A preface to this can be read here, it may clarify to you what we are going to talk about: viewtopic.php?p=1295403155#p1295403155
"nosce te ipsum"
The topic of traders psychology is a very crucial one and yet it is barely touched upon, you will hear things such as "psychology is important in trading", and that's where the topic usually stops.
This is an attempt to go in depth into the topic, how it affects our trading decisions, how we can help each other.
I believe psychology is EVERYTHING in trading. Do you use your hands to conceive a trading system ? Do you use your feet to conceive money management rules ? It all begins in your head.
I will try to lay this out concisely while omitting as much technicalities as possible.
Gray Matter: Your Brain
"The human brain has 100 billion neurons, each neuron connected to 10 thousand other neurons. Sitting on your shoulders is the most complicated object in the known universe." Michio Kaku
The superiority of our brains differentiate us from the animals, it uses 20% of all oxygen but just weighs in at 2% of your body weight, it has the capacity to generate approximately 23 watts of power.
We will only look 2 aspects of the brain and how they invoke emotional response and influence choices, the Conscious mind and the Subconscious/Unconcious mind.
The Subconscious Mind.
You are perceiving what you're reading now using your conscious mind, filtering it, connecting dots and such, your subconscious however has already recorded what has been written without any filtering whatsoever.
As an example, it is for this reason that most "professional" advertisements(neuromarketing) you see on TV or billboards are specifically crafted to influence your subconscious mind, they are usually "anchored" to deep animalistic desires and emotions(sex,lust,anger,fear,happiness), religious or social dogmas, concepts or ideals etc. , not only is the concept of anchoring applied in advertisements but also on many website designs, known as "anchoring bias".
Anchoring is simply the process of attaching concepts or ideals, a strong emotional and psychological response to a product being advertised.
Stay with me, we are still exploring the subconscious mind. The word “subconscious” literally means below awareness.
Here are a few examples of neuromarketing, which is why I rarely watch television, save for movies and animations/cartoons
Anchoring bias on websites
It's clear which one they want you to pick. You may look into color psychology for more info. Sexualization
A picture is worth a thousand words. We all know what this is. That's gucci for you, "Gucci makes you a strong, masculine man and women bow down to you" is the message, in one word, "Dominance".
Anchoring will provoke the emotion or concept anchored to, whenever you see or hear about the product and vice versa. When your subconscious mind is successfully influenced, it will in turn influence your purchasing decisions, subconsciously.
I hope you starting to see how your subconscious can be easily influenced ? How your beliefs can be influenced ? Now, think back to when you were a child until now, what have you been exposed to that has shaped your belief system to what it is today and to become who you are today? Without sounding philosophical, Is what you think to be the truth reality or was it simply imparted unto you as the truth ? Is the earth really round ?
Your Belief System: Your Undoing or Doing
"For as he thinketh in his heart, so is he" - Proverbs 23:7
“A thing is not necessarily true because a man dies for it.”- Oscar Wilde
“A casual stroll through the lunatic asylum shows that faith does not prove anything.” - Friedrich Nietzsche
Your belief system is, in simplicity, the unconscious set of rules that guide what you should and shouldn't do, what is wrong, right,proper,improper, the kind of person you should be, the types of people you should and should not associate with. Most of the time it is this set of rules we use to pass judgement on others because they don't condone to our "rules". Sad thing is, while growing up we usually have no say what we should and shouldn't believe until we reach critical thinking age (programing).
Unfortunately, by the time we are grown up, we have already been trained to be a sheep on a farm and we lack the knowledge and tools or the drive to correct wrong programming.
What is wrong programing you may ask ? Limiting beliefs.
I will use myself as an example and give you some wrong beliefs and show you how they came about. Cause and Effect.I'm not writing the following for your sympathy but rather for educational purposes.
Belief: I'm afraid of men because I don't trust them and I should be cautious around them, they don't mean the best for me.
Belief: I'm afraid of outsiders because I don't trust them and I should be cautious around them, they don't mean the best for me, I should stick to myself and those I know
Belief: I'm more comfortable around women, they will take care of me and I can trust them
When I was about 3 or 4 years old, (yes I still remember because it was traumatic. Subconscious mind, remember ?), I rolled out of my crib and landed on my back, I still remember the pain in the back of my head, when my caretaker came, he carried me back into the crib and I couldn't stop crying, so instead of comforting me, he decided to get hot posho (if you don't know, google it), rolled it up into balls and inserted them into both my nostrils and ears. Why ? I don't know.
This man happened to be a refugee from Rwanda(during the Rwandan genocide) whom my mum was helping and he was not family, which made him an "outsider".
Case 1: This same man, when I could walk, took me for a stroll without my moms knowledge as if to show me off to his friends as his (he was light skinned and I'm hybrid Italian/Ugandan), I remember that walk however it was a few years later when my mom told me that she was scared and thought he had kidnapped me. She sent him a way after that incident.
Case 2: I remember 4 cases of bullying and unfriendly treatment by other boys while growing up. Why ? I don't know.
Case 3: My father died when I was around 8 years old, I didn't know the man, in fact when my mum told him she had conceived me, he suggested that I be terminated. Why ? I don't know. I won't go into the specifics of this case, you can find more info on the effects of a fatherless childhood.
