“I can see hijacking in hindsight, but not in the moment as I am trading. I’m in full control until after the fact when the thief has already come and gone and robbed me blind, again. Then I notice it, but I don’t see the thief coming. If I had known he was coming, I would be prepared – but that’s not the way it works. Before I know it, something takes over my mind and I am no longer in my right mind to trade. It’s puzzling – it is so subtle that I can’t detect it. I only see the aftermath of the poor decision-making in my trading account.”
Intellectually many people know how to trade. But, like the trader quoted above, this does not make them consistently profitable traders. Often their very "smartness" becomes a serious barrier to achieving success in trading. On the surface that’s really counter-intuitive. After all, we are taught that being bright and knowledgeable and taking control of the situation is the ticket needed for success. Yet every day we see smart, knowledgeable traders fail in trading.
How can this be? The truth is that most traders are missing essential skills for success in trading – and they don’t see that they are missing the skills. The very desirable trait of being smart blinds them from seeing other criteria just as necessary for consistent success. Yet, the trader’s smartness precludes them from seeing what they need to seein the time framethey need to see it. In the explanation of the trader in the vignette above, that’s the very clever thief who keeps stealing the trader blind. So smartness (both high IQ and knowledge) applied to trading can be both bad and good.
To be useful in trading, smartness has to be harnessed to help pull rather than lead. Or as Albert Einstein noted [paraphrased] the rational mind was the servant and the emotional mind the gift. He further observed that we get it wrong by ignoring the emotional mind and giving all the credit to the rational mind – the proverbial cart before the horse, much to our own detriment. Nowhere is this more obvious than in trading.
Understanding the Thief in the Trader’s Mind
First, let’s start with the brain. The brain is an enormously adaptive organ constantly attuning the body to successfully negotiate survival with environmental experience. Electrical patterns, not thoughts, are the language of the brain as it negotiates this individual dance with life. Before symbols, sounds, smells, or feelings is this bio-electrical language that precedes the mind’s language as thought. As the mind arises out of the brain’s language, humans begin to think. But it is this primitive chemistry that is the primal force behind taking action under pressure.
So underneath all of this elegance of the rational mind is a brain running on electrical patterns with a mandate for self-preservation in the short term. This is the basis of the emotional brain from which thought arises. Depending on how the emotional brain sees a given situation, it is going to dictate how the rational mind is going to explain it. The thinking brain is not independent of the emotional brain. Rather it serves the emotional brain by producing explanations that support whatever decision it has already made. The thoughts and possibilities you perceive at any given moment are governed by the emotional state that currently controls the brain in that moment. Emotional decisions made under pressure make sense in the moment based on ancient survival mandates, but not after short term survival instincts cease triggering the fight/flight response.
This is why the trader in the vignette didn’t see the thief coming. It was an inside job. The emotional brain of the trader had already made a decision and all the thinking mind could do was to produce an alibi that supported that decision. And the story of being “smart” clouded the trader’s ability to get at the problem in his performance. “Smart” was the alibi that covered up the evidence that the thief was at the crime scene. The trader believed he was smart (and by IQ standards, he was) and that bias blinded him from seeing what was going on right in right of his eyes. He was simply too smart for his own good.
Learning How to See What You Are Blind to
Until the trader could look at himself with new eyes he was stuck in this vicious cycle. Prior to trading, his pattern (remember that the pattern was electrical long before it was thought and belief) was to get every last drop out of a deal. At one time this was not an established pattern. It was simply a solution that he fell into during a critical moment in his professional life prior to trading – and it worked. This solution had worked for him under pressurized situations for many years and had evolved into a deeply habituated pattern of survival and financial success. And it made him a successful business man.
And like successful emotional patterns will do, it naturally migrated to his trading style when he expanded his business into trading. The problem is that it didn’t work in trading no matter how successful it was in business success. The markets were different than the other side of a negotiation – they didn’t care one way or the other. No matter how much pressure he exerted on the other side of the trade, there was not give and take, like in business. Now the trader was simply fighting himself – hence the thief in the night.
What had been a very useful adaptation to a tough situation at one moment in time and a successful solution to building a successful business from the ground up over time had turned against him in trading. Suddenly the urgency to get every last little drop out of a deal was hijacking his capacity to produce success on the level he sought in trading.
Notice that at one time his brain simply tried out this success strategy as a possible solution, and it had worked. In truth it was a pressurized situation where he negotiated a hard deal and was fortunate enough to win. That didn’t lock in the pattern, but it did set the process in motion. After many reps of this solution it was hardwired into pattern and came to be considered a personality trait. He became a tough negotiator under the stress of business negotiations.
Because it was historically so successful for such a long time, it became a familiar pattern that easily fired when engaging uncertainty and the similarity of the stress existing in business negotiations and the trading environment (where nothing is certain). The commonness of the pattern caused it to be pushed under the radar of the trader’s awareness. It became a hidden assumption or belief that drove thinking during stressful moments. Until it was brought into awareness, it simply operated on instinct as pattern. If it were not for his trading account showing that there was a problem somewhere based on his trading results, it would have continued to go unnoticed.
Then his need to control uncertainty was uncovered.
New Leadership at the Helm
This trader has to teach his brain a new leadership style for success in trading. There is nothing wrong with his current leadership style applied to business negotiations. He has proven successful in business, family, community, and church life – nearly all the domains that are important to him. The problem is that success in trading is a different animal than success in these domains. It’rsquo;s really a matter of personal growth and whether or not he is motivated to adapt his leadership style to a new domain with different rules. The major renegotiation is his stance toward the management of uncertainty. For him uncertainty has always been something he could control by his cunning, his willingness to engage risk, and his will to win. This formula worked for many years, and still does in the rest of his life – just not in trading.
Now he has to harness even his leadership style for success in trading. Whereas he was always able to control outcome by personal force, he now recognizes that in trading he cannot control outcome. What he can control, he recognizes, is the mind he brings to the performance of execution. The new leader emerges here. Instead of getting the last drop of blood out of a deal, his task is to take profits when targets are hit or when structure begins to break down – rather than forcing his will upon the market gods.
He becomes a steward to his brain and his mind that arises out of it. It is a brain/mind that can be designed (rather than waiting for his ship to come in). He is moving from what became (through experience) an instinctual response to stress – taking control – to a mind that has control over only one thing – the mind that is brought into a particular moment in time to manage performance.
Rather than external leadership, he is now focusing on internal leadership. As useful as the old leadership style was for success in the past, it had to be adapted for success in the world of trading. Trading required a different kind of leadership for success. Not better or worse than the precepts he brought to trading – just different.
Now he has the tools and skills to see the thief approaching from a distance. He is no longer so easily robbed. The very urge to get the last drop of profit (and not be satisfied till he did) was, in fact, the thief who used to sneak up on him and pick-pocket him. He actually came to wonder how he could have been so blind to have missed it. It was not his IQ and external knowledge that won the day, it was his internal knowledge of what made him tick and learning how to change it that got him past his self-imposed road blockand made him a successful trader.
To learn more from Rande, be sure to check out some of his other articles at TradersStateofMind.com.