Peak Performance researchers have studied the mindset of successful traders and discovered something really interesting: winning traders are not geniuses!
The following information on Trading Psychology is the life work and passion of Dr. Kenneth Reid. Kenneth is a practicing psychotherapist, trading coach and trader. He also works as a Senior Analyst and Editor for three national stock market newsletters with thousands of subscribers. He has appeared on CNBC and written for Forbes.com and SmartMoney.com.
”When it comes to trading, your fears will act against you in such a way as to cause the very thing you are afraid of to actually happen” Mark Douglas, Trading in the Zone
“Most trading difficulties arise from the way trading naturally conditions us to avoid those situations that actually present the greatest possibility for monetary reward.” Kenneth Reid
SELF-SABOTAGE SYNDROME?
Peak Performance researchers have studied the mindset of successful traders and discovered something really interesting: winning traders are not geniuses! Nevertheless, they seem to have a natural immunity to “Self-Sabotage Syndrome.” The symptoms of the syndrome are widespread among struggling and breakeven traders:
You hesitate to enter, due to a paralysis of analysis; and/or
You chase trades, causing you to buy high and sell low; and/or
You get out of trades too early, on the first wiggle, instead of letting winners run; and/or
You let winners turn into losers and you hold the losers too long; and/or
Your emotions get the better of you at the worst possible times; and/or
You try to follow a plan, but in actual trading you act impulsively or freeze.
Your trading takes on a desperate quality as you try make back losses.
It feels like self-sabotage because you know what you should be doing to become a better trader, but you can’t take the right actions. You should be acting like the people taking the other side of your trades. Those people seem to trade more in sync with the market. They buy low, sell high. They let winners run. They cut losses quickly. They stay calm, positive and confident. So why is it so hard to imitate them?
I think the term “self-sabotage” is unhelpful, demoralizing and wrong.
Most traders do not have a deep-seated desire to remain stuck or fail.
Most traders do not fear success.
Most traders do not come to trading with poor self-esteem and limiting beliefs such as unworthiness.
Most trading difficulties arise from the way trading naturally conditions us to avoid those situations that actually present the greatest possibility for monetary reward. Read about this below.
In this Trading Psychology Section of EZBreakouts.com you will find a great deal of information on Seven Factors that contribute to the so-called Self-Sabotage Syndrome. The main cause of the syndrome is simple Aversive Conditioning (think rats in a cage) discussed below. Additional related causes include Random Rewards, Mind Traps, Scared Money, Procedural Errors, The Trading Trance and Adult ADD. If you hire me as your coach, we will determine which factors are causing you difficulty and together we will fix them. This page describes Aversive Conditioning, the primary cause of trader failure. Follow the links under the Trading Psych tab above to read about the other causes.
AVERSIVE CONDITIONING
BEGINNER’S LUCK
Many traders report that they were able to trade pretty well when they first started, but the more experience they gained, the worse they got! In fact, many individuals with tremendous amounts of knowledge about the market still can’t make money as traders. What is really behind the early success, the phenomenon of “beginner’s luck”?
Mark Douglas points out that the initial naivete of traders makes us fearless. In that fearless state we actually trade much better than if we were afraid, even though we have less objective knowledge about the market and about what we are doing. Here is why.
THE CONDITIONING CYCLE
In the course of learning to trade, you will make errors and they will cause you pain. You may not remember the details of those painful experiences, but your brain does. A part of your brain (the amygdala) stores details about everything that ever hurt you and tries to avoid those things in the future. The amygdala is a pattern recognition device. It is very small, but it can recognize the details of 20,000 faces….or chart configurations.
Example #1. Let’s say you once bought too high and the market immediately and viciously pulled back and shook you out of your position at a loss. Let’s say this happened more than once. After a while, you would unconsciously view pullbacks as dangerous and you would find yourself missing them, even if you consciously decide that you want to buy pullbacks. Each time a pullback occurred, if you saw it at all, you would think up reasons why you should not take it.
Example #2. Conversely, let’s say you once bought a breakout and the breakout was a fakeout causing you a painful loss. Let’s say this happened more than once. After a while, you would unconsciously view breakouts as dangerous and you would find yourself missing them, even if you consciously decide that you want to buy breakouts. You will hesitate, over-analyze and then rationalize the fact that you missed it.
Example #3. Let’s say you missed out on a big rally. Let’s say this happened more than once. Missing out can be just as painful as losing. After a while, to compensate, your unconscious will become preoccupied with trying to identify the start of a rally (picking bottoms). But in trying to help you avoid missing out, your unconscious adopts a tactic that creates another set of problems. Now you 1) get in too early; 2) you tend to buy during downtrends; and 3) you miss short-selling opportunities because you are over-focused on anticipating the bullish reversal. One problem creates three more.
The good news is that this type of conditioning can be reversed. I specialize in helping traders reverse aversive conditioning. But first you have to know that the conditioning is there, running the show, filtering (distorting) all your perceptions of the market’s opportunity flow.
BOTTOMLINE
Job #1 for traders is to correct aversive conditioning. My coaching program is focused on identifying how you may have been conditioned through your trading and reversing it. Among various other tactics, I use a downloadable, audio neuro-reprogramming technique I developed called Total Brain ConditioningTM that you can read about on this website.
If you take no other action today my friend, be sure you order my premier neuroprogramming MP3 ACCESSING THE WINNING TRADER’S MINDSET for just $99. Nothing is more important than becoming proactive about your mental-emotional state while trading. It could save you thousands