By Dr. M. Woodruff ("Woody") Johnson, Mastering the Mental Game and XLT Instructor
What are the results that you've been getting in your trading and in your life? If they are less than what you want, then changes are in order – from the inside out. Changes in thinking in turn create new habits and control errant emotions. You see results follow a sequential model. In fact, let's call it The Cause and Effect Model (taken from Larry Wilson's book, "Play to Win") and it begins with an event. An event is anything that gets your attention. For instance, for those who live on the West Coast of the US, it might be the alarm that you had set to alert you to an early Economic Calendar report that didn't go off and consequently, you missed the play - that's an event. Or consider this, your number one son comes home from school one evening sporting a new tattoo – on his face – that's an event. Or, a traffic jam. There are three components to every event: One, what is it? Two, what does it mean to me? And, three, what am I going to do about it?
The next point in the model involves your MAPS (from Peter Senge's book, "The Fifth Discipline"). MAPS refer to all that we have learned in life, and are largely unconscious. These "programs" are derived from family members, teachers, coaches, friends, and enemies; that is to say, anyone. In other words, all of our experiences go into the mix. These programs create the lenses or "filters" through which we see the world. They work automatically and immediately. And, they are much like travel maps that we would use to negotiate our way; A) The travel map is only as good as the information that it's based upon; B) the travel map is bound by the limits of the page and C) the travel map is "not" the terrain. Along those same lines, our mental MAPS are only as accurate as the lessons that we learned; consequently, if one grew up being told that rich people are greedy, money grubbing jerks, the picture/lesson would become the "unconscious mythology" that drives conscious thoughts about money and people who have it. And, finally, these mental models become ingrained as though they were the "truth" rather than a "representation."
Next, we draw conclusions of the event based upon those MAPS through which it is filtered. And depending on how deep and strong the mythology is, it will determine how strongly we "react." The truth may be miles from what we think, but our reaction can be immediate and unwavering. Consider the phrase, "You look like my father." Now, if your father was a loving, and giving man, that might be your internal picture as soon as you heard the phrase – and your response would be in keeping with the positive picture. If on the other hand, your father was mean, cruel, shiftless, and abusive, based upon your internal model of "father," your response might be very different. What I am suggesting is that the conclusions that we draw, and the meaning that we give to events, is based upon those internal MAPS and can and often do create immediate, automatic and autocratic responses.
Next, the conclusion drawn constitutes what we think, and what we think determines our emotions. When we react or respond there are essentially three emotional domains that we come to face; i.e., positive emotions – where we feel glad, happy, and loving; neutral emotions – where we really don't have any emotional investment and don't care; and finally, other than positive or neutral emotions – which would include anger, sadness, fear and greed. Obviously, the first two would garner a very different behavioral response than the third. If I were angry, envious or fearful, my behavioral response would probably not be warm and fuzzy as if I were glad, happy, or simply disinterested.
Results are the consequences and outcomes of what happens when the event is filtered through the layers of MAPS, and conclusions are drawn and a behavior follows. Emotions are activated based on the mythology and the meaning, and a behavior is generated. Let's see how this might play out: It's early morning and you are walking down the hallway at work. You come upon your buddy with whom you are good friends. Just as you say hello with a smile and are about to stop, he walks right by and you are completely ignored. What do you think that a normal thought might be ... "Why that *&^%)$%, he didn't even speak, he really insulted me." What feelings do you think would be behind that kind of thinking? Well, anger, rejection and hurt, right? And of course, this response came immediately and decisively; right out of the book of "Hey, he can't treat me that way – what's his problem?" But, what if I told you that the person walking by just found out that a close family member was in a bad accident and hospitalized. Would that have any bearing on your conclusions? You would feel an immediate compassion and you would "understand" that it wasn't personal. Now, did the event change? No, it didn't - the only thing that changed was the meaning of the event. So, in this vignette, we can see that what is often deemed "reality" or the "facts" often are not either.
We can easily get caught up in an event. The price pattern you see "must" be a symmetrical triangle and you enter into the trade "knowing" that it "is" about to move in "this" direction. Then the tick goes against you and you feel a sense of panic and dread; you haven't put a stop loss in and the price action makes a sudden and dramatic move. You begin to use "hopium," the drug that traders grab when the price action has moved in the opposite direction and they begin to hope that it comes back. And worse, you may double-down in order to get back to break-even. Later, you look at the trade setup again and it looks nothing like the setup that you got into. In the "excitement" to make the trade, the "reality" was distorted by the greed of making more, or the fear of losing again. In other words, the results reflected the state of mind that you were in and this for so many, becomes a pattern that they play out over and over again.
As you can see, the results we experience can be traced directly back to how and what we think. If you are getting results that fly in the face of what you want, then you must change your thinking to break the pattern in which you've found yourself. As the cliché goes, the definition of insanity is continuing to do the same thing while expecting a different result. You must first change your thinking in order to change your results, because if you always do what you've always done, you'll always get what you've always gotten.
Have a great day.
- Woody Johnson
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