Replacing Fear of Loss with Trader’s State of Mind

The Set-Up for Failure.

Jack stared at the screen, knots in his stomach. The buy signals were just about lined up. Smiling with anticipation, he felt an urge to pull the trigger. But there was a certain hesitation. Inside, part of him inside was screaming, “Do it. Do it now! This is the one.” Another part of him, a little fearful, was cautioning, “Wait, you don’t know if this is the right one. You’re going to screw up. You always do. What are you going to tell your wife?”

The battle raged back and forth in Jack’s mind. Trading seemed so simple when he applied his investment training to practice trading. Now that he had skin in the game, real money – and had lost yesterday – things were different. Now he had to deal with this nagging fear hiding in the shadows of his mind.

Still confused, Jack forced his fear into a corner and then tried to ignore it. This was the way he had always dealt with fear for his entire life – pushing it away and pretending it was not there. “There, now you’ve got it under control,” muttered another stream of thoughts in Jack’s mind. It gave him a momentary sense of confidence – just like old times.

Though he had a nagging doubt still trying to surface in his thoughts, Jack became entranced and lost sight of the rigorous trading process he had been taught. Unaware that he was fixated, Jack did not see the red flags.

While Jack’s mind was hijacked by impulse, he pulled the trigger and made the trade. Relief immediately rushed through his body and he let out a sigh of relief. And after a hold period, he felt an ice dagger plunge into his gut – he had lost again.

His lingering question, “What am I doing wrong?”

When Trading, There is Nowhere to Hide

Even though our friend Jack is well trained in the technical process of trading, his trading success is still inconsistent. And he is discovering why 90% of people who start trading do not become successful. The problem for Jack, and for many traders, is that when money enters the process, the trader brings his psychology to the game. Decision making becomes different. When the fear of losing real money entered Jack’s mind, the confidence that he had built up (while paper trading) became dust in the wind. Gone.

Like many people, Jack came to trading as a second career. In his fifties, downsized, with his retirement nest-egg in trouble, he realized he was essentially unemployable. He came to trading as a path to re-creating the lifestyle he and his family had once enjoyed. What he did not realize was how his psychology would play against him in his young trading career.

Jack, like most men, had avoided understanding his emotional nature for nearly his entire life. In his life before trading, he could produce stories that covered up his fears. And to Jack, it seemed like everyone else was doing the same. Just like everybody else, he talked a game that allowed him to never face his own internal struggles. It was something that made him uncomfortable, so he cordoned off his fears so that no one would suspect that he was insecure. This strategy had worked for over 30 years.

Now, making trading decisions and risking his own capital, his lack of emotional intelligence was a liability. He was discovering, as his investment account dwindled, that the vast majority of trading was psychological. If he could stay in the trading process he was trained in, he would not have a problem. But instead, impulsivity or fear would frequently sneak in and sabotage his efforts.

Jack’s discovery was that he could not hide from his internal struggles as a trader. In trading you either won money or lost money. It was that black and white. Jack’s stories, designed to make him look good, (that had worked so well in his corporate life even when he was covering up his own incompetence) simply did not work in trading. Trading was forcing Jack to get to the heart of the matter – his personal psychology.

The Internal Dialog: the Conversations in the Mind.

Have you ever noticed that there is a conversation going on in your mind – almost at all times? And if you do not believe that there is a constant stream of thoughts in your mind, just try to still your mind and hear the silence. This seemingly ubiquitous internal dialog carries far more wallop than you would expect. It is the management of this very internal dialog that makes the difference between successful trading and failure.

Most of us erroneously believe that we have thoughts that go on in our mind. Right?
What if it were the other way around? What if our thoughts have us? This is true particularly when we are blind to their power. If you want to test this, go back and read our friend Jack’s vignette from the start of this article (it’s real – as experience by a client of mine). Jack is consumed by the fear from which his thoughts come…and not just any thoughts. There was a dance of thoughts that boomed in Jack’s head that swept him (a rational person) into self doubt and then failure.

In particular, this “dance of thoughts” had two players. One was an inner critic – judging Jack’s every move. The second player was scared and decided to pull the trigger on the trade impulsively just to get out of the discomfort. No wonder he was losing money! He had spent most of his adult life pushing this internal dialog away from his awareness. And because he did not have the necessary skill sets to observe, disrupt, and change the “players”, these “voices” dominated Jack’s thinking.

It could be different. What Jack was experiencing is the historical internal dialog. These are the “voices” we hear as thoughts that automatically rise in our mind and become our self fulfilling prophesy. So invested in avoiding its critical nature, Jack had let this internal dialog go on for years without confronting it. Actually he was doing his best to ignore that it existed. And this old habitually-wired strategy was killing his trading success. That was about to change.

What Jack was learning was that his brain had created a comfort zone to avoid the fear of losing out on opportunity. This was his impulsiveness – jumping to action. Unfortunately the very comfort zone (called a “perceptual map” in Psychology) that his brain had created to avoid anticipated loss also kept him from becoming successful! The problem was that Jack had to learn how to override his brain’s mandate to create familiar patterns (in which he was stuck) that ensured survival, but also denied long term success. Jack had to break through the prison of his comfort zone.

