than mindfully waiting for the markets to give them something.  Do you see this distinction?  If you are an Alpha (wanting to win and not lose), you probably don’t see this distinction. 

And what do you think the Alpha’s mind is focused on?  Their goal is to make money.  And you have to be trading to make money, right?  So, sitting around getting bored is a wasted opportunity for the Alpha.  The first big mistake has already been made.  The Alpha’s goal is to make money – which he/she has absolutely no control over.  They cannot force the markets into an outcome because of willpower or winning ways.  The one thing that an Alpha does have control over (the mind that he brings into the moment of performance) is ignored.  Why?  Because he believes that he already has the winning mindset (proven by his past successes before trading).  He believes that his mindset, so useful in the past, is his ticket to success in trading. 

Unfortunately for him, the mindset required for success in trading is very different than the mindset he used to achieve success in other fields.  If anyone had told him that, he wouldn’t have listened anyway.  The mindset required for success in trading is performance driven.  It is how well you perform your proven edge over time.  Our Alpha trader here is not thinking about how well he performs over time.  Rather, he is thinking about making money today.  His focus is on something that he cannot control.  And he is blind to the need to perform well, over time, because his mind is focused on making money NOW.  He is already primed for losing and he has no clue that he has set himself up for failure in his trading performance.

The Downhill Slide

Next, this Alpha winning mindset begins looking for (rather than patiently waiting for) set-ups within his plan.  So, what if they don’t come soon, and he just sits there?  In the background of his mind a little voice is whispering, “You’ve got to be doing something to make money.”  It’s like a little invisible mantra going on in his head.  Somewhere between two minutes and five minutes, our alpha trader gets bored.  And what does he do with that boredom? He starts checking other possibilities while he is waiting for a set-up that fits his plan.  This checking behavior is the precipitating factor.  He is no longer patiently waiting for set-ups within his plan to appear.  Now he is perusing (stalking really) other opportunities while he deludes himself into believing that he is just occupying his mind while he waits.  The truth is, his mind is already in the hunt.  His focus has drifted from his established plan (that gave him an edge) to an urgency to escape boredom.  He has lost patience, which is an essential skill of a trader. 

Whatever your mind is focused on, you can bet that becomes the direction you start perusing.  He has already hunted down a trade possibility that would allow him to start trading so that (in the Alpha’s logic) he can start making money.  And that is the object of trading, right?  By this time his mind is far from the mindset needed to produce success in trading.  He’s a stalking hunter (like an African Lion, rather than an ambush predator like the North American Cougar).  Both of these animals are apex predators.  But the Lion stalks and chases (and sustains massive wounds) while the Cougar waits patiently and ambushes whatever the forest will give it (and only rarely sustains wounds).   

Meanwhile, our Alpha trader has taken the bait.  In his stalking Alpha mindset, he sees something.  He sees an opportunity, but he must act fast.  An urgency seizes him – “Get in now; there’s money to be made!”  He gets in the trade because of the urgency to act before the opportunity gets away and because he was bored and wanted to make money.  The difference was understanding the difference between boredom and patience.  The Alpha trader created a story about needing to do something to make money, which historically brought him success, and that led him to let his mind drift from the plan he had developed to where he improvised – and in doing so he fell into a mindset that got him into trouble.

The Trading Mind vs. the Alpha Mind

There is nothing wrong with the Alpha’s mindset.  Before Trading (BT), it served him well.  It produced success for him by winning and not losing.  Yet, as good as it was in the old environment, it is a bad fit for the environment of trading.  In the trading environment, the trader has no control over outcome.  He does not control winning or losing.  And you do not force things (stalking).  Instead, you patiently wait for probability relative to you.  It’s nothing to get excited about.  You did not make it happen.  You let it happen.  That’s all.

In trading (as opposed to business), you also have to become an expert loser.  Hating to lose has no business in trading.  Most likely, you will do more losing than winning in trading.  It is the skill of losing that has to be grown so that it replaces the imperative not to lose.  And losing simply means that you landed on the wrong side of probability relative to you.  That’s all.  No “hating to lose” required.  The more you hate to lose, the greater are your losses.  The skill of losing is what keeps your losses small.  And the trader’s skill of winning allows him or her not to get the big head leading to over-confidence when he/she does win. 

These are the skills that are imperative for the Alpha (and anyone else) to develop.  New ways of understanding winning and losing have to be redefined, or your primitive Caveman Brain will continue to tilt when the trader experiences winning or losing.  Euphoria (winning) and Fear (losing) have no business being part of your mindset when you are trading.  There, only disciplined impartiality is of value.  Fortunately, an old dog (the Alpha trader) can learn new tricks.  It takes work to change the Alpha’s standard and familiar pattern of being in the world though.  The Alpha pattern (winning and not losing), because of success in the past, will not go away willingly.  Instead, you have to decide if you really want to create the mindset built for the conditions of success in trading. 

The Alpha mind was developed by our early ancestors because of the short-term survival success it produced.  It was so successful that its potential got wired into the human genome as a trait.  That’s not the world the trader now lives in.  The world of trading requires a focus on long-term success in dealing with probability.  Trading represents the worst nightmare imaginable for the brain and mind you brought to trading, as there is no control over outcome.  It comes down to this:  Do you love trading enough to change yourself from the inside out?  It is that kind of passion that drives the Alpha to adapt his skills from the old world to this new world of embracing Uncertainty.  This is the journey into self-mastery that trading forces you to consider – or you will continue the roller coaster ride called undisciplined trading.

Mastering Trader Psychology