The Compiled Articles of Rande Howell

The Compiled Articles of J. Rande Howell Volume 1

An Educational Gift from

Traders State of Mind All rights reserved 2013 www.tradersstateofmind.com

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Introduction: At over 160 pages this compilation is more like a small book, rather than just a collection of past articles. It contains the articles that I have written over the last 4-5 years. What I discovered was that many traders were printing out or archiving my entire article section from Traders State of Mind for this purpose. And then, they would use the articles as reference material as they studied to become better traders. My hope is that I have simplified this process by making it easier to acquire these materials. My desire has always been to help you better understand the mind that trades. The uniqueness of my work is that it is grounded in Emotional Intelligence first. My belief is that without understanding how the brain and mind operate, making changes in your performance as a trader is an uphill battle. But by learning how to work with the biology of emotion, the trader learns how a much more direct route to retraining the mind that trades becomes possible. My fondest dream for you as a trader is that you may become prosperous, first, as a human being who learns that the one thing that you can control in trading is the mind you bring to your performance in trading. Profits become a by-product of this new understanding and skill. May this gift open the door to a new world for you! Rande Howell

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TABLE OF CONTENTS - ARTICLES A CHRISTMAS TALE: THE GLITCH THAT STOLE YOUR TRADING MIND .................................................. ...5 BEYOND FEAR: DEVELOPING YOUR INNER TRADER..........................................................................................9 BREAKING FREE FROM FEAR-BASED PATTERNS..............................................................................................13 DESTRUCTIVE TRADING FED BY SELF-DOUBT..................................................................................................17 DEVELOPING YOUR MIND FOR TRADING............................................................................................................21 FEAR HIJACKS REASON..............................................................................................................................................25 FEAR OF THE LOSS OF CONTROL...........................................................................................................................29 GETTING CONTROL OF THE FEAR OF MISSING OUT.......................................................................................33 IF I KNOW HOW TO TRADE & MANAGE RISK, WHY CAN'T I DO IT WHEN THE MONEY COUNTS....37 JOURNEY OF SELF-DEVELOPMENT FOR TRADING..........................................................................................40 LEARN TO DEVELOP YOUR INNER GAME OF TRADING BY MAKING BETTER MISTAKES..................44 LEARNING HOW TO MANAGE AN EMOTIONAL BREAKDOWN WHILE TRADING...................................48 MANAGING EMOTIONS WHILE TRADING...........................................................................................................51 MASTERING FEAR & IMPULSE IN TRADING:STILL LOSING WHEN YOU KNOW HOW TO TRADE...53 MANAGING THE MIND THAT TRADES:MICRO-MANAGEMENT OF A TRADER'S PSYCHOLOGY........58 MASTERING FEAR:THE 1ST STEP IN A SUCCESSFUL PSYCHOLOGICAL PLAN FOR TRADING...........62 MASTERING TRADING EMOTIONS AND SELF-DECEPTION...........................................................................67 MINDFULNESS AND FEAR-BASED TRADING.....................................................................................................70 SO CLOSE TO GETTING THERE, BUT STILL FALLING SHORT AS A TRADER...........................................75 TAKING RESPONSIBILITY FOR DEVELOPING YOUR TRADER'S STATE OF MIND.................................78 TAKING THE BLINDERS OFF THE TRADING MIND.........................................................................................81 THE ANATOMY OF AN EMOTIONAL HIJACKING..............................................................................................85 THE BLINDSPOT IN A TRADER'S REARVIEW MIRROR.................................................................................89 THE BRAIN ON TRADING: EMOTIONAL INTELLIGENCE & THE TRADER'S MIND................................93 THE FACES OF THE "FEAR OF MISSING OUT"..................................................................................................97 THE FEAR OF MISSING OUT.................................................................................................................................100 THE FEAR OF UNCERTAINTY..............................................................................................................................103 THE FINAL FRONTIER:NAVIGATING THE "MIND"FIELD OF TRADING.................................................106 THE ILLUSION OF CONTROL: THE 1ST STEP TO EMOTIONAL SOBRIETY IN TRADING..................110 THE INNER GAME OF "SEEING" YOUR SCREENS THROUGH THE EYES OF YOUR BELIEFS............114 THE INVISIBLE HAND THAT BLOWS UP YOUR TRADING: BREAKING FREE......................................118 THE MIND YOU BROUGHT TO TRADING WILL NOT BRING YOU SUCCESS IN TRADING................122 THE MONEY NARRATIVE....................................................................................................................................125

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TABLE OF CONTENTS - ARTICLES THE SABOTEUR IN THE TRADER'S MIND .....................................................................................................129 THE STAGES OF TRADER DEVELOPMENT....................................................................................................132 TRADER'S MIND: MASTERING PERSONAL PSYCHOLOGY FOR TRADING SUCCESS.........................136 TRADING NOT TO LOSE......................................................................................................................................141 TRADING YOUR BRAIN TO MANAGE FEAR...................................................................................................146 UNDERSTANDING EMOTIONS IN TRADING.................................................................................................149 UNEARTHING YOUR HIDDEN BELIEFS THAT KEEP YOUR TRADING PRISONER............................153 WHY SELF-DESTRUCTIVE BEHAVIORS PERSIST........................................................................................157 WHY TRADERS CONTINUE TO FAIL WHEN THEY ARE TRYING HARD NOT TO LOSE...................160

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A Christmas Tale: The Glitch that Stole Your Trading Mind How You Sabotage Your Best Efforts Without Understanding Why Hidden Beliefs Taking Over the Performance of Trading (Vignette adapted from a recent consult with a trader) “This happens all too often to me – it’s a repeating pattern that I can’t see happening until it’s already too late. I don’t even see how I fall into this trap. And it is the missing puzzle piece that keeps me from becoming the trader I know I can be. It just seems to happen to me automatically and it occurs most often after I’ve had a few good trades and am feeling good about myself. At the start of the day, I’m prepared and have a positive attitude. I’m ready to trade; I’m ready to get it on. I know what I’m looking for – it’s well defined. I’m looking at my screens and waiting to jump on the kind of set-ups that are called for in my trading plan. I’m ready to trade. I’ve got to be trading to make money, so I need to be trading – not sitting around. Time ticks by as I wait for acceptable set-ups, but I stay ready – poised to act. Often after initial success, it takes what seems like an eternity for another set-up to appear. I want to trade but nothing appears that’s workable. Time passes. I’m waiting, waiting, waiting for a set-up to appear so I can trade. Time keeps crawling by as I anticipate a set-up showing up – I’m ready to trade, I’m just waiting for it to happen so I can trade. Finally I see a set-up – I’m ready. I pull the trigger. It’s only then that I realize that I’ve jumped into yet another trade that, in hindsight, was not a good setup for me. I don’t understand why I keep on doing it. I know what my rules are and, if things are going well, I’m on it. But I’ve been doing this for years and it is what keeps me from getting to the next level in my trading. I don’t have a clue why it keeps happening.” The Glitch: The Brain of the Trader is Wired to Pursue, Not to Wait for the Trade 5

