One of the concepts that matters to all traders is “results.” Your outcomes or the consequences of your efforts are on the top of your what-matters-most list. In order to increase those results in your favor you must manage your mindset. That begins with the three “internal” variables that contribute to results; they are thoughts, emotions and behaviors. Any outcome or result that you get is an outgrowth of those three variables.
Thoughts (movies in your head, internal dialogue, beliefs, biases, values and attitudes) create, prompt and determine emotions, that drive what you do…hence you get a result. When managing your mindset, one of the first and most important concepts is to become aware of thoughts, this is important because most (about 95%) of everything that goes on in your brain/mind is out of your awareness. So, if you are going to manage your thoughts you must first become aware of those negative ones that are causing erratic emotions, like fear and greed which disrupt follow-through causing you to break rules and violate commitments. To become aware you’ve got to monitor what you are telling yourself; and when you identify these unconscious conversations it is important to “reframe” them. This mental tool is indispensable to your ability to develop and expand capacity for emotional strength and endurance in the trade.
Reframing begins with an idea or thought and that thought is “framed.” Framed means that the idea has a meaning already associated with it in your mind. Meaning is extremely critical to how you respond or react because when you attribute a meaning to something as in, “That moving average crossover means that my entry was a good one,” or “The price action is moving toward my stop and that means that I’m going to lose and that means that I’m a poor trader, and that means…” you get the idea. Then what follows is a corresponding emotion, and if that emotion is for instance fear, the discomfort prompts you to “do something” to reduce the intensity of the emotion, like move your stop.
Meaning controls not only what you perceive, but how you perceive it. So, by reframing the idea then you change the meaning, and if you change the meaning then you also change your emotional relationship to it; going from feeling unsupported to supported and able to do what is in your best interest. This is done by changing the content and/or the context of the idea. Consider the notion of loss. The frame that most traders will use is negative as in adjectives like painful, bad, disaster, failure, etc. In the second example above where the price action is moving toward the stop, the emotional relationship is strained and feels uncomfortable – fear, anxiety, worry, etc. The reframe might look something like: “Every small loss gets me closer to a big win. Or, failure is only feedback and lessons. Or, losses are the cost of doing business. Or, everyone experiences loss, what is important is how I manage my losses and keep them small.” See how the meaning and therefore the emotional relationship or “feeling” of these statements is positive or at least neutral, going from the unsupportive negative energy of the original frame to the supportive positive energy of the reframe.
Your mindset begins with your thoughts and many of those thoughts are in your unconscious, so monitor what’s going on in your head because you can’t change what you can’t face and you can’t face what you don’t know. You must first aim to increase your awareness of unconscious conversations by training yourself to be in the moment. It’s not easy, which is why I use the word train; just like training for physical competition – only in your mind.
Additionally, I often talk about the importance of being in the NOW of the trade. If you are in the Now; that is, fully present and fully available, which means that you are firing on all cylinders and optimizing your internal and external resources, you are more likely to be aligned in body, mind and emotions in order to go in the same direction and for the same goals. Being in the now means that you are focused on the task at hand; your attention is more prone to be at least close to if not 100% invested in that task and there is less likelihood for you to be conflicted which is a major issue for traders. Training yourself to monitor thoughts, emotions and behaviors will also assist you in being able to anticipate what might go wrong and to be proactive in your preparation to deal with it and preemptive in reducing those issues, like biases, that can get in your way.
So, once you identify that the statement that you’re telling yourself is unsupportive, for instance: frame – “I know I don’t have a set-up, but I’ve got to get in on this price action and make some money” reframe – “What I’ve got to do is keep my focus on what-matters-most and wait for my set-up,” or frame – “ I’m so stupid for chasing that trade; I’ll never get this right” reframe – “I’ve made a mistake, I’ll journal it and use my tools to cease doing it again; the more data I have the better trader I become.” Make sure that your emotional relationship to your mindset as it is created by what and how you are talking to yourself is positive, uplifting and helping you to focus fiercely on the task at hand. This is what we teach in “Mastering the Mental Game” online, on-location and XLT courses. Ask your Online Trading Academy representative for more information. Also, get my book, From Pain to Profit: Secrets of the Peak Performance Trader.
Dr. Woody Johnson