Lessons from the Pros

Specialty Skills

Check Your Ego at the Platform Door

Have you ever found yourself feeling like you needed to be right; especially in a trade?  Well, you’re not alone.  You may have been in a long futures trade where the price action pulled back and you found yourself with a knot in the pit of your stomach thinking that if you lose and you are “wrong” then that means that you’re a poor trader.  This issue has to be among those that affect the widest swath of folks and among the highest frequency of occurrence as it rears its ugly head.  Yes, it is ugly because the need to be right throws monkey wrenches into the results that traders want.  The need to be right becomes noise and it distracts the trader from what matters most and it distorts judgment while in the trade as well.  The need to be right is the flip side of the fear of being wrong.  Fritz Kunkel, author and philosopher wrote that the fear of being wrong is one of the “Four Fatal Fears” that plagues people in all walks of life and surrounding all types of endeavors.  The other three fatal fears are: The fear of rejection and the need associated with this fear is the need to be liked.  Moving on there is the fear of emotional discomfort which would include the fear of vulnerability, intimacy, and embarrassment.  The need associated with emotional discomfort is, you guessed it, the need to be emotionally comfortable.  Lastly, there is the need to win which is driven by the fear of failure.  All of these fears have a number of things in common and among them is that they are all derivatives of ego.  In other words, when you have a fear of failure which is connected to the need to be seen as a winner you are in the throes of the ego’s desire for self-promotion and self-protection which on the face of it doesn’t seem to be so bad. But, here’s the rub; self-promotion as an ego function is about hubris, an inflated sense of self and the desire to have something that you have not earned.  Self-protection as an ego function is the desire to avoid all pain, especially the pain that comes from the challenge of putting in the effort, determination and sweat of learning and building the skills associated with being a consistently successful trader.

So, we are talking about the big ego.  You may know someone who fits this moniker.  Generally speaking when someone is saddled with this label it means that the individual is perceived as conceited, self-centered, perfectionistic, having to always be right, having difficulty accepting criticism, self-absorbed or arrogant.  Of course they may exhibit all or none of these negative traits, but more than likely they may have an inflated opinion of themselves that gets between them and healthy relationships; one of which being their relationship with the market as they trade.  The person in question may be a good guy overall, it’s just that they may be so caught up in the aforementioned self-protection (defense mechanisms that thwart an honest interaction with the environment)  or self-promotion (inflated notions of one’s importance over others) that they become distracted and begin to distort data.  Often, the individual that suffers from ego inflation issues also has a part of themselves that is not only aware that there are issues, but actually attempts to override the self-sabotaging behavior that develops as an outcome of self-defeating emotions like anger, fear, anxiety, stubbornness and impatience.  These emotions make mindful execution of the trade all but impossible causing impulsive entries, chasing trades, moving stops and other unwanted rule violations.

The financial markets are neutral representations of all the hopes, fears, and decisions of everyone executing a trade.  When you trade you slip metaphorically into the skin of the market and see yourself in its reflection.  And, of course 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 of the delicate balance between emotional intelligence, i.e., managing emotional volatility through protocols, routines and habits and tracking the mechanical data of the markets.  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 this process of focusing on what matters most.  It 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 the relationship to the trade.  Your relationship to the trade becomes accentuated as in a business transaction with another human being; the objective is to be in the flow.  Being in the flow means that you develop a detached interaction where you are not attempting to get each and every tick of a move, but on the contrary aiming to come away having executed well with a good return.  To be and stay in the flow you must be self-aware and “watch” what you are doing.  You want to activate your “internal observer” and this is accomplished by relaxing at every opportunity and creating the habit of “being in the moment; fully present and in the Now of the trade.”  In this way you can maintain a fierce focus on what matters most and promote a shift from fear, frustration, irritation, and stressful tension to relaxation, mental clarity, and self-confidence.  Doing this you will be better positioned to do the “right” thing in the trade.

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 initiating the parasympathetic nervous system.
  • By engaging the parasympathetic of the Autonomic Nervous System you dilate blood vessels and increase oxygen to the brain and muscles slowing things down and initiating a “Relaxation Response.”

When ego investment and emotion rise, trading becomes a reflection of the ego, in other words defensive reactions to neutral events and inflated self-seducing illusions that really distort reality.  Overly invested egos create a sort of delusion, and consequently, what you 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.  You’ll want to get the internal observer involved early and often by being self-aware and wary of ego driven tendencies that come from unsupportive thoughts and emotions.  Trading with your highest and best interests in mind is critical to your success.  This hinges on promoting a mindset that uses mental and emotional tools and techniques that are designed to shake you out of that self-sabotaging delusion.  Remember; as you trade it is important to identify what part of you is showing up to trade your account.  Is it the strong, healthy, grounded, centered and focused part; or is it the fearful, frazzled, and fragmented part that is torn by ego driven thoughts and emotions?  Monitoring your ego can keep you from getting your trading into trouble.  You can learn more about these and other concepts and techniques to take you and your trading to the next level in the “Mastering the Mental Game” Online and On-location 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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