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“We trade our beliefs about the market”

By August 20, 2013November 15th, 2023Active Investor Psychology secrets, Uncategorized

Two quotes were provided by one of the comments to my posting last week which in turn provide the opportunity to continue discussing this very important area of trading, that of beliefs and what you believe, which I started discussing 2 weeks ago. The two quotes are: “beliefs are not based on evidence” and “without evidence, I refuse to believe”. Importantly, my discussion here is limited to trading and investing.

“We trade our beliefs about the market” is attributable to Van Tharp. Or as Ray Barros puts it: “We trade our beliefs.” Many other well known successful traders have made similar statements. In fact, ‘beliefs’ are the core subject matter of Mark Douglas’s book “Trading in the Zone”.

If Van Tharp’s statement is true then you had better examine your beliefs about the market and maybe take some action. Whoa! Change beliefs?!? Hold that thought, I’ll come back to it.

What if you have other beliefs that contradict Van Tharp’s statement, and hence believe it to be untrue, but you have a strong desire to be successful in the markets?

There is also a fair chance that our beliefs about the markets will be greatly affected by our other beliefs that have nothing to do with the market.

So where do our beliefs come from?

Some beliefs certainly come from evidence. Take the example of a young boy getting bitten by the first dog with which he has an encounter (Mark Douglas uses this example in his book “Trading in the Zone”). How would this young boy answer the question: “Do you believe dogs are dangerous?” On all the evidence the boy has he will believe that all dogs are dangerous. I’ll leave it to you to read Mark’s book for his discussion about the psychological implications of this scenario. Could a large loss trade have the same mental implications for a trader?

We are told by researchers that we even have some beliefs that are genetic. Is it possible that we have no choice but to believe certain things!

But most beliefs come from ‘programming’. We are ‘programmed’ in many ways by our own particular environments which are comprised of geography, schooling, reading, researching, experiences, influencers, pursuits etc. Many form beliefs from experiences of a small sample, typically negative with respect to what was trying to be achieved. “I tried that once and it didn’t work!”

We have both functional beliefs and dysfunctional beliefs with respect to whatever it is that we are trying to do. Dysfunctional beliefs can sabotage us in one endeavour and cause outcomes that result in emotional pain. But that same belief can be functional in another completely different endeavour that protects us from harm, physical or emotional.

Outcomes in a large sample (small sample for many) become ‘evidence’. And when the outcomes are perceived to be negative with respect to what we are trying to achieve this causes emotional pain. Emotional pain can etch new neural pathways in our brains that become beliefs and if these beliefs are dysfunctional with respect to what we are trying to achieve then we will have a really tough time achieving our objectives.

But there are ways to instill new beliefs (and keep energising them) that are functional with respect to what you are trying to achieve and de-energise the dysfunctional beliefs (not delete because you can’t remove neural pathways) with respect to what you are trying to achieve.

Most battle defining what they are trying to achieve. Very few get to the step of identifying what their beliefs are with respect to trading and investing let alone identifying which are functional and dysfunctional and then changing their mental environment in context to what they wish to achieve.

The facts are that you can. But only you can and it can only start with the desire to.

You have to define a process and then step into it. There are many techniques that can be used in such a process to attain the necessary beliefs to “become a consistently successful trader”. Examples are: autosuggestion, ‘writing lines’ like you did when you were naughty at school, journaling, subliminal audio, visualisation plus many more.

Here is a suggested process, quote and unquote, written verbatim by Mark Douglas in 2004 when he visited Australia that you will not find in either of his books:

“If you genuinely desire to achieve consistent results from your trading, then it just makes sense that you will have to take a consistent approach.

A consistent approach implies the acquisition of critical mental skills. The most important of which is learning to completely accept the risks associated with trading; like losing, being wrong, missing out, and leaving money on the table. Not having fully accepted these risks will cause you to make trading errors what will erode your sense of self-trust and confidence.

How do you learn these mental skills associated with consistency? Train your mind to think in probabilities. In other words, learn how to think objectively in the markets perspective, not yours. And how do you learn to think in probabilities?

Choose and trade a complete mechanical edge that has a positive mathematical expectation over a large sample of trades so that you eventually learn to believe and consequently fully accept that each individual trade has an uncertain “probabilistic” outcome.

When you have mastered trading mechanically the internal arguments and errors will go away. At that point you can choose to trade subjectively or even intuitively, although it’s not necessary to make consistent money.”

Mark defines consistent results as “a steadily rising equity curve with drawdowns that you are comfortable with.” Such as the equity curve shown here.

My hope with a blog such as this is that, if you haven’t already done so, you research and address this very important area of active investing. You can start with studying, not just reading, Mark Douglas’s book “Trading in the Zone”. You can order Mark’s “Path to Consistency – Workshop” set of cassettes or “How to think like a Professional Trader” DVD from You can use Paula Webb’s material or services from . Our customers can watch, with Mark Douglas’s permission, “How to think like a Professional Trader” in our Members Zone, Education Centre as part of our services for no additional cost.

I wish you consistent and objective trading…..


  • Michael Cullen says:

    tryingtothink.orgHi Gary,

    As a result of your previous post, I started researching “belief”, and I found a very interesting and relevant article titled “How Belief Works” by Derrick Farnnell, at Edinburg University, Scoitland,which is to be published this month in the popular-philosophy journal “Think”. I quote the summary at the end of the article:

    To recap:

    1.We believe every claim that enters our mind, whether it was produced by our own mind or someone else’s.
    2.And given that belief consists of certainty, beliefs are self-preserving: once formed, we’ll normally not be motivated to assess their truth, including checking for other possibilities.
    3.Our certainty doesn’t mean that a contrary belief, including simply a doubt, is prevented from ever replacing the current belief. Such contrary claims – whether produced by our own mind or someone else’s – can of course still enter our mind in the course of subsequent thinking, even if that thinking isn’t aimed at assessing the truth of the original claim. And this can happen within a fraction of a second of the formation of the belief being replaced.
    4.However, equally, our likely lack of motivation to assess the truth of a belief means that it may endure even if the formation of a contrary belief, including simply a doubt, would only require a very small amount of reasoning.

    You can read the complete article here:

    If you read this article, you may come to the same conclusion as me, that the scientific study of belief is a huge area for study.



  • glen says:

    Hi Michael,
    Thanks for wading into this fascinating topic. Lets not overanalyse matters – follow the evidence trail. Suggested reading; http://www.111.111
    “Fear is temporary, greed is perpetual and human stupidity is infinite” (Tony Locantro).

    Many thanks,

    Edited by moderator. Website reference in above comment is a religous webiste and has nothing to do with investing in the market.

  • Peter Berketa says:

    Thanks Gary for a great article. My belief is that it’s not what happens to you, it’s the meaning you put on it. People see what they want in a market. One person looks at the market sees it going up and jumps in. Another may see the same thing and gets worried that it’s going to fall soon. Many people have a herd mentality and so if the “experts” say something then it must be true. Those that have a system with an edge and trust their calculations generally win. However, most people lose when trading because they work on emotion and are not consisitent in their tarding.

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