Do You Want to Be Right or Be Effective?

Have you ever walked into a trap that you did not see coming – and then realized later that if you only had the eyes to see it, it would have been evident?  These are called blind spots.  While driving, everyone experiences potentially dangerous blind spots in their rear-view mirrors while driving.  It is a common problem and an experienced driver is prepared for it.  And, as you gain experience in driving, you learn pretty quickly to compensate for the blind spot in your vision or face the consequences of poor driving.  Naturally, learning how to anticipate the blind spot and consciously correcting for them is how your driving competence grows with experience.   Your brain learns from these mistakes, and you become a better driver.  Something similar happens in your trading performances – only the blind spot is a perceptual one rather than a physical one.  Consequently, it is not as easy to spot and rectify.

     Using the analogy of the physical blind spots in driving, let’s look at the way the brain produces perceptual blind spots that keep traders stuck in mediocracy. Traders vividly see the potential that is possible in their trading and are highly motivated to push through whatever barriers stand in their way. And all they have to do is follow their rules.  Victory seems so simple.  But they hit a perceptual blind spot on a regular basis – and consequently they do not follow their rules precisely when it is imperative that they follow their rules.  And, just like when driving a car and not compensating for the physical blind spot in the rear-view mirror, bad things can occur.  Only these are not physical blind spots – they are perceptual blind spots. 

     To catch these and learn to change them, you are going to have to up your trading game to a new level by developing the capacity to “see” your blind spots before you get blindsided by them.  As an experienced trader, you are no longer just absorbing knowledge about trading and regurgitating it – you are now learning how to get the knowledge of the thinking brain into a new partnership with the source of those perceptual blind spots – your emotional brain.  At this stage in the growth of a trader, emotional discipline (not being fooled by the blind spot) is the lesson to be learned.  And that recurring blind spot is telling you that your emotional brain (your primitive limbic system) is not currently up to the task of managing uncertainty at the level required for trading when uncertainty and risk collide.  And therein lays the problem that needs to be corrected. 

     Your emotional brain, and the thinking mind that partners with it, has a fundamental bias to control outcome and be ready for short term survival interests.  This is what it is built to do and it colors what it sees – creating perceptual blind spots.  That’s great for survival, but terrible for managing the uncertainty found in trading. Your survival instincts kick in every time you engage uncertainty with real risk on the table.  Your emotionally based survival instincts will automatically trigger to instinctual urges for short term action that hijack a more reasonable long term approach to the same uncertainty and risk.  This is the perceptual blind spot that few traders ever learn to spot, much less learn how to control.  Suddenly, and without warning, the survival instincts of the limbic brain cuts off thinking – and the thinking brain is no longer contributing to what the trader is seeing, experiencing, or thinking.  And it happens automatically without your ever recognizing that it happened – hence a perceptual blind spot.  This is why trading is one of the hardest of all professions in which to achieve success.  By the design of adaptive evolution, the mind you bring to trading is simply not up to the task of trading.  It is built for a very different world than is found in trading.

Perceptual Blind Spots are as Common as the Trading Errors You Make

     This happens in the blink of an eye.  One moment a perfectly good thinking brain was on the job and the next moment it was by-passed – and no one (particularly the trader) ever saw it coming.  The trader hit a blind spot and didn’t see it coming because he did not know to look for the blind spot.   That is how much more powerful the emotional brain is than the thinking brain (that you are supposed to be using when trading).

     You experience this every time you pass on a valid set-up, seeking more confirmation -  when anxiety or fear prevents you from pulling the trigger.  The emotional brain seeks short term survival, which is accomplished by not getting in the trade in the first place.  To the emotional brain’s way of reasoning – if you do not act (get in the trade) you cannot lose (your life).  The emotional brain does not distinguish psychological discomfort (the possibility of losing capital) from biological threat (losing means death).  Under the stress of the moment the emotional brain literally cuts off the thinking brain from being present in the decision making process.  That is why it is a perceptual blind spot – you never see it.  Meanwhile the trader does not know what has happened.  It happened so fast.  And to the emotional brain’s perspective, the blinding of the thinking brain and the avoidance of the risk was successful.  So successful that the perceptual blind spot becomes an automatic pattern that springs into action BEFORE the thinking brain has a clue.

       This is one particular example. If you have ever had a trade go against you and you lost clarity of thinking, you have also experienced another kind of perceptual blind spot.  If you have ever lost a trade (or a sequence of trades), become angry, and then revenge traded – you have experienced a perceptual blind spot in action.  Your thinking brain just got hijacked.  And you keep walking into the same trap again and again.  Yes, that is the perceptual blind spot.  And for those who over-trade, the perceptual blind spot does not allow them to see the down side of jumping into a particular trade.  They are just blind to it.  This, too, is an example of a perceptual blind spot in action.

The First Step to Emotional Discipline

     First, recognize that your understanding of your emotional nature needs an update if you would like to elevate your game.  Despite what you would like to believe – you are not a rational being.  Far from it.  To continue insisting that you are a rational being in the midst of emotional hijackings is the result of acting from your perceptual blind spots.  You are an emotional being who rationalizes whatever beliefs the emotional brain holds as true.  Read that last sentence again – it is that important.  You do not see and then believe.  Rather, you believe and then see.  And it is your implicit (unconscious) beliefs that your limbic system holds about your capacity to manage uncertainty that are being measured in your trading performances and in your investment account – not what you say you believe.

