Your ability to trust yourself will determine your ability to be disciplined in trading. Without trust there is no dependable relationship between you and yourself, between you and another person, or between you and your faith in your ability to follow your own trading rules. All of these relationships exist, whether you are consciously aware of them or not, because your conscious and unconscious mind divide up into parts, which have different and often competing roles and belief systems.
The four elements of trust
In order to gain long-term trust, four elements must be present. The first element is inner security. The foundation of inner security starts when you are in the womb. Infants must know that their basic needs are being met: they must feel that they are safe in their environment, that their need for nourishment and comforts will be met, and that they are loved, wanted and accepted.
Too many of the people with whom I work did not feel loved as a child even though they recognize the fact now that their parents loved them. But, being aware that they were loved does not change the insecurity in their inner child. Many of my clients were criticized and did not feel their choices were acceptable to their parents. Now, as adults, these individuals question their choices and punish themselves with sabotaged efforts when they make choices that are different from what their parents would have wanted.
Just by having this first element of feeling secure a person can go out into the world trusting himself and other people. When the harsh reality of life sets in, he may learn that three other elements are necessary for long-term trust.
The second element
The second element in creating self-trust is knowledge. Many people call me and say, “I’m ready to trade because I just finished reading a couple of books about trading.” Recently, a wannabe trader called to say that he had just quit his job and thought he would be able to support a family of four with his trading profits. He had taken a few real trades and felt he was ready. The only resources his family had was their $25,000 savings account which he planned to use for his trading capital.
Unfortunately, there are many people who enter trading believing that they don’t have to have an extremely good education to become a successful trader. I know that a person is ready, educationally, to trade when he says, “I’ve read almost everything in trading that is out there. I have a business plan and a system that is back-tested which I believe will be profitable.” Assuming what he says is true, the only thing needed for his success is whether he has the inner security to trade. Education builds trust in your ability
The third element
The third element necessary to build trust is evidence. For a trader, the evidence he needs is evidence that he:
1. has successfully developed skills and abilities in the past.
2. has carried through on goals he has set for himself.
3. has created the probability of making money by back-testing.
4. will make money, when he develops a system or methodology as a trader
through study and training.
Successful back-testing gives a trader the confidence to believe that the probabilities of making money are in his favor. There are some people who skip this step and are successful for a period of time. The trouble comes when a drawdown occurs. If a trader has failed to back-test and develop trust that his system will produce results over time, he will develop negative emotional anchors during a drawdown and lose trust in his trading and his system. Traders who see me when they are going through this kind of mistrust are directed back to the basics.
The fourth element
The fourth element in building trust is the experience of repeated success in real-time trading. While it is true that “nothing builds confidence like success itself,” I would add, “nothing will topple a person faster from success in a negative environment than the absence of the first two elements, inner security and knowledge.”
I enjoy working with traders who experience a setback because of personal issues or because they have not adjusted their system to changing markets. It is easy to direct them to even greater success because they have already experienced success through their own study and self-discipline.
If you would like to measure the level of trust you have for yourself and for others, all you have to do is look at your day-to-day behaviors. They will also indicate whether or not you have the discipline necessary to become a good trader. Here is a quiz that will give you an idea of the level of trust you have in yourself and others through your daily behaviors. It will also give you insight into some of the behaviors you would have to change to build trust.
The self-trust quiz:
1. Do you have a pattern of always being late (15 minutes, half an hour, etc?)
2. Do you break or miss many of your appointments?
3. Do you make commitments to yourself and break them such as:
starting diets and breaking them soon into the diet?
starting exercise regimes and breaking them?
creating budgets and breaking them?
setting deadlines and breaking them?
promising to stop a negative behavior (smoking, drinking, gambling, etc), and then
breaking the promise as soon as you are tempted?
buying self-help programs and giving up shortly into the program?
4. Do you fail to follow through with plans and promises to yourself and others?
5. Do you borrow money and then not pay it back?
6. Do you break the promises you make with your children?
7. Have you betrayed your marriage vows?
8. Do you break serious traffic laws without thinking about it?
9. Do you justify breaking rules at work or in other settings in your life?
10.Do you believe that, “Rules are meant to be broken?”
If you can truthfully answer NO to these questions, you are well on the way to becoming a disciplined trader or investor. However, if you give your unconscious mind the message that it is okay to break the rules, it will be okay with your unconscious mind to support you in breaking trading rules.
Breaking trading rules is like trading without a system.
The proof of the pudding
The training we give to our children is often a perfect reflection of our own training because that is usually the only model we have and the one we unconsciously use. If that model is a good one, then we are doing well by our children. But, if that model is filled with recrimination, rejection, promise-breaking, or any combination of a host of negative factors, we will do our children a great deal of harm. For that reason, it is important to look at the model we have for raising children in light of our own experiences and feelings as children as well as our own observations now as adults. If we put a little more time into the training of our children when they are young, they will require less from us when they are teenagers – and their children will benefit, likewise. It is the greatest gift you can give to both your children and your grandchildren.
The “I’m Sorry” trader
Josh had been an outstanding trader. Not only was he very intelligent with an impressive background in mathematics and finance, he had devoted himself to learning as much about trading as anyone I have ever met. The problems, however, became evident with our first meeting. Josh had called asking for help, desperate and pleading for an immediate appointment. By rearranging my schedule, I was able to free up an entire weekend for private consulting. Josh didn’t arrive until Saturday night, however. He had missed his flight and was unable to get one until the following day. When he arrived, he was clearly chagrined. “I am so sorry,” he said sincerely. By rearranging my Monday schedule, I was able to accommodate Josh. However, because this rescheduling caused me a great deal of inconvenience, I was determined not to let it happen again.