There is both a biological underpinning to this common problem in trading and an untrained mind blinded by mindlessness that keeps getting sabotaged by an unseen self-limiting pattern. First, let’s take a look at the biological bias that sets the trader up for having his trading mind ambushed. A common trait that is burned into human DNA is to pursue prey. This adaptation was powerfully successful over eons of time with our ancestors so that it was folded into our genetic predisposition. This hardwired trait shows up in trading as “chasing the trade”. First, the hunter is poised for action and ready to act just like our trader in the vignette above. Once the hunter spots the potential prey, he (and the untrained trader’s mind) reactively becomes fixated on the prey and begins pursuing the potential prize. Everything becomes focused on the readiness to chase down the object of fixation. Because his focus is so absorbed by the object of the hunt, the rest of the world around the hunter/trader disappears. The arousal caused by testosterone and the thrill of the hunt overwhelm the disciplined impartiality needed to assess market criterion effectively. In the world of trading, this is a set-up for sabotage. Ancient advantage, burned into DNA because of its success, has been turned into a liability in the new world of trading. This is simply a biological bias that has to be anticipated and managed to maintain control of the mind that trades. By developing emotional regulation skills and awareness of the precursors in the hardwired pattern that leads to the fixation to chase the trade, the trader can learn to spot the arousal of this instinct. It does take work to change old deeply-habituated patterns burned into DNA that were once useful, but are not effective in the environment of trading. But this biological bias is usually not alone in creating problems in trading. The mind that the trader brings to trading also acts as a co-conspirator. Our Notion of Work Sets the Trader Up for Sabotage Going back to the vignette, notice that the trader wants to be trading, not standing around waiting. If he is not trading, he’s not making money, right? And there is an urgency to get into a trade (so you can be working) rather than to manage the mind that observes and assesses the quality of probability. What is being exposed here is a faulty assumption (turned unquestioned belief operating out of conscious awareness) that "working is doing" – taking care of business. If the trader is not busy doing the business of trading, then he is not working. This is the typical unexamined assumption that drives many traders' inability to trade effectively. Work is not about how much you get done. Work is about your capacity for the coordination of effective action. It is not about being busy, accomplishing a bunch of stuff, or taking action when it is not warranted. The work of trading is about coordinating and effectively assessing the elements necessary to produce high probability trades. It is not, by itself, about the act of taking a trade. This understanding of work has as much to do with waiting purposefully and patiently for conditions to set up as it does with pulling the trigger so you can get into a trade and manage it. This is the work of 6

trading. This is called waiting for the markets to show you what it will give you – rather than attempting to take from the markets. In this notion of work, often not trading is actually doing the work of trading. This requires a seismic shift in the way many traders understand work. The old notion of “I must work hard for my money or to be successful” simply does not bring success in trading. In successful trading, bringing an effective mindset to the performance of trading includes a patient, observing mind. There is no urgency to act before conditions are met. Notice how the biological bias burned into the trader’s very DNA to chase the trade combines with a faulty cultural (turned personal) belief that to be good in trading, you must work hard – rather than effectively. It is this “perfect storm”, where an ineffective belief about what constitutes work becomes fused in the trader’s neuro-circuitry with a biological predisposition to chase prey that sabotages the mind that the trader brings to the act of trading. How Do You Solve This Problem? First you notice the pattern. The brain creates programs that, once built, run automatically and out of working awareness. That is the job of a brain that we inherited from our ancestors. These programs are rooted in pattern-recognition and reactive response to the fear of missing out (in this case jumping into unwarranted trades). You have to be able to observe the problem pattern before you can begin to change it. If you are just beginning to investigate Mindfulness in your trading (learning to observe the pattern), start by observing your body (i.e. your breathing, your body tension, and your heart rate). That will eventually lead you to the trading mind where self-limiting beliefs are given voice. You will clearly hear these “voices” when you berate yourself after a loss. All these programs and self- limiting patterns created by the brain are emotional in nature. And because emotions are biological in nature, they show up in the body and can be observed as physical phenomena. Fear of missing out will show up in the body as accelerating pulse, faster shallow breathing or holding the breath, and the build-up of tension in the body. This is the arousal of the emotion, and this is when the emotion can be interrupted and regulated before it hijacks the trading mind. When the emotion is calmed down, you can begin to approach the mind (your beliefs about your capacity to manage the uncertainty that you bring to trading). It is in observing the mind that you discover what beliefs actually are driving your trading. If they are effective beliefs for the performance of trading (the management of uncertainty), you will see your trading account grow. If they are ineffective beliefs, then you will see your trading account stagnate or shrink. It is here that the trader will find it necessary to commit to self-development of the mind that trades. You discover that no one comes to trading with a mind ready-built for success in trading. This is a myth. Instead it has to be developed with the same rigor that you use to develop a sound 7

methodology. What you do discover, though, is that in the same way that the brain has built programs for avoiding the fear of uncertainty found in trading, it also has programs burned into DNA (and accessible) that provide the discipline, courage, patience, and impartiality needed to build, block by block, a mind capable of managing uncertainty, risk, and probability. The programs are there. Your contribution to your trading system is to develop the mind that runs your methodology and your platform. It starts with simple awareness of problem patterns in your trading, learning emotional regulation as a skill, and then developing applied Mindfulness so that you gain access to the empowered programs that lead to a mind re-engineered for the rigors of trading. And what you discover is that trading forces the issue. In many endeavors in life where a trading account does not measure the effectiveness of the beliefs you bring to the management of uncertainty, you can get away with fooling yourself for long periods of time. In trading, your trading account is in your face, bringing into stark relief what separates you from success. And your job, as a designer of mind, is to re-organize the existing programs that your brain either inherited or created into a mind built for the management of uncertainty and probability. Who would have guessed that trading was the ultimate avenue to personal development?

Rande Howell

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Beyond Fear: Developing Your Inner Trader by J. Rande Howell Despite their knowledge of trading, the vast majority of traders experience fear on a level that compromises their capacity to trade effectively. This problem eventually comes to a boiling point somewhere in the evolution of a trader. At this turning point they either leave trading, continue to suffer losses, or begin to take a closer look at themselves. They recognize that the Holy Grail is not “out there” in their system or methodology. The trouble lies within them. And the culprit is fear. The solution also lies within them. So much energy is then focused on mastering fear in trading (rightfully so) that another question is never raised. What then? How do I become the trader I could be? The battle has never “been out there” in the markets. When you learn how to manage fear, do you suddenly become a consistently winning trader? The answer is rarely. Mastering fear is the start of a journey. As jarring as this realization may be to a trader battling his fears, this is only the first, and foundational, step into the transformation of the self required to become a successful trader. Learning to deal effectively with fear opens the door to re-training the mind for peak performance trading. Ultimately, a trader perceives and acts based on his deepest beliefs about the self. This is where potential lies. Fear blocks development of potential beyond the trader’s self limiting beliefs about self. But what are the tools and skills a trader needs to harness to develop his potential as a trader? Mindfulness: Developing Awareness of Your Potential Until the spell of fear is broken, getting to the potential that lives within remains closed to you. Even when the trader learns to regulate fear so that it does not sweep him away and he can establish a calm mind, how does he locate the discipline, patience, courage, and impartiality to which he is blind? The 9

