you have to have certain foundations in place. These foundations are:
o Thinking in probabilities
o Having correct risk management
o Having a strategy with a real edge
• The reason the psychology section comes is that if you don’t know how to think via long-term odds and probabilities, and you don’t control your risk properly, and you don’t have a strategy built on a robust market framework that can provide a true edge, then you are naturally going to lack confidence and be filled with fear, and all the psychological techniques in the world will do you no good. These foundations are the very things that allow you to trade with an objective and confident mindset to begin with.
• Once you have these foundations in place, the key to a great trading mindset becomes selfawareness. Scientific research has shown that the vast majority of people are completely non-selfaware. That is, most people are going through life thinking that they’re making decisions and
leading an intentional life, while in reality they are being run by conditioned responses and repeating mental and emotional patterns. The external environment contains events that trigger these programmed patterns, and predictable behaviors follow. Something triggers a conditioned response, and we act automatically without our conscious awareness. Our mind then rationalizes it a few milliseconds later and convinces us that we made the decision consciously. But without practicing self-awareness in the moment, we are not in control and any seeming control is an illusion.
• The #1 trading psychology myth is that you have to trade without emotion.
The great traders know this is not true, and what they really mean by it is that you should not let your emotions make trading decisions for you. But often they have no better way to articulate it and it gets
misinterpreted to mean that you have to shut off your emotions and not let yourself feel strong
emotions when you’re trading. If you’ve been trying to do this, you may be relieved to know that the
reason you’ve failed is because it’s impossible to trade without emotions. In fact, it’s impossible to
shut off emotions altogether, so don’t waste your time in trying.
• The question then becomes: how do you sever that link between an emotion and the automatic
negative trading behavior it causes? And the answer is to accept / welcome your feelings, which is
the #1 trading psychology method when it comes to emotions.
• To understand why this is the case, you have to realize that the alternatives you have for dealing
with emotions lie on a continuum. On one end of the continuum is repression, where we try to shut off our feelings, push them down, and act like they’re not there. This ends up hurting us because the feelings don’t actually go away; they’re still there and they continue to build up in our unconscious. And since the unconscious mind is largely what drives behavior (as mentioned above), these repressed feelings will end up greatly influencing your future trades negatively without your awareness. This is one reason you continue to break your trading rules and keep doing things you promised you’d never do again. Repressed feelings and experiences are still there unconsciously driving your trading behaviors.
• On the other end of the spectrum we have expression. When you express your feelings automatically (which is how most people express them), the feelings take control over you and leave you powerless. Your judgment becomes highly clouded and remains impaired as the energy of the feeling gets amplified and you give it more life. This energy keeps lingering even after you’ve “calmed down”. But the real consequence comes in the midst of the expression, as we often do things we later regret because we’ve let the emotion take over us. Those that say expressing your feelings is good don’t mean that you should be a slave to your feeling and let them come out automatically to drive your behavior.
• In the middle of the spectrum lies the third alternative: welcoming or acceptance. This is a way of
handling emotions that most people are completely unaware of. They don’t even know the choice
exists because it is highly counter-intuitive to welcome or accept feelings that we judge to be bad and that make us uncomfortable. But the essence here is to realize that you’re human and that feelings- whatever they may be- are natural. So the only healthy thing is to acknowledge, accept, and even welcome them. When you welcome something you’re saying it’s okay. And when you make it okay, you don’t have a reason to push it away. And you also don’t make it too big of a deal and give it a power that it doesn’t have by letting it take over you and control your actions. You simply let it be there, and you feel it and welcome the feeling. And if you feel a strong resistance to welcoming it, you recognize that resistance itself is just a feeling and you welcome that too. And when you do that, both the feeling- and the resistance to the feeling- quickly decrease in strength, and often even disappear. That’s because you’re not keeping them alive by repressing or expressing, which are both forms of holding onto them tightly. When you welcome and you accept, it actually serves to let them go. It’s counterintuitive, but it works- often like magic.
• For anyone who wants a highly extensive workbook that teaches in-depth ways to welcome and release feelings in every area in life, for improved relationships, finances, health, and anything else, the book “The Sedona Method” by Hale Dwoskin is a great resource.