To become a successful trader, the internal dialog has to be understood and managed. That is what Jack was about to learn.

Managing the Voices on the Stage of the Mind

Imagine your mind as a stage where thoughts take on the form of different voices. And on that stage are various actors that give voice to the drama called your life. Dramas are built around conflict and its resolution. The constant is that there is a struggle between the good guys and the bad guys. The one that wins is the one that takes over the stage of the mind and dominates thinking. This becomes the box of your comfort zone. And for Jack, it was about the avoidance of conflict. This was a workable organization of the self until he began futures trading – where risk (conflict) could not be avoided.

Going back to Jack’s story, can you see the struggle he is enduring? The problem is not the struggle – conflict is inescapable. The problem is that, in his ignorance, the negative voices within the self are the ones that are creating his expectations of the future. No one taught him that he can awaken other, more powerful, voices within his mind that could become part of his internal dialog. And, as Jack learned how to do this, his trading improved dramatically.

Identifying the Voices of the Mind. Jack, as he continued his internal analysis, discovered that he had a voice within his mind that was highly critical of anything he tried to do. And he was tuned into it. He came to call this Inner Critic in his mind the Shadow. It seemed to go in and out of the shadows of his awareness and could really sneak up on him like an attack submarine.

It is not that Jack is different than you or me. Everyone has an Inner Critic as a voice on the stage of the mind. There are no exceptions. Most of us become so identified with the Inner Critic that it simply becomes part of the way a person perceives himself – or his trading future. And if we try to ignore its presence on the stage of the mind, it will consistently produce bad trading days – just when you can least afford it.

Jack also discovered he had a Doom Kid and a Saboteur lurking around in his mind. The Doom Kid was scared of losing and predicted catastrophe no matter what the market did. That is where his self doubt came from. The Saboteur was the impulsive part of himself. It was the part of the self that would abandon a trading process after he became fixated on a set up. The fixation over-rode adherence to the trading process. Before long, impulse directed action rather than process.

Discovering the Internal Heroes. Focused on avoiding discomfort, Jack, like many of us, had become blind to powerful unseen voices in his mind. As he developed an inner discipline, Jack discovered that there was a courageous voice that lived within him. He was not as familiar with this part of himself as the self-limiting voices, but he learned to bring it into the forefront of his awareness during trading. As he developed a tiger-like Courageous Voice, he was able to confront the inner critic and force it out of his awareness. This moved his psychology out of fear, self doubt, grandiosity, and impulsivity. This new psychological space in his mind calmed him down and allowed him to make another discovery.

In the calm state of mind that he had been able to create, Jack also discovered a wise part of himself that used dispassion to make decisions. The development of this voice in his mind allowed him to stand at a distance from the turmoil of the markets and make buying and selling decisions impartially. He was no longer being sucked into the trades by his self doubt or his impulsiveness. Now he could stand on the outside and make decisions from a dispassionate state of mind.

His trading improved dramatically as he developed these discoveries into a repeatable process – Trader’s State of Mind.

Developing the Trader’s State of Mind

Developing a process for being in Trader’s State of Mind while trading moved Jack from trading ineffectively, questioning everything that he did, to trading with confidence. Now the trading process he used to trade analytically was matched by a psychological process that put him into Trader’s State of Mind. He now was able to analyze from a dispassionate state of mind and courageously pull the trigger on the trade.

His trading turn around began when he developed the ability to observe the thoughts in the mind, not as who he was, but as voices that have taken over the thoughts of his mind. Gaining mastery over this skill opens up a whole new world in trading. Historically, people report that there is far less drama in their trading. In its place is a deeper sense of calm and confidence in their capacity to maintain an effective trader’s state of mind.

Few people are born with a trader’s state of mind. Fortunately, it can be developed. Once a trader recognizes that building an effective trading psychology is essential to successful trading, the motivation and need to re-organize the conversations of the mind becomes apparent. And the essential elements of developing a trader’s state of mind are present within each of us.

Our job is to awaken them. In awakening these heroic parts of the self, our interaction with the internal dialog that goes on in our mind changes dramatically. Like Jack, most of us are blind to the internal dialog and the influence it has over the invention of our lives. For example, Jack was not intentionally sabotaging his trading efforts, but his blindness to his internal dialog opened him to fear, self doubt, grandiosity, and impulsiveness. Waking up to this drama going on within him without his knowledge was humbling. Yet, it was also the door that opened to his transformation as a trader.

The Set Up for Peak Performance

Recognizing that he could wake up and develop elements of his personal psychology – that substantially improved his capacity to train effectively – is changing Jack’s life. Not just his trading, but in his experience of joy and satisfaction with his life. His days are no longer stressful and he experiences much more calm and satisfaction with trading.

He no longer wakes anticipating the trading day with knots in his stomach. Now he enjoys waking up and preparing to be an impartial observer of the markets. With keen interest, he develops a plan based on the market’s close. Then he goes through a psychological process that aligns his internal dialog to be focused on the Wise One making the trading decisions and the Tiger pulling the trigger on the trade. The Shadow, Doom Kid, and the Saboteur are all still there – but he is not blind to them anymore. Better yet, he knows how to call into awareness the parts of himself that produces trading, and life, success.

To learn more from Rande, be sure to check out some of his other articles at