answer to this question is crucial in order to move from mediocrity to successful trading - the answer is that he develops awareness through the skill of mindfulness. For all the talk about mindfulness, people remain vague about what qualities constitute mindfulness. Simply put, mindfulness is the capacity to be aware of (observe) your thoughts, your biases, and your beliefs – not as who you are, but as what your sense of identity has become fused to. Further, in mindfulness you become witness to your thoughts, beliefs, and biases. And a startling discovery is made: you and your thoughts, biases, and beliefs are not the same. They are simply one possible organization of the self. You were born into a history of thoughts, biases, and beliefs that your brain, through adaptation, embedded into neural circuits that became your beliefs. You do not have beliefs – they have you. Your beliefs are firmly rooted into the assessment and pattern-making machine called your brain long before you can think or reflect back on what you believe. This is called your historical internal dialog. When you experience fear or impulse in trading, it is this self limiting internal dialog that has trapped you. You can easily recognize its presence and the resulting unfiltered opinions and judgments by walking down a crowded street and “people watching”. Notice that automatic assessments fly into your perception as you watch people. Before you know it, entire stories are made up that “explain” circumstances as you simply watch people passing by. There is no proof for your automatic assessments – they simply show up as your thoughts. And, even if there is no proof to support your thoughts, biases, and beliefs, you (without thinking) are still influenced to believe these seemingly random thoughts. In trading, traders actually act on their ungrounded assessments all the time. This form of mindlessness is dangerous. Think about the last time you experienced worry as you were trading (say, pulling the trigger after a string of losses). In the emotional state of worry the trader fixates his mind on perceived negative potentialities. The potentialities to which he becomes fused are no more true than any other thought running through his mind – but they are not questioned because they are not observed. When in mindlessness, the trader does not know to question the automatic negative assessments that rise from the emotional state of worry. Your thoughts represent core beliefs about the self that exist in the background of your trader’s awareness. Until the trader (you) learns to bring his thought life into awareness, he remains a victim to historical and automatic ways of perceiving the world – whether they are effective or not. In developing mindfulness as a psychological skill specifically for trading, you begin to examine your thoughts in the midst of trading, looking for the underlying biases and self limiting beliefs (beyond what the emotional state of fear feels like) that drive your trading and that blind you to other possibilities. Mindfulness has to be developed as a practice because your brain, once the thoughts become familiar, pushes them to the background of your awareness where they are out of sight. And what you are blind to about yourself in trading will come back and bite you. A Trader Comes Face to Face With His Self Limiting Beliefs

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What does this look like in real life? A trader comes to me with a problem. He has been trading for ten years and is only marginally profitable, even though he knows his methodology backwards and forwards. And after ten years, he is considering giving up trading, despite his passion for it, because he cannot ask his wife and family to support his folly anymore. He actually feels shame. He discovers (no surprise here) that he has a fear of losing that compromises his trading. After he is able to regulate his fear, he is then able to discover the self-limiting beliefs which imprison him. And these self-limiting beliefs show up in his thinking as a motivation “not to lose” rather than a motivation to win. And to insure his set ups are geared “not to lose”, he only puts in orders at a price at which they are frequently not filled. He ends up with small losses, but few wins. He also sees that many of his trades would have been winners if only he had not asked for the rock bottom price. He knows this, but he keeps getting swept away by this historical conversation in his mind about “not losing”. Then, in the process of developing mindfulness, he makes a startling discovery – he feels responsible (compelled actually) to take care of his parents and his wife financially as a way to feel worthy. He has tied his sense of worthiness to his performance as a trader. His trading performance has become a measure of his personal sense of worth. This is a set up for disaster. And here is the recipe: As he watches and evaluates set ups, the trader suddenly experiences a flashing image of a trade going bad on him. Simultaneously, he feels this as a shrinking in his gut. Then he becomes aware that his thoughts have turned to self doubt – “are you sure?”. The internal conversation of hesitation takes over his trading performance. Out of this, he seeks a rock bottom price or more confirmation before he will enter the trade. He is now trading “not to lose”, which insures he will lose. In this trader’s case, it means that his loss will be small if he gets into the trade at all. This is the anatomy of an emotional hijacking. Most traders have these trains of thoughts streak past them as a blur. They are never examined, nor confronted. In mindfulness training, the trader learns how to slow his thinking down so that he becomes aware of what thoughts are actually coursing through his mind as he trades. This is important. If these thoughts are fear based, they will produce a self fulfilling prophesy that dooms the trader’s state of mind into victimhood – a bad choice for trading. Once you can emotionally regulate yourself, mindfulness becomes open to you as an evolving trader. In the case of the trader in the vignette above, he realized he had been gripped by an internal belief that swayed him to trade NOT TO LOSE, rather than trading to win. The self limiting belief, “you’ll lose if you risk”, was unmasked and he could challenge the fear behind it. In confronting this embarrassing self limiting belief about himself, the trader developed a new, empowering belief about his trading –“I am a manager of risk. It is probable that I will win.” This belief, once it was firmly rooted into his core beliefs, led to much more productive trading. With Mindfulness, Beliefs become More Fluid 11

As a trader develops his capacity to be mindful, he begins to understand that most of our assumptions are really just automatic assessments that have taken on the power of belief over time. As we free ourselves from our self limiting beliefs, we open ourselves to re-organizing our beliefs so that we become far more powerful users of our platform and methodology. Trading takes on new meaning for our lives. It too, becomes a tool for the creation of an evolving life. This process begins with a trader developing the skills of emotional regulation. No change in self limiting beliefs is possible until then. Next, mindfulness is developed as a skill so that the trader becomes an observer of his internal struggles rather than its victim. Later, the trader learns how to move beyond the prison of his self limiting beliefs and find powerful parts of himself that he uses to rebuild the "committee of the mind". Instead of the trader’s mind being controlled by fear and self doubt as he trades, he is able to bring to his trading the elements of himself that give rise to disciplined, impartial, and courageous thought. Trading becomes a very different experience. The mindful trader is able to embrace uncertainty from a very different, and effective, state of mind.

J. Rande Howell

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Breaking Free From Fear-Based Patterns Re-inventing Your Psychology of Trading Performance by Rande Howell 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 hypervigilant 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 13

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 selflimiting 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.

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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

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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 16

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.

Destructive Trading Fed by Self-Doubt Mastering Your Psychological Demons

“How could such a positive state of mind get blown out of the water so quickly?” lamented Michael. “When I sat down to trade today, I was ready. I had done my positive affirmations, and I felt good about myself. My review prepared me. I knew what to look for. Now all I had to do was trade my plan. Then it started happening. I started have doubts about my strategy – whether I really had chosen good set ups. What if something was wrong with my analysis? Then, trying to push past my anxiety, I froze when I started evaluating entry points. The trade went by. And it worked as planned. But I continued the pattern to my trading – I began beating myself up, even cursing myself. It was all downhill after that. It was like a tidal wave hit me. I was done for the day. And I began wondering, “What is wrong with me? Why do I do this to myself?”

You Trade Your Psychology Does this trader’s problem sound familiar to you? What happens when a trade blows up on you because indecision suddenly seizes control of your mind and cripples your capacity to trade your plan? And what can you do about it? The assumption here is that the trader can simulated-trade successfully. It is the interaction between your methodology and your trader's psychology of risk management – and what that means – that is at the core of this performance problem. How can you know so much about trading, and, yet, in the heat of the moment (with a chunk of money on the line) get swept away by fear into making poor trading decisions?

