Matt had been here before. On paper his trading was methodical – just like he had learned. He had done his review. He knew what he was looking for. He knew his symbols, entry points, stops, and targets. He knew what to expect in a good set up. He had all the ingredients needed for disciplined trading. He was confident as he pulled the trigger at the entry point.
Everything was under control until the trade started going against him.
Then, without warning, trading starting playing with his mind and he got sucked into a vicious cycle. Logically he knew that this was probably a micro trend and he needed to be patient so the trade could refresh. Moments, in his hyper-vigilant mind, stretched into an eternity. Pressure was building. Finally he was riding the trend, but now his discipline had eroded. Itching to take a profit after his turbulent ride, he saw a chance to take a small profit and get out of the trade before it went against him again. He took it.
Relief coursed through his body and mind for a moment. No longer consumed by the fear of loss, his thinking again became objective. Then, it was déjà vu all over again. He had been here before. And he had done the same stupid thing. Out of his fear, he had taken profit early and had missed his target (and, by the way, the trade hit).
The Challenge of Mental Discipline
Many traders experience a similar real-time breakdown in discipline in their trading with similar results. It could be at different critical moments in a trade, but the results are the same. Fear or impulse overwhelms discipline in the trader’s mind when he engages the uncertainty of risk. This is the hurdle that separates most traders from the potential they know is possible in their trading – and their actual performance.
Most traders engage the process of trading with an unexamined set of beliefs about the management of uncertainty. Until they really begin to peel back the layers of their own fears, they believe that discipline is found primarily in methodology and platform. This is external discipline. Though necessary, it is not enough. It gives the trader a false sense of safety that something outside of the self could control risk and create a sense of certainty. What they do not examine is how internal hardwired beliefs, embedded in their brain, take over their trading mind when danger is perceived and this hijacks rational thinking no matter how proficient they are in their methodology. Both external and internal discipline is required for proficient trading. They are not the same.
Like in the case example cited above, your brain, your emotions, and your mind (until re-trained) are most likely going to conspire against you in trading. This is why internal discipline has to be developed. No matter how well you know how to trade, how long you have been trading, or how well you trade when personal risk is not involved, discipline in an untrained brain and mind breaks down when it perceives danger. Your brain is built to be a pattern recognition machine looking for and avoiding danger. Discipline is not found “out there”. It is an attitude that a person develops to manage the sense of danger generated by engaging uncertainty.
It is a challenge that few traders see as necessary until they have proven to themselves, over and over again, that the problem is not “out there” in platform and methodology (that’s external discipline). The discipline problem is within themselves. And as long as the trader avoids dealing with his or her self-limiting beliefs that are exposed in the process of trading, the avoidance pattern created by fear will continue to generate the same results. The trader stays stuck until he or she decides to develop internal discipline.
Internal Discipline is the Capacity to Effectively Manage the Relationship Between Your Psychology and the Ambiguity of Uncertainty.
The problem with an undisciplined mind is the unexamined relationship that has been forged between uncertainty and fear in the brain and mind. Left to its own devices, the brain (and hence the mind) does not distinguish between the two. And this glitch blows up many a trader who know methodology and who know how to use their platform. The brain and mind that is using the methodology and system do not know that there is not mortal danger involved in the trade. It sees all uncertainty as dangerous to its (and your) survival.
You may read about discipline, talk about the need of discipline, and use affirmations to create an illusion of discipline, but until you can teach your brain and mind to separate uncertainty from fear – you stay stuck in the same reoccurring avoidance or attack patterns that your brain learned in order to face uncertainty and danger.
Developing discipline as a skill while in the face of uncertainty is another matter. There is an interface where a trader’s biology and his psychology meet. A trader, to build internal discipline, will have to develop his or her psychology of performance so that the association forged between uncertainty and fear is first decoupled. Then the trader will need to develop new beliefs that allow him or her to engage uncertainty from a probability-based mindset rather than an avoidance-of-danger mindset.
Psychology is ultimately about the reconstruction of the neuro-circuitry of belief in the brain. In the mind, the trader experiences psychological discomfort while the new belief becomes embedded as habit. This is why people (and traders) avoid the work of long-term change. They are looking for a quick fix. Changing beliefs requires embracing and regulating the confusion and discomfort that occurs while the “feeling of certainty” of a belief is being challenged and replaced. And your brain will sacrifice effectiveness for the “feeling of certainty” every time. This is called cognitive dissonance.
The Link Between Uncertainty and Fear.
Our brains (therefore our psychology) evolved to associate mortal fear with uncertainty in the environment – a very different world than found in the rigors of trading. In trading, you are experiencing psychological discomfort, not mortal threat. Your brain was never built to distinguish between the two. If you step out of the illusion of safety and certainty prevalent in the industrialized world, certainty is no longer the norm of belief. Certainty becomes what you are trying to create out of potential chaos. The world becomes a dangerous and uncertain world where your next meal is always in question.