• To be able to reside in the middle part of the continuum, you need to understand two key psychological principles:
o There’s no such thing as a bad feeling. It’s useless to judge your feelings and to judge yourself for having them. Society has given us labels for ‘good’ and ‘bad’ feelings, and our parents often told us that having certain feelings (like anger for instance) is wrong. When you realize no feeling is bad or wrong, and that in and of itself it’s just neutral, it becomes much easier to accept or welcome it.
o Through self-awareness, the link between feelings and actions can be severed. Most people think that some feelings like anger, fear, hate, jealousy etc. are bad because they’re thinking about the consequences of the actions that those feelings often cause. But when you realize that the link between feelings and behavior doesn’t have to remain intact, and that through self-awareness it can be severed, then you realize that feelings are not something that need to be avoided in and of themselves, and they don’t have a power of their own. It’s only the unconscious link they have to actions that is the problem.
• There are three good techniques that can be used to welcome / accept your feelings. Of course if you can do it naturally based on all of the above (i.e. simply by welcoming feelings), that’s great. But if you need some help, you can use one or a combination of these three useful techniques:
o Watch them as an independent observer. To practice doing this, simply visualize watching yourself as someone else would be watching you, whenever you have a strong emotion. Doing that allows you to see that the emotion is not one with you because YOU are aware of it. Without this form of self-awareness it often feels that the feeling is us. It literally takes over and we can’t make a distinction between it and us as we feel it in every part of our being. But watching yourself as you feel the feeling allows you to see it from a different perspective and separate yourself from it in a sense. You just watch yourself with awareness, and watch yourself feeling the emotion, and you acknowledge it without repressing or automatically expressing. This, by its nature, means that you are accepting and welcoming the emotion. You’re letting it be there without acting on it or trying to get rid of it. This instantly decreases its power and often you’ll feel it leaving your body as a wave of energy release.
o Use Questioning to draw out the root cause of the feeling. To practice this, you’ll need to ask yourself questions immediately when you experience a strong emotion which you know can negatively affect your trading. Keep asking why until you get to a root cause. You may feel fear of taking a loss, and instead of letting it keep you from missing a good trade you quickly ask yourself why you’re afraid. And then when the answer comes back you ask why again and so on until you reach what you feel to be a final deep answer. Often when we hit this root level the feeling just releases on its own because its no longer unconscious. It’s been brought to the surface and in the light we see that it’s not that terrible. We won’t die if we feel it (even though it makes us feel like we will), and whatever it is making us afraid of won’t kill us either.
Another form of questioning is to simply ask yourself, can I welcome this feeling? And if the answer is no, then ask if you can welcome the resistance to welcoming the feeling. And keep asking until you feel a wave of release as the feeling decreases or evaporates. It seems very simple, and it is. It’s us that complicate feelings. But we can learn very simple, proven, and effective ways for dealing with them that greatly decreases their negative effects on our trading.
o Transfer your feelings onto paper. This technique allows you to not repress your feelings while simultaneously severing the link between them and action. The action becomes writing them out. When you verbalize them in this way and put them onto paper, you take any negative action that might have resulted in the market and hurt your account, and you place that energy into writing. And the key is to do this from a place of non-judgmental acceptance and awareness. This is not an excuse for stewing in your juices and being one with the feeling and letting it take over. Just acknowledge it and be okay with it, while verbalizing it.
• Experiment with combining these techniques. You may find it helpful to use the questioning process through writing for instance. Or to combine it with being an independent observer. There is
no set way. Try out different things and stick with the technique that works for you. Often no specific technique is needed if you can just learn to welcome the feeling by visualizing yourself opening up and letting it in with a sort of embrace.
• And realize that ‘failure’ is part of the process. In fact it’s not really failure because no one can do this perfectly. Just do the best you can and continue to get better and better. At first you may be only able to do this with the less intense emotions. But if you continue practicing, with time you’ll be able handle the majority of emotions quite readily. At the very least, you’ll have a process to go through to keep you from just acting automatically and making trading mistakes.
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