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Re-training the mind for Active Investment Success Part 1

By February 11, 2009November 8th, 2023Active Investor Psychology secrets, Uncategorized

This week I have extracted a section from the SPA3 reference manual which focuses on building the critical skills to re-train your mind for better Active Investment. Many of you will be able to relate to the thoughts and feelings derived from the market at a theoretical level but may not know how to actually address these issues and implement the necessary changes. This journal entry will be posted across two issues due to the content and the need for you to fully comprehend the processes involved. I trust that you will enjoy it.

Being aware of how you need to think and feel and how you “should” act is simple and logical enough in theory. Actually practicing it in the heat of market conditions is very difficult to accomplish for the great majority of active investors. Understanding why it is difficult requires some knowledge of how your mind works. Changing the way you think to that of a consistently successful trader requires effort and hard work. In fact, it requires that you re-train your mind to think in terms of how the market conducts itself rather than the way you are currently trained to think – which is in terms of how your world around your chosen lifestyle and profession operates with you as the central focus

We all have belief systems that have become hard wired into our psyche over time. Our beliefs are developed over time and programmed into our subconscious minds through our past and ongoing experiences, thoughts, actions, emotions, sayings and inputs from what we see, hear, touch, taste and smell.

Our beliefs automatically and constantly do our bidding for us. They determine our perceptions and interpretations. They create our expectations, dictate our behavior, our talk and our actions and shape our feelings and emotions. You are a walking, talking, acting, thinking and feeling mirror of your beliefs. Hence your actions in the market are a mirror of your beliefs; in short, you trade your beliefs.

To be successful in the market over the long term you need to add new beliefs into your subconscious mind, beliefs that automatically determine your perceptions, expectations, behavior and emotions with respect to engaging the markets. You also need to “turn off” beliefs that can potentially sabotage your endeavors in the market.

The wonderful thing about the human mind is that we all have the mechanisms within us to change our beliefs. It is just a matter of having the willingness, desire and purpose to put in the effort to change by stepping into a process that is different to what you currently do. Putting in no effort and expecting a different outcome is senseless.

This means that you need to:

• acknowledge that some of your existing beliefs do not suit engaging the market in an ongoing profitable manner,

• commit to change some of your existing beliefs, and

• energise new beliefs specifically designed for engaging the market.

Being aware of these three aspects and actually doing them are two very different things. It is not until you have re-trained your mind to think like a consistently successful trader that you will be able to consistently engage the market in an ongoing and profitable way.

You have to transition from knowing what to do, to doing what you know.

To achieve this you have to understand that your fear of experiencing a loss trade is driven by an automatic pain avoidance mechanism that is programmed into your subconscious mind. We are programmed to avoid physical and emotional pain. This is not how we choose to be – it is how we are because it is hard wired into our very being.

In the markets emotional pain results from loss trades, missing out on trades that you know you should have taken or from leaving profit in a trade. These equate at our subconscious level to being proven wrong, failing, not belonging, missing out, making a mistake, being found lacking, not being good enough or losing to an opponent, all causing emotional pain to some degree.

Our pain avoidance mechanism that automatically kicks in before doing the trade is to not do the trade for fear of experiencing the emotional pain that is automatically associated with losing trades.

Once a loss trade occurs and emotional pain results, the following mechanisms kick in after the event in an attempt to avoid or obliterate the emotional pain: denial, justification, rationalisation, ignoring, hating, revenge, self-criticism, distortion and exclusion.

You will never be able to totally turn off your automatic emotional pain avoidance mechanisms in your subconscious mind. You can de-energise them with respect to trading and energise new trading beliefs which will become your new subconscious trading paradigm.

You do this by redefining to your subconscious what events do and do not cause emotional pain to you.

Until you have gone through this de-energising and re-energising process you will continue to make trading errors in the market such as:

• freezing on entering trades
• chasing trades after the entry signal
• doing other trades that do not meet your rules
• exiting trades before the exit signal
• not exiting a trade when your exit rules are met
• putting to much capital into certain trades at certain times
• putting too little capital into certain trades
• having too much capital in the markets according to your Trading Plan
• having too little capital in the markets according to your Trading Plan

This extract is taken from the SPA3 “Reference Manual”. Share Wealth Systems is passionate about helping active investors transition from knowing what to do to doing what they know. We do this through providing mechanical trading processes that emanate from the market rather than processes than emanate from the human mind which is mostly dysfunctional with respect to making timing decisions in the market.

If you would like to view the services that Share Wealth Systems offers you can click the link below.

Next week we will continue looking at Re-Training the Mind for Active Investment and discuss simple, practical keys to change.


  • Tom McKernan says:

    Thanks Gary, for explaining the progressive line between beliefs and results. I translate it as, what one believes determines what they do and how they do it, which in turn determines what results.
    For example, if I believed the same as you share trading wise, I would produce identical results.

  • Gary Moulton says:

    Gary,I agree with Tony. The flashing side bar is really distracting.
    I bought SPA3 and put money into the market early Jan 2009. Followed all the rules but started to lose sizable amounts due to volatility (buy signals followed by sell signals for the same stock within days. I closed out all my positions after a couple of weeks.
    I do not believe that I did this for emotional pain avoidance reasons. I know realize that I should not have entered the market in the first place at that particular time but should have been more patient by waiting for the downtrend to turn to a sustained uptrend. I was enthusiastic and simply wanted to engage the market with my new system. Now I realize that my emotions got the better of me.
    I will now go back and re-read “Trading in the Zone”

  • Laurence Whitehead says:

    Gary Moulton if its any consulation the managed fund version is also experiencing draw downs

  • ralph says:

    Hi Gary thanks for pointing out the Managed fund results look at the margin of outperformance when compared to the ASX 200 25.5% that fund is just fantastic

  • Tony Brennan says:

    Gary,I find it very difficult to concentrate on your blog with the flashing sidebar. I’m not normally easily distracted, but for some reason this sometimes affects me so much I have to X out. Just some feedback as I do enjoy your articles ….

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