This article is a follow up to the earlier article entitled:
10 Psychological Obstacles to Success
The aim of trading is to trade in a logical, predictable manner with the minimum of emotional conflict. In general, most traders battle with their emotions. Emotions are located in the unconscious part of the mind; to overcome emotions, people need to either use willpower, or to retrain their unconscious mind.
Willpower (or self discipline) sounds like the logical course of action and can be quite successful in the short term. It requires conscious effort though, and this can be draining. Also, if a trader trades because he thinks it is fun, then being disciplined takes away that fun. Using willpower alone is therefore an unsuccessful way of changing a trader’s behaviour.
Changing the unconscious mind so that the emotional drives change is harder but much more successful. It is a bit like changing the operating system on a computer; it is hard going but the computer works so much better afterwards.
The biggest obstacles to successful trading are desperation, the allure of “big money”, impatience, a failure to plan and a belief that the market is conspiring against you.
Defining and then applying a trading plan can help resolve many of the psychological problems. The trader should:
1 Compile a trading strategy, back test it and prove it using a demo account.
2 Run the strategy with no deviations.
3 Apply stops that contain the risk to no more than, say, 2.5% of capital.
4 Track all trades and review them.
5 Only take trades that are triggered by the strategy.
Even without the help of a Psychotherapist, traders can use tools to help them change their unconscious mind. This can modify their emotions rather than use willpower to overpower them.
The most useful tool for psychological change is meditation, also known as self hypnosis. This is a deceptively simple technique and consists of the person sitting in a comfortable chair and relaxing. Some Psychotherapists describe a state where the body goes to sleep but the mind remains awake. In this state, the unconscious mind becomes more open to suggestions if given in a logical way. Suggestions are always phrased in a positive way; the mind does not respond to negatives. In a meditative state, the trader should think through the statement and what it means; see the logic in it; accept it as correct and decide to apply it in the future.
The trader should listen to the mind’s arguments to his suggestions and answer them. Avoid complicated suggestions as the mind may not be able to retain a long one. The same suggestion must be made time and time again until the unconscious mind accepts it and changes its behaviour. It is a little like talking to a child, so keep it simple and repeat the message frequently.
Suggestions are statements phrased in a logical way. They might include:
1 “The quickest way to success is to follow my plan.”
2 “Lots of traders are successful and I am as good as they are.”
3 “I have proved that my trading strategy gives profits.”
4 “I will make profit if I trade when my signals are met.”
5 “Good results are assured when I follow my plan.”
6 “Luck is what traders rely on when they don’t follow their plan.”
7 “The market does not care if I make money.”
8 “I will grow my capital base and my profits will grow as well.”
9 “Hard work refining my strategy will improve my results.”
10 “I am confident in myself and my strategy.”
The person should invent their own statements depending on their need. They should then pick one or two of these statements, and focus on them for ten to fifteen minutes. Any longer and there is a risk of falling asleep or being distracted.
The aim is to embed these statements in the unconscious mind so that the mind automatically thinks in a new way.
This changes the way the person thinks and his emotional tendencies will then follow new lines. Instead of fighting his emotions, he will benefit from them.
Meditation in this way must be carried out daily if it is to have any benefit. By picking on these simple statements (called mantras), the unconscious mind can be reprogrammed to do what the trader wants.
If there are more deep seated issues, the trader may wish to visit a Psychotherapist who will uncover the root of the problem and resolve it. Often people are programmed when they are young and it can take weeks of work to remove the conditioning.
There is no doubt that psychological battles indicate the difference between professional traders and amateurs. By carrying out the above, traders will be able to make the transition and become professionals. They may then, of course, find that trading is not as much fun.
If anyone feels that they may benefit from a brief consultation, they may contact me through Dukascopy and I will do what I can to assist. There will be no charge for this service, and so, naturally it cannot be a full psychoanalysis.