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How do you currently think?

One of the major challenges that unsuccessful traders need to overcome is to recognise or admit that they are making trading errors. Even though their trading results will always be a stark reminder that they are not making money in an environment that is an endless stream of opportunities to enrich ourselves. (Trading in the Zone by Mark Douglas)

Why do traders not recognise that they are making trading errors?

There are a number of reasons for this—however, it all comes back to beliefs. The beliefs that stand people in good stead to make them successful in society/business, do not work in the markets. I call these the 10 Perceived Beliefs to Obtaining Success.

Many people hold that to be successful in society/business they must:
1 control people, companies and any opposition
2 be better than other people, companies, and any opposition
3 have better ideas than all others
4 have bigger targets than all others
5 manipulate data, people, companies and situations, to achieve those targets
6 convince people that they are right and their company is the only solution
7 compete and beat, and compete and beat again
8 win and be right—or, more appropriately, not lose and not be wrong
9 outsell and outmaneuver the opposition
10 be a step ahead of the opposition, always trying to predict their opponent’s next move

This is the paradigm of our success-at-all-costs society. People have created, formed and embellished this time-grown set of beliefs over the years to ensure that they survive day to day in society and business. Like them or loathe them, these beliefs determine everything that many people feel, perceive, think, say or do.

Typically when you achieve any of the above perceived success you are rewarded either by getting paid, getting a bonus, getting a commission or through being victorious and luxuriating in the associated feelings of joy that come with positive feedback and acknowledgment from other members of society.

We are social creatures and constantly monitor how we are doing in society by subconsciously measuring and judging feedback that we get from our environment – those around us such as competitors, colleagues, strangers, friends and family. Trading is not a social activity – it is a lonesome activity where your only feedback is your trading outcomes.

So we focus on these and use them as an avenue for the same positive acknowledgment and feedback that we get from our other social activities. The only source that we can find for such positive feedback is winning or profitable trades. Therefore we make profitable trades our focus and magnify the need to have winning outcomes to make us right and feel good.

The paradox is that to achieve sustained profitability in the long term we need to do just the opposite, forget about outcomes and focus on process and hence remove the meaning from the outcome.

Of course, you cannot achieve all of the above perceived successes on a regular basis. And when you do, they don’t always work! You will, however, achieve some of them from time to time with an associated perceived successful outcome. When you do–on a random basis, I might add–your existing beliefs, which are counter-productive for consistently trading successfully, are reinforced and strengthened. When you don’t achieve the above in any given situation society will enforce that we have failed and hence you will feel pain—emotional pain. Along with emotional pain come negative feelings of anger, frustration, revenge, betrayal, envy, not belonging, missing out and so on.

In that context, two of the automatic hard-wired programs that all human beings have are to associate the current moment with previous experiences, and to avoid emotional and physical hurt at all costs. For more detail on this material study Mark Douglas’ book “Trading in the Zone”.

We need these two automatic hard-wired programs to learn what is dangerous for us to survive in society (which used to be the jungle in humans distant past). For example, a young child associating a stove’s hot plate that can potentially cause physical pain. Of course, there are other variables that need to be assessed like is the hot plate on at the moment.

In a market environment, emotional hurt is experienced through:
• being proven wrong,
• losing money,
• missing out,
• leaving additional profit in the trade.

These are the four primal trading fears that traders–whose trading paradigm is set by the same 10 Perceived Beliefs to Obtaining Success that they operate under in the community and in business–try to avoid. Consequently they become hard-wired to avoid the above four situations in a market environment. The point is, any action that a trader takes to avoid any of the above four situations is a trading error.

This is why people do not recognise that they are making trading errors. To them, their mind, through their time grown beliefs, is operating correctly. And it is! Only it is operating correctly for a non-market environment without putting the current situation into the context of their big picture.

To better understand what is going on in our minds we need to understand that there are other variables involved and hence the four primal trading fears need to be put into context within the big picture.


  • Ian K says:

    I am a newbie with SPA3 but I have traded off and on for the last decade. I now understand that my fear of being wrong and not trusting my trading plan led to very mediocre results. With a 20% draw down this week, I was about to “hit the wall” but was saved by David Sayer sharing his experiences with me, and then delving into Douglas’ book. I an now looking forward to the journey of developing discipline, confidence in my (actually Gary’s)trading plan and its edge, and finally being successful in the markets. I cannot agree more with this article. I believe that with SPA3CFD, my only impediment to long term success will be my own state of mind! I expect to see draw downs,losing trades, open trade profit evaporate and the occasional very successful trade. Thanks Gary and the team.

  • Thane says:

    After watching thousands fall from my portfolio value this week, it is surreal to know that where once my mind would be turning the four primal fears over and over again, I am now only waiting for a rule to be triggered. Not only does it allow more drive and focus but it is somewhat satisfying. Thanks for the great support from the SWS Team and it’s members.

  • Ron says:

    Gary,I recognize some of the points you make in my own trading behaviour.However,there’s a difference between fear of emotional hurt,and fear of real financial damage.
    Compare the employed person trading with money that can be regained,against the situation of a retired person ‘trading’his Super.
    Or a wealthy person trading a small percentage of his bank being more likely to trade without fear than someone risking a significant part of their capital.
    ‘Trust’in the process,(rather than trust in a person), curiousity and acceptance to see where it will eventually lead.Is this what you mean?

  • Adrian says:

    To trade mechanically without emotion and detachment requires faith that your trading system delivers benefits over time. When you start trading you don’t have an experience base and so you cannot have faith, only expectations based on what other tell you. So if you start losing money at the start before you have faith, what will keep you going in the face of repeated loses?

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