Lessons from the Pros

Specialty Skills

Making the Internal Program Change that Makes the Difference

It had happened before, actually many times before. Jim looked on with a feeling that swung like a pendulum between helplessness and anger. He felt helpless because he had violated his rule despite the fact that he had so often said that he wouldn’t. He felt angry because he had let himself down. What happened is that he had moved his stop. He had moved it four times in this trade to be exact and the price action had still moved against him.  To make matters worse, what would have been a small loss had now turned into a hemorrhaging spectacle.  It began innocently enough with what appeared to be a routine trade on the ES E-mini.  Jim had identified a drop-base-drop on the 60 minute chart that was coming into a fresh supply zone that was in a downward trend.  The 5 minute chart was used to execute his entry.  He had a plan that was formulated from his initial pre-market levels that included the Globex overnight high and low.  He placed his limit order to be hit in the number 2 position within the zone.  He knew that he had a lower percentage of fills with this entry but according to his calculations this entry had a higher incidence of follow-through.  Jim also had a bracket order to place his stop just above the distal line of the zone simultaneously when his limit order had been filled.

Initially, the trade progressed well.  The price action bounced nicely out of the zone and began a decent.  However, just as the price action left the zone it stalled and began to retrace.  At first, Jim realized that the price action was just breathing; but, it didn’t stop.  The price action gained momentum as it passed his entry.  He then became concerned.  As the price action rose more, his concern turned to anxiety and then fear that he would be stopped out.  As he looked on he began to have negative thoughts; for example he said to himself, “Whoa, this market is going to take me out.”  “What if it takes me out and then goes in my direction?”  “I don’t want to lose again.”  “I’ve lost too much money and every time I lose I feel stupid!”  This type of thinking reminded him of times when he was a child and how he had been called stupid by his classmates when he made mistakes.  This caused him to feel much worse.  The more Jim talked to himself in this fashion, the greater his anxiety and fear loomed and the more uncomfortable he felt.  In fact, he began to feel so much negative emotional intensity that he thought about moving his stop.  Then, just before the price action was about to trigger his stop, Jim violated his rule and moved it.  Before it was all over he had moved it another three times and this behavior caused him to lose a lot more money.  He had fallen into a bad trading pattern.  This negative pattern was connected to old programming that grew out of painful experiences in his past; and it was time to make a change.

When you trade and you are continually getting a pattern of the same unwanted, negative results then you are likely reacting to “programming.”  Programs are patterns of thinking, feeling and doing that stem from events that happened in your past.  You learned from and took on the belief systems of your parents and other authority figures as you grew up.  Programs are also paradigms, mental models and stories that you tell yourself.  When you have a novel experience, either painful or positive, your brain encodes everything that you see, hear, feel, taste and smell.  This encoding happens as your brain releases hormones and neurotransmitters that actually create a memory stamp of the situations.  The positive experiences (memories) are often quite helpful as they are then connected to emotional states like determination, confidence, inspiration, and passion, which hone the trader’s focus on what matters most.  However, negative and painful experiences work on the system in the opposite fashion; they are connected to emotional states like depression, anger, fear, guilt, doubt and greed, which are uncomfortable, thereby draining and distracting the trader’s focus.  When old negative programming has been activated, as in Jim’s case where his thoughts and feeling states went back to experiences when he was chastised by his school mates and felt stupid and rejected; what happens quite often is behavior then goes in the opposite of what is in the trader’s best interest.  You begin to do things to reduce the intensity of the uncomfortable feelings; like moving a stop, which for a moment helps you to feel a little better because you can hold hope in the price action going in your favor.  Frequently, the end result is not only the loss that was brought on by moving the stop (perhaps several times); there is also the fact that you have reinforced “bad” behavior and it makes it much easier to break your rules the next time that you trade.

Negative programming (learned limitations) must be identified through documenting your thoughts, emotions and behaviors that were at play during the trade.  For instance, Jim had a number of thoughts that lead to his anxiety, anger and fear.  If he had been monitoring his thoughts, he could have changed them to reflect the kind of thinking and the kind of emotions that would have been more in line with the behavioral follow-through (results) that he wanted.  If you want to excel at your trading you must measure your processes; i.e., both your mechanical processes (preparation, analysis, planning, implementation and execution) and your internal processes (thoughts, limiting beliefs, emotions, and behaviors).  Documenting is imperative to your growth as a trader.  You will not continue to get better as a trader if you don’t track and measure what are doing and how you are doing it.  What is also important for you to remember is that as a human being you have both positive and negative programming.  Your programming “will” drive what you do in the trade and what you do “will” create your results.

As far as the trade is concerned, your A-Game (your highest and best trader) is “all” that matters.  You must have your best thinking, your most positive emotions and your most focused follow-through in order to get the consistent results that you want.  Anything less is not acceptable because anything less will place you and your capital at risk.  Furthermore, anything less will only apply a percentage of all that you have to bring to the game.  You want to access and activate “all” of your internal resources as you do battle in the trader trenches.   Master your mental game to reflect the trade warrior within.  This is what we teach 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,

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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