     Most of what you truly believe is operating out of your radar screen due to your perceptual blind spots.  You are not aware of the beliefs that drive your performances under stress.  In the blink of an eye, you are making decisions that are rooted in your primitive emotional drives (as in trading with real risk on the table).  Your thinking brain (the neo-cortex) hears about the decisions of the emotional brain later – much too late in times of challenging circumstances.  Decisions have already been made and actions are already taking place by the time the thinking brain becomes available.  These are the blind spots that have to be discovered and eliminated. 

     The risk of capital loss, added to the uncertainties of trading, triggers the survival instincts of the emotional brain.  Plenty of aspiring traders can do well in simulation.  But when risk of loss is real, traders are blinded by the primitive danger signals of their survival instincts.  The thinking brain is taken off line and the emotional brain reacts to the uncertainty from a survival point of view rather than a probability point of view.  Until you shift the brain from the old to the new, you have trouble.    

     Traders insist that they are rational beings (which allows them to hold onto the idea they are in control and to maintain their perceptual blind spot) when all the evidence points to something very different.  They are simply acting from the illusion of control, which is a feeling state of power.  And that feeling (the chemistry of the emotion in the body and brain) causes the trader to believe (temporarily) that he/she is large and in charge.  This, by the way, generates a kind of thinking (remember that all thinking is emotional state dependent) that is dangerous for the performance brain of the trader (which needs a probability based mindset).

     When the trader comes to the understanding that he does not have control over outcome, then the door of possibility opens for him or her.  He cannot control outcome.  But he can control the mind that he brings into the moment of performance.  This is where the trader begins to learn how to use emotions to create the mind that engages uncertainty.  This is the psychological edge needed for probability management.

In with Emotional Regulation, Out with Resisting Emotions

     Because emotions are biological in their essence, they also have biological components that are also part of the emotion – including breath and muscle tension.  As a fight/flight emotion is triggered and grows, breathing and muscle tension changes.  Breath is held or becomes high and shallow, while muscle tension increases, preparing the body for fight/flight action.  This sequence can be interrupted by consciously using bellows breathing and muscle relaxation to interrupt the arousal of the emotion.  The emotion can be calmed down so that you, the trader, control the intensity of the emotion.  The regulation of the emotion allows the trader to maintain emotional control so that the survival instincts are not triggered. This is ground zero for emotional discipline.  You need to achieve management of the emotion before it explodes and takes over the mind.

     Emotional regulation is a far better option for managing your emotional nature than resisting the emotion.  The more your resist the emotion – the more it persists and the more powerful it becomes.  Working with the emotion is a better option than resisting the primal nature of a fight/flight emotion.

Mindfulness – the Tool for Growing the Trading Mind

     In trading you have to learn how to see what you cannot initially see.  You have to learn to see the very perceptual blind spots that you have been tripping over.  You begin to realize that your performances under the challenges of uncertainty and capital risk can give you access to your limbic learnings (unconscious beliefs) that drive your performances.  Mindfulness provides the “eyes” to see the perceptual blind spots that have been holding you back. It is like becoming a detective solving a mystery.

     It also teaches you much about the way the brain creates the mind that you bring to trading.  Essentially you are projecting your beliefs (not the truth) onto the screen of the markets.  Your brain creates a virtual representation of the markets from your beliefs, biases, and assumptions.  It then projects onto the markets that virtual representation created inside the brain, as if it was the truth.  And your trading account becomes the barometer of whether that representation (again, created by your brain) is effective (or not) at extracting capital from the markets.  If it is effective, you have a virtual representation of the markets that causes equity growth.  If it is not an effective virtual representation, you will find your trading account suffers accordingly.  This is why the trading account is your friend – it will tell you the truth, and where to look.

     In mindfulness you are discovering that there is not a truth “out there” to know.  Instead, what you are discovering is that your potential as a human being and trader has been constructed so that it under performs under stress and when capital is at risk.  The good news is the construct called the “Self” can be re-organized into higher functioning.  A new virtual representation can be modified from the one you brought to trading.  Using mindfulness, you recognize that the “Self” (what you call yourself) is fluid and your potential (as a trader) can be reshaped.  This is the promise of applying mindfulness to your trading.  In various personal development programs the lower functioning (by trading standards) is called the False Self.  And the higher functioning organization of your potential is called your Potential Self. 

     It is also why personal development is essential in trading.  No one comes to trading with the mind that will produce success in trading.  That is a myth…a bad one that blindly keeps sucking people into it.  Everyone comes to trading with a brain and mind build for survival.  And you could not have subjected it to a worse situation than trading when seeking success.  Your brain is built for short term control over outcome, being right, and predicting outcome.  It wants to be in control.  Which is exactly what has to be given up in trading – where you have no control over outcome.  And that strong illusion of the brain about being in control has to be replaced with a probability based mind.

Self-Mastery is Essential in Developing an Effective Trading Mind 

     With a probability based mind you build the self-mastery required for successful trading.  You are not identifying with either winning or losing because you are recognizing the randomness of the markets.  And you are prepared for both winning and losing, whichever may come.  You control the mind of performance.  By focusing on performance, rather than outcome, you achieve “the new normal” in keeping your losers small and letting your winners run (if they choose to).  Your job as a trader or active investor is to manage the mind you bring to performance.  Cognitive blind spots are no longer self-inflicted.  Your emotional brain and your thinking brain have found effective partnership.  Though it does not come naturally, this new organization of the Self can be learned.