This is a very long and unusual post for the FORUM, and may not be suitable or agreeable with all who choose to read it. I am posting this information for any trader who might benefit in some manner from the information. I certainly wish I had been aware of this information before I started my trading career. The post reflects my general opinion about the predominant reason why so many traders fail at trading. If you are like most reading this post, you've already spent a tidy sum of money on software and education, and/or have accumulated sizable trading losses. It wasn't until after my own personal struggle with trading that I became determined to understand what was really happening with my process when I traded. While I have undertaken a great deal of work on myself outlined in what is mentioned, I still have much more to discover in my trading journey.
I think it’s fair to say that most in the trading community accept the premise that 80-90% of the dynamic with trading pertains to one’s psychology. Yet how much time do traders spend on developing their psychology and how that the impacts their trading? My guess is that it is dismally low, particularly with men. From my personal trading experience and research, I have reached the conclusion that the tragic misstep that 90%+ of all traders make with trading is that they are unaware of the paradigm they inevitably face with their biology when they trade, which explains the high failure rate. Traders don’t comprehend that the mental rules that apply to trading are unquestionably different than the rules that have proven successful in other areas of their lives. Quite simply, traders are not aware of the need to be prepared for the emotional intelligence required for trading.
Your Brain
We all have a brain, but how many have even the slightest idea how it operates? Yet your brain is subconsciously directing your conscious experience: emotions, thoughts, beliefs, and decisions. You think that you are in control of your thoughts when actually, your thoughts are controlling you. Have you ever pondered why you decided to embark on an endeavor that has a 90%+ failure rate?
Science has more recently discovered that 95% of our conscious day-to-day decisions are derived from the subconscious mind. Essentially, your conscious experience is running on auto-pilot. The human brain processes 400 billion bytes of information per second, however, you are aware of roughly 2,000 bytes of that information. Also interesting is the brain weighs approximately 3 lbs. but consumes nearly 25% of your body's daily carbohydrate (glucose) intake.
The brain is not wired for uncertainty. Trading is defined by uncertainty and requires having a probability-based mindset. A trader must have a methodology with a proven edge (as with PFA), as well as a solid platform and market knowledge, however, one cannot control the outcome in trading. Unaware of how powerful our biological and instinctual programming is, most traders unconsciously continue to utilize a certainty and knowledge-based thinking process (logical & rational thinking) in trading which has previously proven successful in other areas of their lives. Unfortunately, the biology we inherit doesn’t support that process in trading.
Your Brain & Trading With Logical & Rational Thinking
In my humble opinion, if being and staying rational & logical while trading was easy, the success ratio for retail traders would be closer to 70-80% profitable vs. the current paradigm of 10% or less. Understandably, we’re taught by trading educators to employ rational & logical thinking and to keep our emotions in check when trading, yet the vast majority of traders find that impossible to do when put to the task despite agreeing logically that it’s essential to their success. They may have a great methodology (like PFA), and even advanced knowledge of the markets, but fail miserably at managing their emotional performance.
For many traders, there is a narrative that keeps repeating in their mind that says … “I can really do this and be rational with my thinking,” but when they are challenged under pressure with real capital at risk, they discover that things go haywire. The key is not about focusing intently on solely being rational and applying knowledge and methodology (while they do play an important role). Rather, the focus should be on what’s preventing one from being rational & logical while under pressure that allows them to effectively apply their knowledge and methodology skills. I believe this is the most significant mental block many traders live with day in and day out, yet they likely are completely unaware of even recognizing that they have this block, let alone the reasons behind the blockage. I sure was!
How Well Do You Manage Uncertainty When Trading?
We project our beliefs onto the markets, so the narrative running through our minds in most cases is a fabricated perception of reality by the mind. Our trading account is the reflection of how effective our beliefs (pertaining to trading) are. If a trader is extracting capital from the markets consistently and profitably, then that trader has an effective trading belief system (not meaning any truth) that s/he is able to extract capital out of the markets and stay calm. If a trader has an ineffective belief system s/he is projecting onto the markets, their trading account will reflect mounting losses or break-even status. The conclusion is that effective traders truly understand they do not control the outcome of any trade and have learned to embrace uncertainty.
What happens to you emotionally when you enter a trade? For example, if you have the need to be right, you’re ultimately going to be a really poor trader. The chatter going on inside your mind is a reflection of the belief system brought to the performance of trading that’s being projected onto the markets. If we approach and enter a trade with the pretext of winning the outcome, it is an impossibility of performance, and will ultimately inflict a great deal of emotional and financial suffering. This mental activity also activates the fight/flight/freeze response. What we can control is the mind we bring to the process of trading. That’s where winning and losing needs to be measured, i.e. do you flawlessly perform your rules and can you remain emotionally sober during the trade?