An important part of Josh’s consulting work was the fulfillment of certain assignments. However, after learning about Josh’s childhood, I was concerned that Josh would never complete these assignments according to our agreements. One of the most painful memories of Josh’s childhood were the countless times his parents promised Josh and his sisters that they would take the children out and be good to them only to break their promises. Josh and his sisters learned that their parents’ word really didn’t mean anything.
As much as Josh hated the fact that his parents never kept their agreements, he had unconsciously adopted their model of behavior for himself. Josh was rarely on time for anything (except for a movie, because he hated to miss the beginning.) He made prom-ises to his wife and his two small children, which he never kept and never remembered making until he came home to find them, hurt and disappointed. Then, he would tell them how sorry he was. As he talked, Josh remembered that his parents had always said that they were sorry to him when he was young and how he had grown to distrust them. But, the realization came too late. His wife had already left with the two children and moved in with her parents, calling Josh “heartless and irresponsible.”
“How can I be irresponsible?” he demanded. “I made nearly a quarter of a million dollars last year. I gave them everything they wanted.” True, but his net had slipped precipitously in the last seven months. His trading was going badly, a problem he attributed to a changing market, a system which had outgrown its usefulness, and the stress of dealing with his wife. These were all good answers. The problem was that they were not the real ones.
At first, Josh was unaware of any personal responsibility for his recent troubles. In fact, he refused to see that anything he said or did could affect his trading. However, eventually, Josh was able to see that he could no longer trust his system or his trading because he could not trust himself. Neither could his wife and children.
Attracting the snake oil salesmen- He doth protest too much
Have you ever thought that you were carrying a sign on your back that said “all snake oil salesmen hit on me” because you attract so many people who are untrustworthy? If your earliest family interactions resulted in mistrust, you will spend the rest of your life looking for the people you can trust. But how can you recognize a trustworthy person? If you were unable to trust the people closest to you, you will find it difficult to distinguish between those who can and cannot be trusted. For that reason, you are more likely than most people to be conned by manipulative and dishonest people who, sensing your weakness, assure you that they are worthy of your trust. However, a person who is trustworthy will never think to say, “you can trust me,” because trust is not an issue with them. With trustworthy people, their whole life is about trust, so they don’t have to say those words. To say those words means that there is a part of you that thinks in terms of mistrust. An exception to this rule would be a person who has been deeply betrayed. In that case, trust can be an issue without it being a sign of manipulation.
Dishonest people are always going to try to convince you that they are honest. This can also be true when you are dealing with yourself. Many people deceive themselves into thinking that they are honest people even though their actions prove otherwise. They justify their actions to themselves and others. If you were to ask them, they would probably tell you that they hold trust as a very important value.
Protecting you from yourself
While you are avoiding the slings and arrows from the outside world, are you also protecting yourself from the slings and arrows that you are directing toward yourself? If you are living by the principle that not following rules or distorting rules is okay, the sign you’re wearing for snake oil salesmen was placed there by yourself.
Making rules that you can live by
Is it ever okay to break your trading rules? The answer is NO, NEVER!!! If you have anticipated all contingencies, you will have a rule for everything, so you won’t be breaking rules. You’ll be following the contingencies. For example, if you say, “I’m going on a diet and I’m never going to eat anything fattening,” suddenly you will have an overwhelming urge to eat a piece of chocolate cake. However, if you will make the rule about going on a diet to include a periodic slice of chocolate cake as part of the diet, then you will not be breaking your rules. The result is that you will stay on your diet.
The same principle of creating rules you can live by applies to your trading. Your rules must cover special conditions and exceptions. When they are part of your rules, you will find it not only possible, but easy to stay within your rules at all times. The message that you then send to your unconscious mind is that you can be trusted.
What do you do if you’re not trustworthy?
Basically, you start by keeping your agreements. This may sound easy, but it is not. If you are unable to trust yourself to keep even small agreements because of a pattern of broken agreements, this could present a challenge. It is essential that you must keep all your agreements. For that reason, if you want to send your unconscious the right message, you need to make only those agreements which are very easy to keep and which you have a strong desire to keep. They may be things which you want to do so that you know you won’t break them. You may develop back-up systems so that you can’t forget. The important thing is to do this one step at a time. Don’t overwhelm yourself with agreements. The danger would be that you would slip up and then fall off the wagon as soon as you fail once.
Each time you keep an agreement, acknowledge your achievement and reward yourself. Give yourself a verbal pat on the back. You may even have a special treat you give yourself each day for keeping all of your promises, agreements and rules. After a month of keeping each and every agreement and then rewarding yourself, you will have established a strong pattern of self-trust. From that point, trading discipline is no longer a problem.
Self-trust is the backbone of trading discipline. If you can trust yourself to do what you say you are going to do, you can follow your own trading rules. However, if you have been raised in an environment which neither nurtures and supports you nor provides you with a model for keeping agreements, you will develop trust issues that will continually undermine your ability to trust yourself and those around you. You will find it difficult to keep agreements with yourself and others. This problem will spill over to your trading so that you will not be able to follow your trading rules. The slow, steady process of making small agreements which are easy to keep and then forcing yourself to keep each one, one after another, is an effective strategy for building self-trust and a successful trading career. Copyright 2008