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What You Don’t Know About the Brain Will Hurt You in Trading First, what you do not understand about how your brain is organized around fear will hinder your trading performance. Your brain was developed for you to survive in a world that no longer exists for most human beings. In that ancient world danger actually lived around every corner. We developed a sense of wariness of physical threats that existed in that long ago world. Uncertainty produced ambiguity, and ambiguity meant confusion. Our ancestors learned to equate confusion with fear. And we became predisposed to any accepting any explanation that got us out of the confusion and back to certainty. It did not really matter if the explanation was true or not. The goal was to get out of the high alert status of confusion. Out of this situation our human brain developed a knack for negatively appraising the circumstance of surviving in a tough world. Notice how eerily similar this is to the trading world. We quite naturally developed the survival skill of negatively appraising any situation that produced uncertainty. As a survival trait, based on the world our ancestors lived in so long ago, this bias had survival value and it evolved as part of our humanness. Avoiding danger was far more important than confronting danger. Humans were not nearly as well equipped to confront stronger, bigger, faster, and more dangerous animals. But a bias to avoid threats kept the human race away from dangers and allowed the human brain to develop. Eventually this led to the human’s rise and dominance of the world. The problem is that this bias to negative assessment was built long before humans developed a sophisticated psychological potential. And the old survival brain today continues to see uncertainty in the same way it did so many years ago: Uncertainty = Physical Threat. The problem is that the lions, tigers, and bears have been gone for many years, but your brain is still built to look for them anytime there is uncertainty. And it has built reactive patterns to trigger when uncertainty and confusion are present. Trading provides the ammunition for this ancient reactiveness. Your brain was developed to help you survive short term physical threat in a very uncertain and hostile world. It never was developed for the psychologically uncertain world of trading. Probabilities of survival were placed on us by the world around us just simply because you lived there. In the trading world, you are choosing to live in a world where uncertainty and risk have to be managed to survive. And, yet, the survival brain (that you share with your caveman ancestors) is highly biased to avoid the risk of uncertainty. How does this show up in your trading? If you have felt your finger paralyzed while pulling the trigger, panicking while in a trade, or trading impulsively – you have experienced the biological mandates of your brain overwhelming your mind. These are biological patterns triggering and taking control over your mind. Until you disrupt the brain’s pattern-making machinery, you will continue to fall back into destructive patterns. This is why it is vital for you, as a trader, to learn how to emotionally regulate your ancient fight or flight motivations because they will work against your trading until you desensitize them. Then de18

coupling uncertainty from fear and retraining the relationship for managing the risk of uncertainty and probability will become a psychological development concern. But not before.

What You Deny About Your Secret Beliefs Will Hurt You in Trading Go back and read the vignette about the trader triggering to self doubt at the beginning of this article. Notice that, as long as there is not threat, there is not a problem. Then as he enters the uncertainty and ambiguity of trading, the resulting confusion leads to self doubt. To the caveman brain there is a threat to life. To the trader’s mind, there is a fear of loss. The problem is, no matter how effective his methodology is, the caveman brain perceives the uncertainty of the markets as a threat to life while the trading mind is trying to manage risk. The problem is that the emotional brain hijacks the modern, thinking brain. The risk is really not about a biological threat – it is now a psychological threat. It is a self-limiting belief that he (the trader in the heat of trading) is inadequate, does not matter, is not worthy, or is powerless. The caveman brain will see this as a threat to life every time. And out of his self limiting beliefs about his ability to prevail in his world, come the trader’s judgmental assessments about his capacity to trade. Out of these self-limiting beliefs about the self comes the thought life of the trader. The thoughts actually give voice to the hidden self-limiting beliefs.

The Voice of Your Thoughts All those highly emotionally charged thoughts running amok in your head while you trade – what do you call them? I prefer the term internal dialog compared to internal chatter. It gives a much better understanding of the mind that you bring to trading. Step back and listen to the conversation you are having with yourself. As a first step, discern between fear, worry, concern, and vigilance. The chemistry may be similar, but the mindset (set of beliefs) is very different. Unless there are life threatening circumstance that you are facing in the here and now, fear and worry are not the emotional states that allow for disciplined and impartial trading. If you bring fear or worry into your trading day, you have already lost or, at least, you have set yourself up to not win. The thoughts in your mind will be biased to avoid threat – not to manage risk. Remember that the caveman brain, if activated, is far stronger than your thinking brain. The "I" you describe yourself as is only a description of the internal conversations in the mind to which your attention is riveted. In the same way that these internal conversations become fused with fear and worry, they can also be focused on discipline and impartiality. What is required is the skill to emotionally regulate the meaning that has become attached to the emotion. This frees the mind from fear and allows you to choose the state of mind that you bring to trading. This does not mean you are

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emotionless, rather it means you choose the emotions and state of mind from which you trade. When a person is saying that they are trading without emotion, what they are really saying is that they are trading from the emotional state of impartiality. Impartiality, or logical thinking, is simply an emotional state that influences the decisions you make. It is to be cultivated for successful trading. But to achieve discipline and impartiality in your trading, you will have to separate fear from uncertainty. To do that, you will have to transform yourself limiting beliefs about the self that give rise to your interpretation of uncertainty. As long as you bring a fear-based mindset to uncertainty, you will not be able to manage the risk of certainty from a disciplined and impartial state of mind. State of Mind Management and Winning or Losing Capital There is a reason that trading represents a transfer of capital from one set of hands to another. When you emotionally manage fear and worry, trading from a disciplined and impartial state of mind becomes a possibility. At that moment your mindset is very different from the 95% of traders who trade from fear. In their fear, they set up the possibility of acting irrationally, and in your discipline and impartiality, you are in a position to take advantage of the herd-mentality of fear (another hardwired aspect of your cave man brain). As part of their hunting strategy (methodology), a hunting lion pride purposely provokes fear and panic in a wildebeest herd. When their action (behavior) is ruled from fear, the wildebeests make mistakes that set up the probability of their losing in the game of hunter and hunted. The same happens with trading. If you enter the uncertainty of trading from self doubt and fear, your thinking will set you up as prey (reflected as trading losses) to those in the markets who are able to manage their state of mind and act deliberately (reflected as trading gains).

Self-Limiting Beliefs: Identifying Your Psychological Demons Assuming your methodology works and you have figured out that it is your psychology that keeps blowing up your trading success, ask yourself what are your self-limiting beliefs that keep you from trading your edge. This is the most powerful question you can ask yourself as you decide to re-organize your psychology for peak performance trading. It is what can separate you from the group-think, herdlike, fear-based thinking from which the vast majority of traders interpret and act. Your emotions and thought life while trading will point to the psychological demons you have been avoiding. Trading will humble you until you push through the fear. Your psychological demons will always be centered in ungrounded, untrue self-assessments about your adequacy, your mattering, your worth, or your power. You experience them in your emotions and thoughts. Facing them courageously frees you from them. Avoiding these self-limiting beliefs keeps you stuck in them. This is the trader’s journey. Know thyself.

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Rande Howell

Developing Your Mind for Trading Building the Inner Team for Consistent Profitability Sabotaged by Unexamined Beliefs When he puts money on the line, the trader quickly finds out about the strengths and weaknesses of the mind that he or she brings to trading. Whether you want to know about your weaknesses or not does not matter. Suddenly, risk is real and the trader’s deepest emotionally- laden beliefs surface without warning and hijack the thinking mind. Trading has a way of forcing the trader to acknowledge his emotional and mental weaknesses. In fact, most traders, until they begin trading live, have done a great job of avoiding awareness of their self- limiting beliefs. But in that forced moment of embracing ambiguity called "live trading", your real beliefs about your capacity to manage uncertainty become the submarine that torpedoes a perfectly fine trading plan. The trader’s shortcomings in performance show up as hesitation, self-doubt, nervousness, overtrading, or impulse trading. These are symptoms of the problem that the trader attempts to mask without getting to the core of the problem. This is where most traders stay stuck until they learn how to examine the self-limiting beliefs to which their performances are rooted. Up until that moment of reckoning, most aspiring traders really do not know themselves very well. As one trader taking my group course put it, “I didn’t know what I didn’t know when I started this course. Now I know what I know.” The Mind that You Bring to Trading Let’s learn from this trader’s journey into understanding the self by following him as he begins to wake up and realize that he has to build the mind with which he trades. What he discovers is that he really

