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Breaking Bad & Building Good Habits: The Gateway to Trading Success

Habits are the mainstay of the human’s existence.  We have habits for everything, from the time that we get out of bed till the time we get back in.  That also includes sleep habits. And, by-the-way many or most of them are unconscious. We cannot escape it but, conversely, must embrace the process and begin a systematic purging of the bad and identifying, nurturing and building new empowering habits, especially as it pertains to trading.

The trade is one of those places that attracts habits like honey attracts flies.  But the question often asked is, where do habits come from? and how can I change them?.  Briefly, let’s look at how most habits are formed and how they operate in plain sight often rendering the poor individual feeling as if they are in a bad movie that can’t be turned off.

Experiences are what affect neurology and psychology, kicking the process off.  In other words, when you are met with a highly impactful experience that is painful or euphoric, the brain takes a neurological snapshot by encoding all sensory information in a state-bound way. What this means is that not only will you interpret the experience/event as being good or bad, you will be triggered back into that emotional state whenever you encounter a situation that is similar.

For example, let’s say that in violation of your rules you moved a stop and, as a result, had a much larger loss which not only hurt financially but emotionally left you feeling angry, sad, doubtful and incompetent.  These emotions begin to ignite other thoughts that may eventually lead you down a rabbit hole of misgivings about whether you will lose all your money and become homeless.  Now granted, this is an extreme example; however, you may be surprised to know that these thoughts are in the background of many traders’ minds after they have violated rules and felt the sting of loss. It’s just that these extreme thoughts are operating out of awareness and are outgrowths of limiting beliefs about you and your abilities. After you engage in the rule violation a few times it becomes a default or automatic action.  In other words, it has become a bad habit.

What’s encouraging is, good habits can be deliberately and intentionally formed in a similar fashion.  Let’s use the same situation in the above, where you moved the stop, when what you want to do is develop a positive default pattern of allowing the stop to remain in place and do its job.

A pair of glasses, red marker, blue marker and piece of paper with text Develop Self Awareness

How to Break Bad Habits:

  1. Identify the times that you violated the rule. You are looking for the pattern, the routine.
  2. In each instance ask:
    1. What happened just before the rule violation, just before you moved the stop?
      1. What were you looking at in the price action; the news; etc..?
    2. What did you tell yourself or believe about yourself and what was going on?
    3. What did you do just before moving the stop?
      1. Did you lean into the screen?
      2. Did you begin to become agitated?
    4. After moving the stop did you move it again?
  3. Document all the relevant thoughts, feelings and actions that you entertained in each instance in order to show the pattern or routine associated with the violation.
  4. Once you have recognized the bad routine, then change it in as many ways as are pertinent and establish another pattern in its place.

When you have established the good routine, then practice it until the new behaviors become automatic… you have established a new habit. Be sure to remain diligent and intentional in this process of making a new habit.

The old perspective is that you have to repeat a new habit for 30 days.  Well, the current wisdom is that installing a strong habit takes 60 to 90 days of practice.  That may seem like a lot, but as you practice it gets easier and easier to comply until it has dropped into unconscious control.  This happens because a reward has become attached to it.  That reward is the feeling of accomplishment and self-esteem that is due to the dopamine and beta-endorphins that are released causing the system to equate the behavior with pleasure.  Humans are instinctually drawn to pleasure and repulsed by pain.

Free Trading WorkshopOn another note, the bad routine is a cue that the pain is eminent, as in the price action moving toward your stop.  This cue causes the brain/mind to go into reaction mode; that is, it initially searches for what would most likely be a remedy, a bypass, an avoidance of the pain.  In this instance, the pain is associated with the impending loss if the price-action hits the stop.  After this happens a few times, whether it works or not it is embraced by the system as a credible way to reduce the pain and this is the reward.  No behavior is continued if there is no reward. If you are in pain and something is introduced to your system that alleviates that pain, you interpret that as a reward.

There is one more item in this habit rubric and that is the establishment of a craving.  Habits are created by a reward attached to a cue or routine.  A habit is sustained by the craving for the reward.  Think about a behavior that you really enjoy, one that you have been involved with for a considerable amount of time … perhaps running.  Yes, you get a reward from the run; but what keeps you engaged is the crave that you experience if you don’t get to run. Waking up, putting on your exercise clothes and lacing up your shoes are cues that trigger anticipation of the reward, feeling you will get after the run, in your unconscious background.  At that point, if something intervenes to keep you from it, your day will not be the same; not because you didn’t feel the reward but because your craving wasn’t satisfied. 

Three Keys to Building Good Habits:

  1. Establish a cue, a routine focused on the result that you want. For example, complying with a trading commitment.
  2. Determine what the reward is that’s associated with the new behavior.
  3. Practice it until you begin to crave the outcome, the new behavior which triggers the initial reward.

This is what we teach in the Mastering the Mental Game online and on-location course.  Ask your Online Trading Academy representative for more information.  Also, get my book From Pain to Profit: Secrets of the Peak Performance Trader.

Joyful Trading


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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