Case 4: I was raised by my mum and sister and experiences I've had with females growing up has been the opposite of what I got from men.
And so it would seem that men are horrible and a threat to me, they need no reason to be "bad/evil", they just are.
Effects on my personality
- I don't trust anyone. 80% for those close to me, with 20% room for doubt.
- I'm an introvert and very quiet, my wife has to push me to talk because what she may get most of the time is "mmhhh" , "ok", "yes/no", unless its about topics we find mutually interesting(technology, forex, sciences and arts etc).
- I spend most of my time passively observing people/situations rather than actively interacting with them and when I do, its for a brief moment. "Threat analysis"
Belief: I shouldn't become rich.
Belief: I shouldn't have much money, just enough or less.
Belief: Money is bad and evil.
Belief: Success is bad, failure or mediocrity is good.
This one is simple, growing up, it was always the rich silver spooned kids who were the liars, most arrogant, most prideful, most greedy and selfish.
Rich adults on the other hand, their disdain of people that did not stack up to their status quo was very obvious, you were basically nothing to them, a street rat (in Aladin terms). So it always seemed that the more privilege, success and money one had, the more wicked they would become.
- Constant self sabotage because any form of success or increase in money makes me "bad/wicked".
- Success and wealth even if desired becomes a pipe dream because its impossible to be "good" and "successful/rich" at the same time.
- Constantly trying to find a non existent balance between being "good" and "successful/rich".
Yes, these beliefs are ridiculous but what do you expect from the subconscious mind ? The main purpose of your brain hence subconscious mind is to ensure your survival, it will cause you to fail if it deems it as the right course of action to protect itself and by extension you. As Mahatma Ghandi said “To believe in something, and not to live it, is dishonest.”, this seems to be the mantra of the subconscious mind.
Your past experiences have shaped your belief system. Your current experiences are continually shaping your belief system.
I have replaced the above faulty beliefs with the following;
- Having Money, Wealth and Success don't make you wicked or bad, its how you use them that matters, not how much you have, the more the better . Just don't let it get to your head.
- All human beings (both men and women) have a bad and good side, it's which side(character) they chose to show and manifest that ultimately matters not what some people did to me 100 years ago. A healthy amount of caution is still needed when dealing with other people.
Consider this then, what limiting beliefs lie hidden in your mind that limit your success and keep you failing at what you want to do ?
Emotions: The drivers of beliefs
This will be short.
Emotions are helpful because if for example you had no fear of death, dying prematurely wouldn't be a problem. I would say, emotions are your beliefs manifested physically. Emotions are the triggers that influence choices(good or bad). Emotions are the signposts on the road that will alert you of limiting beliefs, we shall get into that shortly.
“The moment you doubt whether you can fly, you cease for ever to be able to do it.” - J. M. Barrie
“Be sure you put your feet in the right place, then stand firm.” - Abraham Lincoln
Like I proposed above, it's all in your head. Both your success and failure at this business or anything in life for that matter.
If it all flows from the mind then what psychological tools/skills/beliefs do you need to succeed at trading ? What dwells in the minds of the most successful traders that makes them uber successful ?
The divide between successful traders and failing traders is almost as wide as between the rich and the poor. Why ? I'll let you answer that.
I believe that with the right set of beliefs, any effective trading system is tradable profitably.
A Possible Solution: Awareness through the conscious mind
“Awareness is the enemy of sanity, for once you hear the screaming, it never stops.” - Emilie Autumn
“If, then, I were asked for the most important advice I could give, that which I considered to be the most useful to the men of our century, I should simply say: in the name of God, stop a moment, cease your work, look around you.” - Leo Tolstoy
The awareness of an event alters the pattern of behaviour. Awareness is the catalyst of change.
Awareness of what ? Your thoughts and emotions of course as they happen during vital moments, such as trading. It's laughable how ridiculous some of the beliefs hidden in your mind are. I'm not suggesting you meditate or undergo hypnosis.
A simple 3 step process;
1. Identify the emotion (effect)
2. Identify the underlying thoughts behind that emotion (cause)
3. Connect the dots of similar recurring events.
In addition, you may journal your thoughts and emotions in a notebook, you never have to read the book, you're simply training your mind to be aware, "I felt like this while doing this because of this". This is a quicker path than meditation when it comes to developing inner awareness.
This is a mental skill that is now autonomous on my side, if you haven't read the preface post above already then I urge you to read it.
The advantage of awareness, if not already evident is that you will most often than not stop yourself from making a wrong choices because you know that the emotions and beliefs behind them are bogus.
Experienced and Successful Traders
From the very beginning of my trading journey, my question has always been ," how do they do it ?" and even when I saw their strategies, they somehow didn't work for me. The answer lies in their mind, they have developed a level of patience and strategic thinking that is necessary for their success, however, they were not born with it, but it was developed, step by step.
These people can impart their psychology (belief system) unto those who are still struggling.
It may feel strange at first (especially for men, we don't like sharing our feelings, do we ?), but we can use this as a space for traders to mutually fix their psychology. AA for traders.
If you choose to seek out and destroy the wrong beliefs in your mind as regards to trading then I suggest you start with the following;
- Beliefs regarding money
- Beliefs regarding success and failure
- Beliefs regarding wealth and poverty
What has been written down may be really helpful to you or it could just be one big belief from the depths of my mind .
Good luck .