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needs to develop the mind that he brought to trading into a mind that can produce success in trading. It was not that he had a “bad” mind – it was just that a commitment to self-development is required to move past self-imposed roadblocks and into consistent profitability. Like many people training to become traders, he had been successful in a career before trading. He explains, “I spent 25 years in the Air Force as a flight engineer for a large cargo jet. It is a huge plane with many complicated systems that you have to stay on top of – or you will have trouble. I was part of an incredibly well-trained team that flew that plane. We, as a team, were prepared for anything. As a team we were highly disciplined and confident in our capacity to keep our plane flying. If one person was having a bad performance or day, there was always someone else on the crew to support them and get them back into the mindset needed to fly that plane. “ “Naturally, I thought the discipline and confidence that served me so well as a crew member flying the plane would also serve me in trading. It didn’t. My discipline and confidence, developed as part of an effective team, eroded as I traded. The problem is that I held a belief that I couldn’t be wrong and I could “right” any situation – this is not the way it works in trading. Also what I discovered is that, as a flight engineer, I was part of an external team. Everybody developed certain roles that gelled into a high performance team. The problem, as I examined the situation through this course, is that there is no external team in trading. The team that has to be developed is internal. This is an entirely different animal than an external team. When I came to trading, I was not prepared for that and my trading account proved it.” Developing the Inner Team “What I have discovered, though, is that within each of us are the attributes required to build a high performance team. But you have to develop it. You’re not going to simply get lucky and fall into it. In the Air Force teams are built with great intentionality. Each person contributes his skills for the overall success of the team. In trading, you have to develop these parts of the self – there is no one there to do it for you. As I have developed these parts of myself, my trading has taken off. I now know what to look for and how to bring these internal resources into my working awareness. I call this my trading crew. It makes all the difference in the world.” Fortunately, within all of us (as this trader describes) are powerful inherent, indwelling resources that can be developed into a high performance state of mind. But how do you go about developing the mind that trades? A New Understanding of the Mind First, the emotionally intelligent trader discovers that his mind is more nuanced and complicated than he initially thought. What he discovers is that the mind is not just a place where “his thoughts” occur. Rather it is better understood as a committee, or a board room, that is populated by various competing forces. Each of these board members of the committee comes to the meeting with an agenda and direction where they want to take the "corporate self".

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In the undeveloped mind of a trader struggling to become consistently profitable, the dominant “board members” are destructive in nature, while other less-dominant "board members" are fearful that change will result in losing what they have. If you have ever experienced self-doubt while trying to pull the trigger or have gotten out early from a trade fearing that you were going to lose money, you have experienced these members of the self as they control the committee of the self – better known as an undisciplined mind. By developing emotional regulation skills to calm the body and mind, mindfulness can then be used to open the door of the mind and examine both your thought life and the beliefs that drive your trading. And what you discover is that you do not have thoughts and beliefs – they have you. And in your blindness to their influence, they have been running your trading mind, and your trading account, into the ground. By learning to discern these different elements of the self through mindfulness, a great opportunity for the re-invention of the self becomes possible. Taking Charge of the Mind In the same way that there are destructive elements of the self – there are constructive, empowering parts of the self. This is simply the nature of our humanness. But they have to be awakened, fed, nurtured, and developed for them to become an active (and vocal) part of the committee of the mind. As you develop mindfulness and apply it to trading, what you discover is that you, as chairman of the board of the trading committee of the mind, have been asleep – not tending to the business of developing the mind as a trader. And because you, as an observer to the mind, have been asleep (not knowing to be awake), the trading committee of the mind has drifted without leadership and is not on course. In waking up the Observer of the Mind through Mindfulness, the trader discovers powerful constructive elements of the self. He discovers inherent indwelling resources that have been waiting for him to wake up and develop. These are what Carl Jung called the empowered side of the archetypes. These archetypes give form to the various emotional forces at work in the mind’s trading committee. In the same way that a trader experiences the fear of the Orphan or the judgment of the Inner Critic at moments of uncertainty, an awake trader also (by being human) has potential access to the discipline of the Ruler, the courage of the Warrior, the self-soothing of the Caregiver, and the impartiality of the Sage. Notice that each archetype (i.e. inherent, indwelling resource) has an emotional signature. This is important. This is where the modern science of Emotional Intelligence intersects with the theory of life as a journey into human potential of the Archetypes. Each Archetype (member of the trading committee of the mind) has an emotional signature that can be used to create the emotional cocktail that leads to the peak-performance thinking required in successful trading. The Mind is Developed, Not Found If left to its own devices, the mind will drift in the historical adaptation to which it was born. This is 23

where most traders stay stuck. They never come to grips with the notion of developing the potential that exists within each of us. In their blindness, they keep looking “out there” for answers to their trading woes. They look for an external team to plug into, rather than developing the internal team of the self. But by bringing a different Observer to the trading committee of the mind, you find a very different potential for what the trading mind can look like. We all exist as potential that is limited only by the Observer that we are. Learning to develop the Observer of the coming and going of thought in the mind, recognizing that we are not our thoughts, allows you to de-construct the old committee of the mind showing up in your trading as self-limiting beliefs - and to rebuild it into a mind for consistent profitability in trading. This is the challenge that has to be overcome. It is your mind that trades. Its potential can be developed. And trading makes re-development unavoidable if you are to become consistently profitable. It is your life and you, and you alone, are responsible for the mind you bring to the invention of your life. Embrace it. Rande Howell

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Fear Hijacks Reason Taking Back Your Edge From the Jaws of Fear In the course of their evolution, every trader (if they are honest with themselves) has experienced disabling fear. How it happened – and why it continues to happen – often remain a mystery to the trader. Before the trader knows it, all reason has been hijacked and fear takes its toll on the trader’s state of mind, his capacity to trade effectively, and finally his trading account. To the trader, it often appears that the fear came out of nowhere. Otherwise the trader’s problem with fear (or its cousin, greed) would be easily resolved. If not addressed, the fear stays in place and constricts the trader's capacity to trade effectively. However there is an emotional process involved (common to all emotional states) that, with training, could have been successfully interrupted. Unfortunately, the trader is not aware of this process of emotional hijacking. The emotion has already seized him and he finds himself in hesitation, distraction, revenge trading, or impulsivity. And he begins to doubt that he is cut out for trading. The good news is that there is a defined process to an emotional hijacking. Any emotional process has a signature that is associated with it. There would have been tell tale signs of the emotional hijacking, and a way to disrupt it, if the trader had known what to look for and had developed the awareness to be mindful of how fear triggers, accelerates, and overwhelms the calm disciplined mind required to trade effectively. You cannot get rid of emotions, but you can be trained to better understand them and manage them. It is out of this training that effective trading springs. _________________________________________________ Case Example: Jim has been trading for seven years. He has learned his methodology and was trading well until about two years ago. Since then his trading has been problematic. Fear began to surge as he traded and he found himself hesitating while evaluating set ups until emotional pressure built up. He would 25

