Articles on Trader Psychology by Rande Howell, Trader Psychologist
Shadow Boxing With an Unseen Enemy
“What’s wrong with me? Why can’t I do what I’m supposed to do? I keep telling myself to stay calm and patient – let the trade come to me. But, before I know it, I’ve jumped into a trade that, I recognize later was never a possibility in my plan. But I did it anyway. And, of course, it goes downhill after that. Then, I get gun shy and hesitate to take trades that are valid set ups. It’s frustrating. I know what to do, but when I’m really in the act of trading, I fall apart. After five years I thought I’d be over this. But here I am – almost there and still spinning my wheels. I’ve done everything I know to do, but my trading is still stuck here. I keep falling apart at exactly the wrong time. I’m beginning to think that maybe I’m the problem. I’ve been a winner all my life, and losing is just not an option. But that is what I’m doing.”
Sound familiar? This trader’s experience was relayed during my recent Skype consult with him. Because it was a video interview, I could see his trading room, and through an open door, I could see into his home. This man clearly was not used to losing. His trading room had excellent equipment and a number of screens. In the background I could see that he had experienced success before his foray into trading. His room was classically understated and spoke of a quiet confidence. Through the door to the rest of the house, I could see he was accustomed to many fine things that success allows.
But here he was, spilling his guts to me, after not being able to turn the corner in his trading. And if something didn’t happen soon, time and money were running out. Unfortunately, this is a common scenario in the developing traders I meet. What is this guy missing? It’s clear he has experienced success in his life. He is a self-made man. He pulled himself up by his bootstraps and created a very different world than the one to which he was born. What is the trap that keeps him stuck in his new career of trading?
Performance Stress Gone Amuck
What had driven this man in his career before trading was the need to win. Losing, in his mind, was not an option. Not only had this mindset worked in his previous career, it had been formed while he grew up in a financially-challenged family and environment. His father had been a successful business man who had lost his fortune. During the recovery period, money was tight. His mother had to go back to work while his father took a while to get back on his feet. It was tough going.
As a kid there was no money for the nice things. He acquired a paper route by the time he was ten so that he could have his own money and help his family. And because both parents were working now, he also was left in charge of his younger siblings. He was up to the task. There were times his parents actually had to use some of his earnings to keep the family afloat. But through hard work, he (and they) persevered. Out of this experience he swore an oath to himself that he would always be able to take care of himself and be able to control his own destiny – just as he had done during the turbulent years of the financial stress in his family.
As he grew into an adult, there was a quiet confidence that was rooted in his victory over adversity. He knew he could make things happen. He knew it. Not only could he make things happen, he also knew that he could control his own destiny by sheer willpower. If you put this man in a stressful environment, he proved time and again that he was going to win. He had learned from an early age that losing was not an option. From the situation he and his family worked through as a kid to the several businesses he built and sold profitably, he felt certain that he was in control and could make things happen.
Stressful situations simply activated the fighter in him. And he would win. It was always going to be that way. Stress at being exposed to Uncertainty triggered in him the power to control and make things happen. But as the years passed, he decided that he was tired of dealing with the never-ending problems of managing employees. He needed a change and trading seemed to fit his needs extremely well. He was confident that he had the self-control to trade. He had been baptized by fire and had learned how to thrive under pressure. He didn’t believe that trading could present anything that he had not encountered and mastered in his life so far.
That is why his loss of self-control while trading was so disconcerting and baffling to him. His response to stress over the course of his life was to never give up and to make victory happen. What he didn’t realize was the very self-control and self-mastery that had served him so well before trading was now the obstacle that lay in his path to trading victory. He had always responded to stress by becoming tougher and more resilient. It is this stress response to Uncertainty, so successful in other areas of his life and history, that had to be re-examined if he was to progress beyond this place he was stuck in his trading.
Beneath the Stress Response – Performance Anxiety
It’s counter-intuitive to assess this trader as having Performance Anxiety. But let’s take a step back and re-examine your notions of anxiety and the way it shows up in your trading performances. Any time there is a disruption to standard operating procedure in your life, there is both a stress response and an emotional response to that perturbation. Another way of saying this is that any time a biological and psychological organism is subjected to Uncertainty where they are not in control of outcome, a stress response and emotional triggering in association to that stress response automatically (by definition) happens. This is very interesting to observe when applied to trading.
