Specialty Skills

Creating a Compelling Mindset for your Trade

Dr. Woody Johnson

For many traders around the planet it can seem like their trading is out of control. What I mean by that is when you devise a plan and you’ve entered a trade the price-action may immediately move against you. When the novice experiences this they might immediately think that a loss is eminent and become highly anxious. As the price-action continues to creep towards your stop the anxiety turns to fear and you get an urge to move the mechanical stop that you had put in to protect yourself. Now, the next thing that happens is really interesting. Despite the rising negative and uncomfortable fearful emotion you tell yourself in no uncertain terms that you will NOT move your stop under any circumstances. You say this forcefully and with the express intention of remaining steadfast – unlike the many other previous times that you moved your stop despite similar protestations. And then, it’s like a phantom hand takes control of your hand and forces you to grab the mouse whereupon you then completely violate the promise you made just moments ago …you move the stop. For a fleeting moment you feel relief, but the relief is only temporary and soon after just a few moments later you feel awful. You have not kept your rule or your personal commitment to yourself. This type of behavior is caused by a mindset out of control and it is a precursor to the more extensive problem that can decimate your trading. It is when that mindset puts you in a trance and your out-of-control behavior extends to the entire session. Consider the following:

Have you ever emerged from a trading session in a fog and found yourself looking over the trading carnage of violated rule after violated rule; and heard yourself say, “Who made those trades?” And, as the fog lifted it became clear that you had been trading like a crazy person? It was like someone or something had control of your mouse and you felt as if you were in a trance; a negative trading trance to be exact? Well, if this or something similar has happened to you then listen up…you are not alone. I call this situation a “negative trading trance” because it happens when you are caught in a series of bad patterns. These bad patterns of thinking, (ex. I gotta take this trade even though I’m chasing it), feeling (ex. anxious and impatient), and doing (ex. impulsively entering without a setup or plan) are like pre-recorded tapes that frequently are out of your awareness and therefore once they’ve been triggered you lose sight of reality. Now, the bad patterns grow out of programming (also called learned limitations) from negative events (pain filled experiences where you had been shamed, humiliated, neglected, etc.) in your life going back as far as your childhood. The programming is also connected to mental states that are emotions, thoughts, memories, and responses that are all tied together. These programed states, for example, the state of anxiety, or the state of fear, are not just emotions but include anxious or fear based thoughts, memories, and responses that are connected so that they all get triggered together. When enough of these patterns fire together long enough, they also can be the foundation of a “sub-personality” or “part” of yourself that reflects a way of “showing up” when a trigger (something that happens in the present that resembles a wound from the past) initiates the program or pattern like losing in a trade.

Did you know that you don’t have to be mentally ill to have different personalities reside in your body? Actually, it is quite normal to have various “parts” that emerge at different times depending on what is going on at the moment. If fact, these parts speak different languages (as in negative thoughts vs. positive thoughts) and see different things as well; which is why you may have wondered how you made that bonehead trade after seeing the chart’s reality in the wake of a loss. This kind of personal and emotional volatility can play havoc on your trading account. Similar to the market, personal volatility as you trade is a reflection of the emerging emotions of the masses as they trade furiously, impulsively, and at times capriciously.

The market is continually sending messages; messages about volume, momentum, and volatility. But, those messages are best captured by first attending to your own volatility so that you can see the charts as they are. In fact, every blemish, character flaw and weakness that you have is in that reflection, because you “express yourself” while in the markets. The successful trader can “feel the markets” through insight and intuition that has been developed through countless hours of observing market charts; but she does not get lost in those feelings. The successful trader has an intimate understanding about the importance of emotional intelligence, i.e., managing emotional volatility through protocols, routines and habits. They focus on doing the “right” things habitually (following trading plans, rules, money management and position sizing) as if their life depended upon it…and their trading life does depend upon it. In this way they set themselves up to get the right results habitually. They know that consistent successful execution is intimately related to mastering the right things. This represents the development of a “positive trading trance.”

The “positive trading trance” (supporting your ability to focus with a laser precision) becomes a Zen of trading by losing the ego attachment and using mind management tools that engage the subconscious to work for them rather than against them. This is accomplished by redefining your relationship to the trade. As in a business transaction with another human being, the objective is to be in the flow; that is, a detached interaction where (even when a profit is involved) you are not attempting to aggressively bleed the situation dry but come away having done well.

To be and stay in the flow of the “positive trading trance” you must be fully conscious and “watch” what you are doing. You want to activate the “internal observer” and this is accomplished by relaxing at every opportunity and creating the habit of “being fully present, in the moment; and in the now of the trade.” In this way you can then access and activate internal resources that can shift you from a state of fear, frustration, irritation, and stressful tension to a state of relaxation, mental clarity, and self-confidence with focused intention on doing the “right” thing in the trade. There are many, many internal resources that you have, a lot of which, you may not even be aware. But, it is very difficult to be available to accessing and activating internal resources without activating the internal observer.

Activating the internal observer can be accomplished by doing the following:

Change physiology

  • Change your physiology, stand if sitting or sit if standing
  • Straighten your body
  • Take a good stretch
  • Take a few deep breaths, in this way you are oxygenating the blood in your brain and muscles, which in turn helps you to relax. By breathing deeply you slow things down and initiate a “Relaxation Response.”

When ego investment and emotion rise, trading becomes a reflection of the ego, in other words defensive reactions to negative triggering events that really distort reality. Overly invested egos create a sort of delusion, and consequently, what we thought was a great trade was in reality a “fake out” or something that came from internal bias not the objective reality of the charts. For example, one of my students, after trading in a position on the Dow e-mini futures, the YM, violated their rules and failed to maintain a hard stop. It was on a day when the Dow lost over 300 points. The second rule that they violated was to “think” that the daily ATR (Average True Range) had been breached and that since its average daily range was violated, it would “come back.” The third rule they broke, after finally closing out of the trade for a significant loss, was to believe that increasing their position size and essentially “doubling down” would bring them back to break-even in another trade attempt. Now that was delusional thinking. The analysis was distorted by the emotional upheaval taking place after experiencing the original loss.

So, my friend, your ego is not your amigo. You’ll want to get the internal observer involved early and often as you aim to create a positive trading trance. And, you’ll want to use mental and emotional “state shifting” tools like those taught in the “Mastering the Mental Game” XLT that can shake you out of that delusion. Ask your Online Trading Academy representative for more information. Remember; as you aim to develop a positive trader trance you will be intentionally honing your focus on what matters most in the trade. It could save you from a lot of loss. Also, get my book “From Pain to Profit: Secrets of the Peak Performance Trader.”

Happy Trading

This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.