then jump into a trade impulsively. This flip-flop behavior continued until Jim decided to move back to paper trading – so he could refocus his trading and get his edge back. Of course, in paper trading, risk is removed from the equation of his edge. Jim explains, “The challenge is that I haven’t been able to simulate the same emotional feelings when paper trading as when I’m trading live. I can’t seem to build up the fear I experience when live trading. But, you know, something weird happened when I recently went to a casino with my wife. I sat down at a slot machine next to her and slipped in $20. I thought I was just entertaining myself since I don’t gamble. After a couple of minutes of playing the machine I could feel the exact same feelings I get when I'm evaluating set ups. My heart rate started to increase, my palms started to sweat and I could actually feel small beads of sweat slowly dripping down from my armpits! There I was, triggered back to my trading room looking at set ups and trying to pull the trigger. I was frozen. This is the exact same emotional feelings I’ve been plagued by in my trading the past few months. When I first started trading (7 years ago) I was never like this. Then about 2 years ago I lost a chunk of my capital and was basically wiped out until I was able to build my trading account up again. And I’ve had a couple of much smaller losses in the last 6 months also. I started going downhill after that. Now I doubt myself. I don’t understand why I can't get my trading edge back. I see a connection between the experience I had at the slot machine and what’s happening in my trading – but I don’t understand it. ___________________________________________________ Threat, Brain, and Mind Meet in the Trading Room Jim has just experienced a conditioned response that has generalized from one domain of experience to a broader context. He had been trading successfully for a number of years until he experienced a sudden loss of significant capital while trading two years ago. It is this sudden loss and the pain in the memory of that loss that Jim’s brain is programmed to avoid. To the survival brain, this sudden loss of capital represented a threat to the existence of the trader. And the brain’s mandate is to build a pattern of avoidance to the pain that became associated with this loss of capital. This part of the trader’s brain does not discern between loss of life and loss of capital. To it, any and all emotional painful losses constitute a threat to life. Then the brain develops a fear response to the actual threat – the significant loss of capital – as a way to avoid loss in the future. This is the basis of traumatic memory and adaptation as part of a conditioned response. At this point the problem is as much a biological problem as it is a psychological problem. And they have to be handled together. It is the same process that a child experiences when he learns to never touch a hot stove top again… after traumatic pain. And for Jim the sudden loss of significant capital was traumatic to him. Imagine him having to tell his wife about the loss and the negative impact on his ability to survive in the world of no money. This is the set up for an automatic, reactive stress response.

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The brain then builds an avoidant neural pattern as a solution to this problem. It becomes embedded in the pattern making and pattern recognition machinery of the brain. This is the conditioned response and pattern recognition that the brain orchestrates. And Jim does not help his cause. After the traumatic loss of capital and its fear response, Jim attempts to ignore his fear based on emotional pain and to push through the deeply embedded fear response to threat by sheer brute force – not a good idea. This only exaggerates the strength of the embedded pattern. As he keeps exposing himself to perceived threat, the survival brain generalizes the fear response from the specific environment where the pain actually occurred to any stimuli that risked capital. This is how he triggered to the fear response in the casino while risking only $20. In his mindlessness, he saw this as a form of entertainment. That is not how his survival brain was conditioned to react when risking capital and incurring emotional pain. Significant pain has been hardwired to be associated with risk now – and will hijack state of mind if not disrupted. Not knowing how else to deal with it because he does not understand how the emotional brain and the psychological mind are intertwined, the triggering to fear becomes so great that Jim has to retreat back to paper trading in an attempt to “refocus” his mind. Unfortunately the brain was never designed to distinguish between biological fear and management of uncertainty. And Jim, like many traders, is clueless about how to deal with it. Until Jim incurred a traumatic capital loss, he never activated the level of primal fear that overwhelms the rational mind. But much like a person develops an irrational fear of all dogs after being bitten by one dangerous dog, now Jim’s mind has developed a self limiting fear of loss that taints the edge he used to have in trading. This is where neural-circuitry meets mind. Calming the Raging Sea of Emotion Before he gets to change his newly minted fear of loss which now corrupts the trading edge he used to have, Jim is going to have to learn to manage the arousal of the emotion of fear and its avoidance response to threat. Fortunately he has a clue as to how to do this. In the casino he actually becomes witness to the arousal of his fear. This is a part of the emotion of fear that you can be trained to disrupt as part of emotional regulation. The arousal occurs before the emotion of fear takes over the mind of the trader. Here is Jim’s description of the arousal of the emotion of fear: “After a couple of minutes of playing the machine I could feel the exact same feelings I get when I evaluate set ups. My heart rate started to increase, my palms started to sweat and I could actually feel small beads of sweat slowly dripping down from my armpits!” What he does not mention is that his breathing becomes shallow and rapid. The breathing actually started before the rest of the fear’s arousal. This is important because breathing can be used to regulate the arousal of an emotion – not control it, but manage it from overwhelming the trader’s mind. This is because breathing is the tool that can cool the body’s excitatory escalation of the fear reaction to perceived threat. Remember that his large capital loss got associated with loss of life in his primitive emotional brain. Because fear will have a breathing signature that is part of the emotion, breathing can also be used to manage and disrupt the power of the fear response. 27

By developing bellows breathing as part of managing his fear, Jim is able to calm his fear down. It is still there, but it is now workable and a very different mindset is now possible for him. It is through the calming effect of breathing and relaxation that Jim begins to work with this traumatically constructed self limiting belief embedded into his fear of loss. Now he can do the emotional labor required to deconstruct self limiting beliefs that have gripped his trading in the last 2 years and reclaim his belief in his trading edge. Emotional regulation is not the Holy Grail that changes self limiting patterns and beliefs. What breath training will do give you a tool that allows you to calm the fury of an emotional hijacking down so that you can begin to develop the psychology of peak performance. Before fear is tamed and re-understood, it will block your potential as a trader. The Take Away The purpose of this article is to show you how fear creates predictable patterns that govern a trader’s emotional nature (and hence his performances). And by understanding it, the trader learns how to manage the fear response. He now has begun to develop valuable tools and skills to change his relationship to fear and uncertainty. Learning this is an important step toward mastering your emotions and the inner game of trading. You have to equip yourself to build a peak performance state of mind. The first step in this process is emotional state management. Only then do get access to the mind. And it is in the mind that your self-limiting beliefs and patterns dwell. This is also where many traders fail because they do not have the tool and skills to work with their emotional storms and hijackings. Effective trading is the pay off. Developing the skills and tools is the emotional labor you will need to invest in to achieve this aim. Rande Howell

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Fear of the Loss of Control Type A Personality Meets the Uncertainty of Trading David had never known fear he could not conquer before now. Both as a competitive karate champion and a business man, he had controlled his fears - not allowing them to get in the way of victory. David was a very successful, "large-and-in-charge" executive. There was no mountain he could not climb and no situation he could not conquer. By sheer will power and a commanding presence, he could set a goal and make it happen. And he had the success to prove it. He had sold his business, and, with a large amount of cash he was ready to attack his next venture -trading. He believed that all he had to do was to learn a methodology and he was ready to take on trading. In his mind, trading was just another challenge to master. Three years later, he had hit a brick wall. He was not losing much, but he was not winning either. Instead, David was losing his nerve once he entered a trade. After entry, he often became so frazzled with a trade initially bouncing around that he lost his nerve and would bail out on a trade before it could refresh. This aspect of the uncertainty, so common to the trading world, was an alien concept to him. He had always been able to conquer doubt. By sheer will, he had forced his way to success. But trading was a very different world, with different rules, than the world he knew.

A Need to Control Uncertainty David’s problem is that he has been successful in other domains of performance. He is so comfortable with his belief system (which had, after all, produced success in one area of his life) that he is now oblivious to what produces success in trading – particular managing uncertainty. And it is a problem rooted in both his biology and psychology. 29

David’s brain, like any brain, is going to avoid chaos or uncertainty and will organize the mind to seek certainty as a way of ensuring survival. This is called adaptation. Once the brain locks in on a successful strategy for creating certainty in a world of uncertainty, it habituates the solution in a selffulfilling pattern. These hard-wired patterns become our beliefs from which our psychology arises. Listen to David as he explains his Type A Personality: “My wife calls me a control freak. And I do need to control things. For my entire life I have felt that I have to be in control. And this attitude worked. I thought it was me, but I have learned that this need to control was the way my brain adapted my sense of self to the circumstances of my life. When I was growing up, I had to be in control. After my parents divorced, I lived with my mother and we were hard pressed to keep a roof over our heads. Mom worked three jobs and I was in charge of the house, and my sister, by the time I was eight years old. If I had not been in control, things would have fallen apart. And that was not going to happen. It’s these very traits that formed me. When I left home, it was just natural for me to be in control and to run things. I had a gut sense of how to manage and overcome challenges. This served me well until I began to trade.”