The biological response to Uncertainty is a sense of vulnerability. And response to a felt sense of vulnerability has two sides – a fear response and a fight response to the same perceived threat. Over eons of time your biology has associated Uncertainty, vulnerability, and anxiety together so that they are experienced as a unit in a reactive manner. When you anticipate entering a trade and risking capital in an environment of Uncertainty, your body automatically fires this association that has becomes habituated. The emotion of anxiety, with its motivation to either avoid or attack the perceived threat, becomes the emotional ground from which the mind operates. Depending on your learned to respond to stress, you can easily trigger to avoid the threat (risk of capital) or control (attack) the threat to capital put at risk. This is simply biology that takes over psychology in the moment of performance where the outcome is uncertain.
This particular trader, during his formative period, learned to respond to stressors by controlling outcome externally. And it proved to be a successful solution for dealing with stress (in his life before trading). The emotional and behavioral response then was habituated as an automatic neural pattern that fired anytime Uncertainty raised its ugly head. When the man moved from his history of success in business with a conquering mentality of being a winner, he was ill prepared for the completely different mindset needed to create success in trading. This is the obstacle that has to be mastered – creating a new mindset for the rigors of trading. His old habits, no matter how successful in the past, simply did not apply to trading – where a trader has to give up the illusion of control over outcome. It’s a hard habituated pattern of perception for him to give up, considering how successful it may have been in the past. That is how it became the monster that sabotaged his trading.
The anxiety was always there in the form of control over outcome. Remember, as a child, his family was really out of control. And he had to learn to control something that was really beyond his developmental stage – but he had no choice. There were no other options. The stress response had proven successful back then and was a habituated aspect of his humanness. He had always been able to control outcome from an aggressive posture in response to stress. His anxiety had been dealt with successfully. Now, because of the lack of success with his historical strategy of control, he was experiencing the fear-based response to the stressor and to his innate anxiety of being exposed to Uncertainty. This was the mind he brought to trading.
A New Control – Performance Over Outcome
In trading, traders learn that they are not in control over outcome, neither by force nor by being perfect. The only thing that the trader can control is the mind that he brings into the moment of performance. Further, what traders eventually discover is that they also are not in control over outcome in other areas of their lives outside of trading. It may take longer for the person to realize because the speed of life is much slower that the speed of trading. But by letting go over the need to control outcome and claiming the gift of mastering the mind that engages the challenges and Uncertainties of life, they discover that they awaken to a whole new world.
In trading you learn how to lose and close down possibilities with measured skill. Losing is not bad. But it has been given a bad rap that has to be overcome to produce success in trading. It is simply part of you as a living organism with a super brain and mind learning to dance with what the market and life presents to you. This is an enormous jump for a budding trader and human to make at this critical moment. He/she is no longer trying to control what is not controllable. Instead, he/she focuses on what can be controlled – the mind that engages Uncertainty in the moment.
It is this very task that the trader faces. It is his fork in the road. Does he attempt to control the outcome of something beyond his reckoning? Or does he learn to engage Uncertainty with a patient, curious, deliberate mind that is open to what the markets are willing to give? The same situation exists with your trading. Do you continue trying to control outcome by sheer force or by being right in prediction? Or do you learn that winning is managing your performance and letting the wins and losses find their own ground. Do you focus on winning money on a trade outcome (which you don’t control)? Or do you focus on performing in the trade (which you can control)?
If you master the mind you bring to the moment of performance in trading, you have the edge that everyone has been trying to find. It was within you all the time. And as long as you are focused on the outcome of winning, performance anxiety will cause you to perceive risking capital as a threat. And you will not be able to think in terms of probabilities that include both winning and losing as two sides of the same coin. As long as you hold onto the illusion of control over outcome, Uncertainty is your monster sabotaging your trading. Meanwhile, the Probability-Based Mind is focused on minimizing losses when landing on the wrong side of probability and winning is viewed as simply falling on the right side of probability from your vantage point.
This is when you have moved from “Almost There” to being a professional trader.