Your brain literally equates uncertainty coupled with risk (real capital not trading in SIM) as potential biological termination. The brain doesn’t understand that it’s just trading, which means that the outcome will fall on either the right or wrong side of probability and not death. It will never understand that paradigm until it is retrained, and that can't occur when one continues to push ahead with the “I’m a rational and logical thinking person and all I need to have is more education, fancier indicators, etc.” That’s the Limbic Brain’s attempt for gaining more certainty.
If the survival instincts guide trading decisions, as it does for 95% of all traders, a trader might be able to fool her/himself for a while, however, the default mental programming will eventually cascade back onto the trader, and s/he typically ends-up giving back profits. Ultimately the entire conversation one has about 'winning and losing' has to have a dramatic shift. If a trader can’t learn to be a superb loser, there’s no possibility s/he will be successful in trading.
So what needs to change about the internal message associated with winning? What does winning prove to you? For most traders, it’s some variation of their self-worth, power, adequacy, or how much they matter. Unconsciously we operate under the notion that ‘winning and losing’ is based on controlling the outcome. In trading, the outcome cannot be controlled. Therefore the entire mental conversation (which is a program in the brain) around controlling environment must be reprogrammed. In trading, the survival instinct in the moment has to shift to the long term benefit which automatically weighs probability with the recognition and acceptance that you will lose and win, but that you can’t control either of those. Many traders must reconstruct their underlying belief structure about themselves which encompasses their sense of adequacy; mattering, and self-worth tied to the outcome. In other words, a winning trade is simply landing on the right side of probability. If you have a losing trade or string of losing trades, there’s no reason to get dejected, you simply landed on the wrong side of probability.
The mental narrative constructed around the concept of ‘winning’ and controlling outcome must be abandoned and redeveloped into a narrative that embraces the possibilities of managing and controlling what one can control – performance. How is this done? First, one has to learn how to manage the default emotion associated with the perceived biological threat. Breathing and mindfulness are two effective and necessary methods. Your thoughts and your beliefs are not you. They actually represent one potential organization of you, so they, in fact, are not the same as you. A substantial portion of your perceived identity, or self-worth, was formed prior to your ability to think.
The investment you have in your self-image and self-worth may need to be reshaped into a mind that behaves and responds from impartiality, discipline, courage, and patience. This, in turn, cultivates the formation of a new set of emotions and corresponding behavioral responses. Giving up control of outcome frees one to be in control of performance. As you realize there are multiple potential organizations of yourself, it gives rise to realizing the potential that one can have as the designer of their future self. In trading, we can be the designer of the mind we bring to uncertainty. Therefore it’s not about conquering or defeating your fears in trading, but rather about mastering them by turning towards the fear(s).
SIM Trading
Lastly, I’d like to offer a few thoughts & opinions on SIM trading relative to the previous comments… SIM trading serves an important process for a developing trader, or for testing purposes. It’s beneficial for a trader learning how to execute and test their understanding of a methodology, as well as the overall backtesting performance of a methodology.
Yet SIM trading I would argue creates a false performance expectancy, namely because the process does not engage uncertainty coupled with the risk of real capital which engages the default programming that EVERY trader brings to trading. This is the reason why most traders perform exceptionally well in SIM. Compelled by success trading in SIM, thinking they've boldly mastered performance, decide it’s time to trade with real capital, and consequently fall apart, or have a mediocre performance, infamously known as the ‘break-even trader.’ SIM trading also doesn’t measure what your behavior would actually be like after experiencing ‘wins’ or ‘losses’ with real capital at risk. For instance, considering the default biological narrative of ‘winning’ mentioned earlier that is brought to trading... what often happens is the mind release a large amount of dopamine into the blood stream causing euphoria. Trading on a euphoric dopamine-infused mind is a dangerous activity and often invites giving back your profits. T
Anyway, I hope a few readers have made it this far and find something beneficial in what I’ve written. I can tell you with 100% certainty from personal experience, I know what I’m talking about. I continue to work on this paradigm daily. While some methodologies are far more exceptional like others (such as PFA), if you are struggling with trading, or stuck at some performance level, (in my opinion) the probabilities suggest some new methodology or indicator will not be the solution to your success.
I’ll also add finally, that if you grew up in an alcoholic/addiction family and/or a repressive family environment with strict belief structures; have issues with co-dependency and/or issues with either or both of your parents, you can exponentially increase the challenges you’ll face in trading because of what those types of environments have had on your default emotional programs associated with your Limbic Brain.
Hope you find some benefit with this material and best wishes in your trading journey.