Biology Meets Psychology of Trading David's brain adapted him to successfully negotiate the difficult circumstances of his formative period. This adaptation of self, his predisposition, was a perfect set-up to become a successful executive and businessman. His control-centered Type A Personality had served him well in business and competitive sports. Here’s the glitch, though. The pattern-producing brain, always biased toward creating the feeling of certainty, had created pre-conditions that were counter-productive in the world of trading. In trading, there is no controlling uncertainty by using sheer willpower. Rather, a successful trading psychology is built around the management of uncertainty – not its control. To become success in the domain of trading, David (and all traders) must build a new psychology where uncertainty is at first tolerated and later managed. Because your brain is mandated to create a feeling of certainty out of the uncertainty of life, a trader will have to build a new psychology intentionally. Your brain was never built for trading where the trader understands that he cannot control the outcome of the markets – he can only control how he responds to the market’s action. This is where there is a great divide - between the pre-disposition of our brain’s desire for certainty and our mind’s need to manage ambiguity. David developed his psychology by being born into a particular history and adapting to it successfully. The brain will always lock in this success as self-fulfilling pattern. It then becomes the way our mind perceives the world. For traders who refuse to change the way they perceive ambiguity, they will 30

always fear uncertainty. This is David’s dilemma – giving up the illusion of control. His Type A Personality has been a very successful adaptation – so it is hardwired into his neuro-circuitry as a self-belief. Yet this belief that the outside world can be controlled and made to conform to your vision does not work in trading in the markets. Trading requires a very different emotional and mental disposition. It requires that you develop a mindset that allows you to take what the markets are willing to give you.

Reconstructing a Mindset David is in the process of re-tooling his mindset. He is moving away from trying to control events (so successful in his previous career) and embracing a mindset built to manage uncertainty. What he has come face to face with is his fear of uncertainty. He calls this, “the glitters”. The environmental pressure he grew up in was all about controlling the potential of chaos to destroy his mother’s home. Later, as it became the shape of his psychology, it evolved into a generalized need to have the power to force things to go his way. It is this fear of uncertainty, and the way a trader deals with ambiguity, that has to be re-understood so that a more effective mindset can be developed for trading. As David embraced emotional regulation training, here is what he is now saying: “Focusing on my breath during my trading the last few days has definitely helped me keep my wits about me, but I can certainly feel the fear response trying to take over so I know I have lots of work to do! I see that when I enter a trade, I am no longer in control. I can’t make it do what I want. I am seeing my need to control comes from how I learned to manage uncertainty. Once I experienced uncertainty, it was a short ride to my fear of loss of control. I can interrupt the pattern from taking control of me now. But I’m a long way from being comfortable with not having control over external events. What I am learning is that I can have control over how I respond to the uncertainty of not being in control. Once you’re in the trade, it requires a different mindset.” Learning to interrupt the arousal of anxiety by breathing and relaxation, David is now acknowledging the honest fear behind his need to control. With his biology of fear calmed down, he is learning to soothe his fear rather than push it away. He no longer is beating himself up when he triggers to fear. He is recognizing that he is simply bringing his learned dispositions that have been on automatic into his trading. Now when these pre-conditions trigger, he has the opportunity to re-train them. He is learning both on a psychological level and a biological level that fear, like risk, is to be managed, not controlled. He watches for the tell-tale signs of an emotional hijacking – eyes bulging, tense muscles, breath held, and a clinched fist. He interrupts this bio-emotional arousal before his mind is hijacked. He then soothes his fears by talking himself down. And he acknowledges that, once he enters the trade and takes off a chunk of the risk at the first ping, he is not in control anymore. He had control until he pulled the trigger. Now his job is to manage his reaction to uncertainty. But my 31

staying calm, his mind is no longer being overwhelmed by fear when he does not have control of outcome. He takes on the mindset of a defensive coordinator rather than an offensive coordinator – which is far more comfortable. He is learning to shift psychological gears from the kind of mindset that evaluates set ups that give him an edge to a mindset that manages the emotional turbulence that can come when capital is actually at risk. In the first mindset, discipline and impartiality are needed to spot the opportunity and to act on it. In the second mindset of managing the trade once capital is committed, a heavy dose of self-soothing is required to keep the uncertainty of managing the risk from snowballing into fear or panic. This is the intersection where trading, biology, and trained psychology meet. It did not come natural for David, self-admitted Type A control freak that he is. But, as he discovered, he is trainable. The skill sets he learned included emotional regulation, mindfulness, and internal dialog management. He also had to re-discover and develop a self-soothing aspect of himself that he had never used before. He discovered that self-soothing was a powerful internal strength that every trader needed to develop to keep his mind thinking clearly during the ambiguous times of riding the trade. By learning how to do this, his trading is far less stressful and more profitable now. Rande Howell

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Getting Control of the Fear of Missing Out

Déjà vu All Over Again [attribution: Yogi Berra] “This happens to me all the time. I’m a profitable trader, but I leave way too much money on the table. Each day I wake up resolved to stick to my trading plan. And I’m fine until I get into the trade. Then something goes haywire, particularly if I’ve already lost one. I get rattled as I watch the trade bounce around. The more I hold on to the trade, the more I feel the pressure build to get out of the trade. Then I don’t know what happens. When I finally see the trade becoming profitable, I've come unglued. I just want to get out with the profit I have before I lose it. I get a jolt of relief when I get out of the roller coaster ride I’ve been on. I’ve got some profit. Then I watch the trade do exactly what it was supposed to do. I see it trend and I realize how much money I left on the table, again. In hindsight, I know in my right mind that I should have stuck to my trading rules, but my right mind just gets blindsided and my fearful mind takes over. I never see this coming. This is the biggest problem I have in trading. If I could get this one licked, I would be a very profitable trader.” A Strong Will Never Wins Over an Excited Emotional Brain One of the largest obstacles in a trader’s journey to reach consistent profitability and income is actually learning how to manage his emotional nature once he is in the trade. This is when risk becomes real and palpable. And this is where a trader’s lack of understanding about emotions and thinking becomes the barrier to his growth. To the trader who has not trained his mind to work in this highly charged emotional environment, there is a powerful tendency for him to get ambushed into a fear that paralyzes clear thinking and urges him to take the profit he’s got RIGHT NOW rather than risk the gains that could evaporate if he waits for the trade to further develop. This is despite what (while in a logical state of mind) the rules of his trading plan dictate for his exiting a trade and taking profit. 33