From this circumstance it is easy to see how this biological mandate for our survival can mold our psychology to trade “not to lose”, rather than to trade to manage uncertainty. Losing, to our survival brain, is a threat to be avoided. To the psychology of a trader, this bias has to be overcome and managed or the trader will stay stuck in habits that avoid risks at all costs rather than learning to manage risk.
Looking for danger in an uncertain world became the norm for physical survival. Over thousands and thousands of years this bias became wired into the way humans perceived the world. From here, you can see that the evolved brain was never built for trading where there is no risk of physical threat but there is risk of loss. And your ancestral brain cannot tell the difference between biological danger and psychological discomfort. You are going to have to make that distinction happen in your brain’s memory banks.
Here is the path of association that our friend in the vignette above, and every trader wanting to build a disciplined state of mind, is going to have to work with:
First, the brain and mind are already on the alert for danger as a natural position (we are drawn to be on the lookout for bad news. Just listen to the network news). The world in its inherent uncertainty shows up in our perception that is already biased to interpret negatively. Uncertainty presents the mind with ambiguity. The brain/mind quickly seeks an explanation that offers the “feel of certainty or knowing” in the face of this ambiguity. It does not matter whether the explanation is accurate or not. All the brain wants is to move back to the illusion of certainty where the future is known. Ambiguity generates confusion (and a corresponding lack of safety of survival) which sweeps the brain and mind into worry and fear. Worry biases the mind to see the glass half empty, which in trading creates hesitation to risk capital or an urgency to take quick profits. Fear simply paralyzes the ability to think. And you begin to react from fear. When your hand has been frozen on the mouse and you cannot pull the trigger, you have experienced fear.
Here’s the process:
Uncertainty > Ambiguity > Confusion > Worry > Fear
The triggering of uncertainty becomes a chain reaction that leads to fear-based trading. This is what the brain evolved to do. To develop a mind and psychology for trading, this process has to be changed.
Re-Inventing the Mind that Emerges From the Brain
The first step is to realize that there is nothing wrong with you. The problem is that your brain has adapted you and your psychology in such a way to avoid danger which is connected to uncertainty. It is the current organization of your mindset that engages the uncertainty of trading and life that has to be changed. This involves several stages.
The first stage is simply learning how to manage the intensity of emotional outbreaks. This is called emotional regulation. The basis of this element is the interruption of emotionally based patterns before they sweep your thinking away. Breathing, relaxation training, and thought disruption training is key to this aspect of retraining the brain and mind. Until you can manage fear, you will never be able to learn how to approach uncertainty from a different mindset.
The second stage is to develop a mindfulness practice. This is where we really begin to examine what beliefs lie behind our performances. In trading, the trader has to take full responsibility for the results of their trading. There is no outside force to blame. It is you, and only you, that keep creating the results from your trading performances. The “you” that trades is the beliefs about self and the world that gelled into the person you currently are. The reason that learning to observe the beliefs behind your fears is important is because it is your beliefs that actually are doing your trading. This is what has to re-structured.
The third state of psychological development is learning how to become aware of the thoughts running in your head as you trade. These thoughts give voice to your beliefs. And your beliefs are what are trading your methodology. Learning how to observe the inner workings of thought gives you a window into your beliefs. This requires skills development with large doses of courage to confront your inner demons that give rise to your self doubt.
The fourth stage of psychological re-invention of the self is to recognize that you have powerful internal resources that can be developed into a working mindset for successful trading. In the same way that fear is an inherent part of being human, so are elements of an empowered self. The very discipline that most traders have been seeking externally is also an inherent element of your humanness. You do not have to pretend discipline is there by the use of affirmations. Rather, it exists as a feeling you experience in your body that becomes accessible to your mind. For most traders, this is an inherent aspect of your psychology that will have to be developed.
The fifth stage is vigilance. Many would call this humbleness. You train yourself to respond to uncertainty from your new-found resources. You commit to the practice of pulling up this internal discipline. Without practice, like any new emerging skill, the skill will atrophy as a habit if not regularly practiced. You become mindful of what state of mind you intend to bring to your trading room. Left to its own devices, your old psychology based on the avoidance of uncertainty will re-assert itself. That is just the biology of pattern showing up as psychology. That is why a mindfulness practice becomes essential to successful trading. It was never your methodology, your indicators, or your trading plan. It was always the mindset that you brought to these elements of trading that produced the performances. And with discipline and self honesty, the mindset you bring the uncertainty of trading can be developed.
