Specialty Skills

Don’t Let Distorted Judgment and Distracted Thinking Take You Out of Your A-Game

Dr. Woody Johnson

His heart pounded like a too-tight base drum as he looked at the set-up. He could feel the grip of anxiety that circled his neck like a pair of sinful hands pressing on his throat. The YM E-mini 60 minute chart stared blankly back at him from his screen as Roland considered his options. He had diligently documented the significant drop-base-rally as the price action was coming back into a strong supply zone.  His plan was to execute a short on the 5-minute time frame as the price action moved into the zone.  The market was expressing a short-term downward trend.   It’s not as though he had a lot to consider, basically there were only two legitimate alternatives; 1) to pull-the-trigger and thereby honor the set-up and follow through, or 2) to reject the high-probability trade by failing to execute the entry.  He found himself saying, “But, what if it keeps going up?”  “I don’t want to be stopped out for another loss.”  While another part of him exhorted; “Hey, this is a great set-up, and didn’t I learn that I must take all high-probability set-ups?”  Then the crush of the anxiety got the best of him as his vacillation caused him to watch the candle as it hit what was to be his entry move a little deeper into the zone and begin its downward reverse.   Ten minutes later as the market hit what would have been his first target, Roland felt the urge to jump in now, but he knew that this would be chasing, and yet another rule violation.  The sinful hands were replaced by the vice around his head and the huge knot in his stomach as he said to himself, “That was stupid.”  “I knew what to do and totally prepared for it…why can’t I follow-through?” “Now I’ve done it again!”  “If only I had taken the set-up, I’d have a nice profit by now.”

Roland had succumbed to distorted judgment, which was caused by distracted thinking that had led to errant emotions.  He was “trading not to lose” and it was wrecking havoc with his results. This happens to traders every day.  Traders with solid market knowledge too often fall prey to faulty thinking, either about themselves and/or the markets.  And, these frequently unconscious conversations fuel fear, greed, anxiety, self-doubt, impatience, anger and a number of other negative emotions that distract valuable attention from the task at hand.   However, that’s not all, these wayward emotions also grossly distort the trader’s ability to accurately judge the market terrain and in effect they become fragmented, frustrated and frazzled.  In other words they give in to the noise.  Noise can be internal, the kind we just illustrated or external, which would encompass news, talking heads on the radio or TV, and/or any event that takes your attention from what matters most.

So, how do you decrease the “noise” factor and remain focused?  Well, it begins by remaining self-aware, which means you are cognizant of your thoughts, emotions and behaviors at any given moment.  Allow me to make a distinction here between self-aware and self-absorbed.  Self-absorbed is an ego driven function.  Self-absorbed means that you are not thinking about your thinking but you are enamored with the thought that is up for you; as in the need to be seen as right, or to be seen as a winner, or the need to remain in the comfort zone.  Self-absorbed is not concerned with growth and skill-building, it is concerned with “how good do I look.”  On the other hand, self-awareness has to do with introspection and self-reflection in the service of learning and growth.  Remaining self-aware not only has to do with monitoring your thoughts, it also has to do with being in the present.  Too often, traders are caught up in thoughts about what already happened or what they hope will happen rather than what “is” happening.  Think of it this way, when your thoughts are wrapped up in the past moment (a trade or otherwise) or in the future as in what you hope will happen, you are taking valuable attention and therefore resources from the moment at hand.  You only have 100% of conscious attention available to you at any given moment.  If you are using let’s say 20% to 30% (which is a small percentage) to ruminate about past losses or wax poetic about what might be, then you have only 70% to 80% to bear upon the task at hand.  Now, if that task is not important, like doodling for instance or playing solitaire then this may not be a problem.  But, if you are engaged in something like TRADING then you owe it to yourself to have all of your intention and attention focused in the moment …that means 100% so that you can activate and access all of your internal and external resources and apply them to the trade at hand.   I remember teaching an XLT Mastering the Mental Game class recently and one of the students apologized for not paying attention and being interactive enough, because, he said, “I’m in a trade.”  HELLO… if you are trading you need to be trading and trading only! Although, I’m flattered that you’d like to share your trading attention with my class, if you are trading then the class is not on the “what matters most list.”  Never, ever attempt to multi-task your trading.   Actually, any endeavor that is purposeful and meaningful you owe all of your attention to.  Anything that is not trading and focused-in-the-moment while trading is “noise.”

By the way, that sound you just heard was me getting down off my soapbox.  But, it is imperative that you remain self-aware, moment-to-moment as you undertake the process of trading.  It requires your A-Game; and you need 100% of your attention to be effective in the trader trenches.  Monitor your thoughts, emotions and behavior; and of course use your Thought Journal to document faulty thinking, errant emotions and bad behavior as you bring them into awareness.  At that point you’ll be able to address them, one issue at a time.  This is what we teach in depth in the Mastering the Mental Game Online and On-location courses.  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.