Jim
I think it’s fair to say that most in the trading community accept the premise that 80-90% of the dynamic with trading pertains to one’s psychology. Yet how much time do traders spend on developing their psychology and how that the impacts their trading? My guess is that it is dismally low, particularly with men. From my personal trading experience and research, I have reached the conclusion that the tragic misstep that 90%+ of all traders make with trading is that they are unaware of the paradigm they inevitably face with their biology when they trade, which explains the high failure rate. Traders don’t comprehend that the mental rules that apply to trading are unquestionably different than the rules that have proven successful in other areas of their lives. Quite simply, traders are not aware of the need to be prepared for the emotional intelligence required for trading.
Your Brain
We all have a brain, but how many have even the slightest idea how it operates? Yet your brain is subconsciously directing your conscious experience: emotions, thoughts, beliefs, and decisions. You think that you are in control of your thoughts when actually, your thoughts are controlling you. Have you ever pondered why you decided to embark on an endeavor that has a 90%+ failure rate?
Science has more recently discovered that 95% of our conscious day-to-day decisions are derived from the subconscious mind. Essentially, your conscious experience is running on auto-pilot. The human brain processes 400 billion bytes of information per second, however, you are aware of roughly 2,000 bytes of that information. Also interesting is the brain weighs approximately 3 lbs. but consumes nearly 25% of your body's daily carbohydrate (glucose) intake.
The brain is not wired for uncertainty. Trading is defined by uncertainty and requires having a probability-based mindset. A trader must have a methodology with a proven edge (as with PFA), as well as a solid platform and market knowledge, however, one cannot control the outcome in trading. Unaware of how powerful our biological and instinctual programming is, most traders unconsciously continue to utilize a certainty and knowledge-based thinking process (logical & rational thinking) in trading which has previously proven successful in other areas of their lives. Unfortunately, the biology we inherit doesn’t support that process in trading.
Your Brain & Trading With Logical & Rational Thinking
In my humble opinion, if being and staying rational & logical while trading was easy, the success ratio for retail traders would be closer to 70-80% profitable vs. the current paradigm of 10% or less. Understandably, we’re taught by trading educators to employ rational & logical thinking and to keep our emotions in check when trading, yet the vast majority of traders find that impossible to do when put to the task despite agreeing logically that it’s essential to their success. They may have a great methodology (like PFA), and even advanced knowledge of the markets, but fail miserably at managing their emotional performance.
For many traders, there is a narrative that keeps repeating in their mind that says … “I can really do this and be rational with my thinking,” but when they are challenged under pressure with real capital at risk, they discover that things go haywire. The key is not about focusing intently on solely being rational and applying knowledge and methodology (while they do play an important role). Rather, the focus should be on what’s preventing one from being rational & logical while under pressure that allows them to effectively apply their knowledge and methodology skills. I believe this is the most significant mental block many traders live with day in and day out, yet they likely are completely unaware of even recognizing that they have this block, let alone the reasons behind the blockage. I sure was!
How Well Do You Manage Uncertainty When Trading?
We project our beliefs onto the markets, so the narrative running through our minds in most cases is a fabricated perception of reality by the mind. Our trading account is the reflection of how effective our beliefs (pertaining to trading) are. If a trader is extracting capital from the markets consistently and profitably, then that trader has an effective trading belief system (not meaning any truth) that s/he is able to extract capital out of the markets and stay calm. If a trader has an ineffective belief system s/he is projecting onto the markets, their trading account will reflect mounting losses or break-even status. The conclusion is that effective traders truly understand they do not control the outcome of any trade and have learned to embrace uncertainty.
What happens to you emotionally when you enter a trade? For example, if you have the need to be right, you’re ultimately going to be a really poor trader. The chatter going on inside your mind is a reflection of the belief system brought to the performance of trading that’s being projected onto the markets. If we approach and enter a trade with the pretext of winning the outcome, it is an impossibility of performance, and will ultimately inflict a great deal of emotional and financial suffering. This mental activity also activates the fight/flight/freeze response. What we can control is the mind we bring to the process of trading. That’s where winning and losing needs to be measured, i.e. do you flawlessly perform your rules and can you remain emotionally sober during the trade?
Your brain literally equates uncertainty coupled with risk (real capital not trading in SIM) as potential biological termination. The brain doesn’t understand that it’s just trading, which means that the outcome will fall on either the right or wrong side of probability and not death. It will never understand that paradigm until it is retrained, and that can't occur when one continues to push ahead with the “I’m a rational and logical thinking person and all I need to have is more education, fancier indicators, etc.” That’s the Limbic Brain’s attempt for gaining more certainty.
If the survival instincts guide trading decisions, as it does for 95% of all traders, a trader might be able to fool her/himself for a while, however, the default mental programming will eventually cascade back onto the trader, and s/he typically ends-up giving back profits. Ultimately the entire conversation one has about 'winning and losing' has to have a dramatic shift. If a trader can’t learn to be a superb loser, there’s no possibility s/he will be successful in trading.
