Specialty Skills

How Beliefs Can Help or Hurt Your Trading

Dr. Woody Johnson

Consider a toddler, doing what they do, getting into everything and exploring. Suddenly, an explosive crash pierces the silence and mommy comes rushing from the kitchen yelling and screaming that baby is a very bad girl and shouts no, no, no causing baby to shudder with fright and shame, crying loudly. This takes place a number of times and baby begins to explore less and is fearful more. Fast forward a few years and baby is in elementary school and is putting up a hand to answer the teacher’s question in the classroom. After the teacher calls on her, the child stands up and with enthusiasm provides what she thinks is the answer. When the child is finished, immediately the class erupts in laughter because the answer is wrong. The child slinks back down into the seat and becomes a heap of dejection and humiliation. Where a moment ago enthusiasm and eye sparkling promise once shined, shame and self-loathing has replaced them. Deep down the child is having an unconscious conversation with herself that goes something like this, “… I must never put myself in this position of humiliation and shame again. I must always be right.” A few years later and with the advent of similar personally painful events in the child’s experience, the underlying thoughts like the above have become “hard wired.” In other words, patterns of thinking, feeling and doing become activated when similar situations present in her environment that resemble painful experiences of the past… states of mind have become reactivated; (mom yells, children laugh) and emotions that comprise these states play out all over again. They have become programmed limiting beliefs that are now connected to others; for instance, “…I’m not good enough.” I don’t have the intelligence to succeed.” Or “I don’t deserve to succeed.” This dynamic forms the genesis of issues that plague traders all across the planet. This is how programing and conditioning from the past affect states of mind in the present and cause traders to think counterproductive thoughts, feel negative emotions and violate rule after rule all the while saying that they won’t let it happen again … as most assuredly it does.

A belief is anything that you hold to be true…or false; and it is a thought that you think all the time, albeit for the most part out of your awareness. Beliefs are powerful because they determine largely the meaning you give to any event…along with values from which beliefs stem. And, the meaning that you ascribe to an event is connected to an internal representation (movies in your head) that determines or creates the perception of the event. So, beliefs, meanings, perceptions and internal representations are intricately connected. Also, how you perceive something (either as bad vs. good, friend vs. foe) has a direct impact upon what you decide to do about it. For instance, if you have a trading loss and an unconscious belief that if someone loses in a trade they are somehow stupid, then the unconscious conversation might be… “hat means that you must be stupid;” so your internal representation might be comprised of you being told by someone (like your mother perhaps) that you are worthless and this internal representation would give further credence to the perception that losses are very bad and you are a bad trader to have them. These unconscious thoughts would give rise to emotions like anxiety and fear associated with the trade. So, you might decide to do something in your trade like “move your stop” to avoid a loss; and, in most cases this type of behavior comes back to “bite” you!

Beliefs are created early and throughout life and are based on the experiences stemming from your environment, good and bad, positive and negative. These experiences form the mental models, the internal structures of how you interact with your environment. These structures are largely out of your awareness and are formed by everything that you learned from family, friends, religious affiliation, media, sports, school and authority figures. The mental models are also only a representation of reality, that is, a story that you tell yourself, which may be far from truth. Furthermore, mental models are triggered by events that happen during the day. An event is anything that gets your attention. When the event takes place you will first ask yourself three questions – three questions that most often remain out of your awareness. They are: What is the event? What does it mean? and, What am I going to do about it? Of the three questions, the one that holds the meaning is the most important. To determine the meaning, the event is filtered through your internal structures or the lenses through which you see the world and you will interpret or draw a conclusion based upon your beliefs and values. In other words, when the event happens you will “make something up” which of course will be the meaning you ascribe to the event. Next, you will respond to this meaning of the event with an emotion. If the emotion is positive, then your focus will likely remain leveled on what is important in the situation,  for instance, keeping your rules in the trade. If the emotion is negative, such as fear, greed, anger or the like, then your focus and the corresponding behavior will reflect the negative emotion as in fear driven rule violations like moving stops or exiting prematurely. Of course, rule violations are going to prompt results that you don’t want.

So, it is critically important to first become aware of any limiting belief that is impacting negatively on your trading process. The way to do that is to monitor your emotions because what you feel, either emotions that you can identify or feelings in your body like neck tension or fluttery stomach just as you are about to do something in the trade; provide valuable information about what is going on in your subconscious. This information becomes available as you ask questions like: What must I be telling myself or “believing” to feel this way? What is really going on in the trade and in the charts? What behavior at this moment will provide the best outcome, as in following my rules? The answers to these and other questions will begin to reveal your beliefs about the trade and about yourself. When you document this internal data by using a Thought Journal along with your Trade Log, you are then able to track patterns of limiting beliefs that drive thinking, feeling and doing, which directly determine your results. It’s really about doing what it takes to get and keep your A-Game locked in while trading. These and other tools are taught in the “Mastering the Mental Game” XLT and On-location and Online courses. Ask your Online Trading Academy representative for more information. Also, get my book, “From Pain to Profit: Secrets of the Peak Performance Trader.”

Happy Trading

Dr. Woody Johnson


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.