Lessons from the Pros

Specialty Skills

Beliefs: Your Day Trading Will Follow What You Hold as True

As you trade stocks or any other asset or financial instrument your beliefs play a huge role in the results that you get.  In fact, your beliefs are very important components to your programming that took place years ago and still have considerable impact upon your follow-through, or lack thereof.  Let’s consider Brad, as he reeled from the sound.  Even though it was in his head, it felt like it had just happened with all the force and humiliation of that moment, over 37 years ago.  It was hard to imagine that this event would still have the strength that it did.  He remembered with stark clarity how in a parent-teacher meeting his father had become furious because he had received a C on his algebra final.  None of his older siblings had ever received anything lower than an A-, let alone a B and how totally unacceptable that he would humiliate the family by stooping low enough to get a C.  And, it didn’t matter that Brad was a very obedient student and child…or that he had excelled in literature, writing and art.  His retired general and engineer father took it as a personal affront and called him worthless, stupid and lazy in front of the teacher.   Brad had felt mortified by his father’s assault, and although he still achieved high marks throughout high school and college, and had become a successful business man, he always believed deep down that he wasn’t good enough or smart enough; which often kept him from going further and doing more in his life.

Now, while day trading he has watched his trade get stopped out again for another major loss it was as though his father were watching his results from the grave with that same disdain and disapproval that his face had often showed in life.  When he heard the slamming door sound that he had programmed into his trading platform indicating that the stock trade had closed, it had the same impact in his heart and head as that day his father verbally attacked him.  He felt like a failure in his father’s eyes every time he lost in a trade, which lately seemed to happen all the time.  He felt out-of-control and the embodiment of all that his father feared he would be.  Brad had become a prisoner of his limiting beliefs and they affected so much of his life and unfortunately, his trading as well.  To make matters worse, he didn’t even know that he harbored these beliefs let alone their impact upon his results.  These results would remain until Brad would become aware of his limiting beliefs and then change them.

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 very powerful because they determine to a large degree, 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 (visual, sound, or feeling) that determines or creates the perception of the event.  So, beliefs, meanings, perceptions and internal representations are intricately connected to one another.  Also, how you perceive something (either as bad vs. good, friend vs. foe) has a direct impact upon what you decide to do about the event.  For instance, if you have a trading loss and you have an unconscious belief that if someone losses in a trade they are somehow a stupid trader then the unconscious conversation might be “that means that you must be stupid;” so that your internal representation might be comprised of you being told by someone (like your father perhaps) that you are worthless and this internal representation would give further credence to the perception that losses are a very bad thing 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 for instance “move your stop” to avoid a loss; and, in most cases this type of behavior is going to come 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 will 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 your 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 what is really happening. 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 will 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 mental models or the lenses through which you see the world and you will interpret or draw a conclusion based upon your beliefs and values. For example, if you were driving down the freeway and someone cut you off (an event), you might respond with anger at having been put at great risk of an accident.  This anger would be associated with a thought or belief (which might be out of your awareness) that the guy cut you off purposefully.  For some people, this thought or belief that then fuels the anger might lead to a behavior like road rage.  But how angry would you be if you “knew” that the guy cut you off because he was rushing his pregnant wife to the hospital because the baby was on it’s way out.  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 anxiety, fear, greed, anger or the like, then the corresponding behavior will be reflective of the emotion as in fear driven rule violations like moving stops or doubling down.   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 upon the results that you want.   The way to do that is to monitor your emotions because what you feel, either emotions that you can identify  (as in anxiety, fear or greed) or feelings in your body like neck tension, or fluttery stomach just as you are about to do something in the trade; provides 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 the results that you get.  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


DISCLAIMER 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.

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