So what needs to change about the internal message associated with winning? What does winning prove to you? For most traders, it’s some variation of their self-worth, power, adequacy, or how much they matter. Unconsciously we operate under the notion that ‘winning and losing’ is based on controlling the outcome. In trading, the outcome cannot be controlled. Therefore the entire mental conversation (which is a program in the brain) around controlling environment must be reprogrammed. In trading, the survival instinct in the moment has to shift to the long term benefit which automatically weighs probability with the recognition and acceptance that you will lose and win, but that you can’t control either of those. Many traders must reconstruct their underlying belief structure about themselves which encompasses their sense of adequacy; mattering, and self-worth tied to the outcome. In other words, a winning trade is simply landing on the right side of probability. If you have a losing trade or string of losing trades, there’s no reason to get dejected, you simply landed on the wrong side of probability.
The mental narrative constructed around the concept of ‘winning’ and controlling outcome must be abandoned and redeveloped into a narrative that embraces the possibilities of managing and controlling what one can control – performance. How is this done? First, one has to learn how to manage the default emotion associated with the perceived biological threat. Breathing and mindfulness are two effective and necessary methods. Your thoughts and your beliefs are not you. They actually represent one potential organization of you, so they, in fact, are not the same as you. A substantial portion of your perceived identity, or self-worth, was formed prior to your ability to think.
The investment you have in your self-image and self-worth may need to be reshaped into a mind that behaves and responds from impartiality, discipline, courage, and patience. This, in turn, cultivates the formation of a new set of emotions and corresponding behavioral responses. Giving up control of outcome frees one to be in control of performance. As you realize there are multiple potential organizations of yourself, it gives rise to realizing the potential that one can have as the designer of their future self. In trading, we can be the designer of the mind we bring to uncertainty. Therefore it’s not about conquering or defeating your fears in trading, but rather about mastering them by turning towards the fear(s).
SIM Trading
Lastly, I’d like to offer a few thoughts & opinions on SIM trading relative to the previous comments… SIM trading serves an important process for a developing trader, or for testing purposes. It’s beneficial for a trader learning how to execute and test their understanding of a methodology, as well as the overall backtesting performance of a methodology.
Yet SIM trading I would argue creates a false performance expectancy, namely because the process does not engage uncertainty coupled with the risk of real capital which engages the default programming that EVERY trader brings to trading. This is the reason why most traders perform exceptionally well in SIM. Compelled by success trading in SIM, thinking they've boldly mastered performance, decide it’s time to trade with real capital, and consequently fall apart, or have a mediocre performance, infamously known as the ‘break-even trader.’ SIM trading also doesn’t measure what your behavior would actually be like after experiencing ‘wins’ or ‘losses’ with real capital at risk. For instance, considering the default biological narrative of ‘winning’ mentioned earlier that is brought to trading... what often happens is the mind release a large amount of dopamine into the blood stream causing euphoria. Trading on a euphoric dopamine-infused mind is a dangerous activity and often invites giving back your profits. T
Anyway, I hope a few readers have made it this far and find something beneficial in what I’ve written. I can tell you with 100% certainty from personal experience, I know what I’m talking about. I continue to work on this paradigm daily. While some methodologies are far more exceptional like others (such as PFA), if you are struggling with trading, or stuck at some performance level, (in my opinion) the probabilities suggest some new methodology or indicator will not be the solution to your success.
I’ll also add finally, that if you grew up in an alcoholic/addiction family and/or a repressive family environment with strict belief structures; have issues with co-dependency and/or issues with either or both of your parents, you can exponentially increase the challenges you’ll face in trading because of what those types of environments have had on your default emotional programs associated with your Limbic Brain.
Hope you find some benefit with this material and best wishes in your trading journey.
Jim
Jim
This is a very very valuable post and I concur 200%. !!! Thanks for penning such a long and thoughtful post.
May I ask: What have you done or are you currently undertaking to re-train your brain (be that emotional or otherwise) that has helped you significantly?
thanks
Mark
This is a very very valuable post and I concur 200%. !!! Thanks for penning such a long and thoughtful post.
May I ask: What have you done or are you currently undertaking to re-train your brain (be that emotional or otherwise) that has helped you significantly?
thanks
Mark
Hi Mark ... It's complicated to fully explain/answer your question in a reply here, but suffice to say that I've been working on myself using mindfulness, deep breathing exercises, and exercises to awaken those empowered emotional programs so they can be employed when needed. I have much more work ahead. Will's PFA method for placing and managing trades is also a highly effective approach to not only trading but also to combat getting emotionally hijacked "if" one can manage to sidestep sabotaging the process.
Thanks Jim
If I may ask,where do you go to source those " exercises to awaken those empowered emotional programs "?
thank you again
Mark
If I may ask,where do you go to source those " exercises to awaken those empowered emotional programs "?
thank you again
Mark
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