In this special case of the Fear of Missing Out, the trader has fought through trade entry. And, unprepared for the requirements and skills for psychological management of the mind that he brings to the performance of managing the trade, his will power to force an emotionless mindset in the face of uncertainty is swept away, along with his profit. The problem for the trader is that he does not “see” the fear before it has already undone his capacity to manage a trade from a disciplined and impartial state of mind. He has just experienced an emotional hijacking of his rational mind (and his will power) by his emotional brain. Trying to steel his emotions in the face of the challenge of risking capital seemed to work – for a while. Then the use of will power in the face of continual exposure to the risk of uncertainty and the negative attribution bias built into the primitive neuro-circuitry of his brain was overwhelmed by millions of years of biological programming that he bumped up against while trying to manage his trade. What actually happened to his state of mind? Did this hijacking just come out of nowhere? That is the way this trader, and most traders, explain it. They "did not see it coming". And they do not understand how to change a deeply wired reactive pattern that the emotional brain has already established to avoid uncertainty. In fact, this trader (and most traders) head right into a head-tohead collision between their will power and the force of a powerful emotion that can derail a trader’s thinking in nano-seconds. The Emotional Brain Makes a Decision: the Thinking Brain Produces an Explanation to Support It First, let’s start with examining some of our assumptions about the nature of emotions and thinking. Rene Descartes was wrong. The guy who brought us the Rationalistic Tradition by declaring “I think, therefore I am” made a fatal flaw in his understanding of how body, brain, emotion, and mind interrelate to one another. It was like he attempted to separate the mind from the body (emotion). This error moved through the centuries and became an unexamined assumption at the base of many human endeavors, including western medical and scientific thinking. This thinking held that you could ignore the mind and the beliefs contained there and simply treat the body. Mind and body were separate in this assumption. Now, of course, with the advent of neuro-biology, a very different paradigm of understanding has emerged. Today the understanding is that the mind (thinking) emerges from emotion. The wellevidenced theory today is that all thinking is emotional-state-dependent. So much for leaving emotions at the door while trading! Without the presence of emotion, you have no thinking. The only question here is what kind of thinking is available to you based on the emotional intelligence of the trader. The key is managing the emotion that you are bringing to the management of a trade, rather than having the reactive emotion managing the mind that trades. If you go back and read the oh-so-real vignette at the beginning of this article, you can observe that the trader ignored his emotional nature at his own peril, and that by not heeding the presence of emotion, his thinking (when he needed it most) was compromised by fear. The emotion he wanted to be in was impartiality. That emotion 34

produces the clear thinking so treasured by traders managing trades under the stress of uncertainty. Being ignorant of the way emotions and thinking are linked together, he kept falling into the same trap, again and again. What he saw as “coming out of nowhere” was in fact very observable (and manageable) if he had known what to look for. But first, he had to develop an understanding that allowed him to see emotion in a very different way. By doing this, he would be able to see his reactive pattern in a new light. Emotions Are Biological – They Take Over Psychology By the time the trader in the beginning vignette noticed the psychology he was trading from, he had already compromised his capacity to manage the uncertainty and ambiguity of the trade in process. He was not prepared because he did not know what to look for. What he missed were the tell-tale signs of the emotion arising and turning into a force that took over the mind that was supposed to be trading from a disciplined and impartial state of mind. Because emotions are biological, there are physiological changes that start occurring as the triggering of an emotion ramps the body and brain up for action. (That action, in this case, is getting out of the trade early.) This “ramping up” of the emotion is called arousal and is much like a dragster gunning his engine in preparation for accelerating down the drag strip. Emotional arousal has a biological signature associated with it that can be observed. In this trader’s case of the Fear of Missing Out of Profits, his breathing would have either stopped, or become rapid and shallow. His muscles in specific areas of his body would also begin tensing. In addition, his heart rate would have accelerated anticipating a call to action so that a threat could be avoided. Unfortunately, the trader had not developed the Mindfulness needed in order to be aware of the building up of the emotion before the chemistry of that emotion began flooding into his body and brain. This is analogous to the dragster not gunning his car in preparation for the run, but just racing down the drag strip. In the case of the emotional build up with our trader friend, the emotion has hit a threshold that flips a switch and the emotion is propelling the trader into reactive avoidant action. Yet, with training and practice, he can develop the Mindfulness to be vigilant about the avoidant pattern (avoidance of loss) that is wired into his adaptive response to the management of uncertainty. By intentionally altering his breathing and relaxing his muscles, he could have managed the intensity of the emotion so that it would not have taken over his mind (hijacked his mind) as he attempted to manage the trade. Notice here that the trader becomes an emotionally intelligent Observer of his body as part of an emotion. This is critical because the emotion dictates the kind of thinking that the trader brings to the management of the trade. It also allows him to face what he has been avoiding. Beliefs Become Embedded Into Emotion Ultimately, by managing emotion so that it does not hijack thinking, the trader is able to approach his beliefs about his capacity to manage uncertainty. It is these beliefs that generate the results in his 35

trading account. It is also these beliefs that the trader has been avoiding because they cause such discomfort when brought into awareness. This is called "facing your dragons". Ignoring the dragon gives it enormous power over your life. Pretending that you can use positive thinking or affirmations to make the dragon simply go away is very simplistic. Ultimately, the dragon must be faced. The "belief dragon" does seem real. But it is only an assumption that has been embedded into the neuro-circuitry of your brain’s programs and has taken on the force of belief. It feels real because it has become habituated and has become the fulcrum around which your sense of self has been forged. What is being exposed in this trader’s performance is his belief about his inadequacy to manage uncertainty. And until this "belief dragon" is challenged, deconstructed and re-organized, the dragon will have emotional power over the trader’s performance under the stress of managing his trade. Notice that this begins by managing the emotion so that it no longer has the power to overwhelm. It is at this point that the trader can step back from both the emotion and the belief and recognize that beliefs and the emotions in which they are embedded can be re-organized into higher functioning states of mind. Instead of avoiding the discomfort of the emotion, the emotionally intelligent trader recognizes that the structure of the emotion is his teacher. The fear teaches you to seek out the self-limiting belief that keeps you from achieving your greater potential. Getting equipped for this kind of work opens the door so that you can use your fears and impulses as guideposts in your journey towards becoming a professional trader. The trader re-engineers his beliefs (about his capacity to manage uncertainty) from beliefs that seek a certainty of outcome (fear based) to a mind that manages and accepts the uncertain probability of outcome (probability based). Then, trade management arises from a mind that lets go of the need to control outcome. Transformed, the mind that the trader brings to the trade is centered on the management of probability. This trained mind is anchored in disciplined impartiality, which is built to manage probability. The trader becomes the manager of the emotional state that he brings to the performance of managing the trade, rather than its victim. Rande Howell

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If I KNOW How to Trade and Manage Risk, Why Can't I Do It When the Money Counts? The Difference Between Knowledge and Performance Cognitive knowledge of how to do something is very different than managing performance during challenge. Until the learned knowledge about trading and risk is integrated into the emotions and mindset needed for peak performance in trading, then the learned knowledge is simply not available to the trader during the emotional environment of trading. The learning has not taken place in the emotional context where the performance will be measured. This is because the way you think is emotional-state-dependent. What does this emotional learning look like to a trader? Traditionally most traders learn how to trade and manage risk while paper trading where there is no risk of loss. People can learn how to trade well and manage risk well in this emotional environment devoid of real risk. They learn the mechanics of trading, how to use their methodology, and get valuable screen time for pattern recognition. And, as they learn how to use these tools they become profitable on paper, but without the context of the downside of the risk of uncertainty. The problem is that you cannot go to the bank and cash in your paper profits. Yet when the trader takes his or her learned skills into the arena of live trading where capital is at risk, a very different emotional environment takes over - one for which the trader is rarely trained and for which he or she is not prepared. At that moment the skills the trader learned in the emotional environment of a classroom simply are not available to him in the emotional environment that occurs while live trading, where the possibility of capital loss is real and tangible. These are completely different emotional worlds. And the knowledge gained in the no-risk paper world is not usable until the trader adapts to the new sets of emotional skills and mindset needed for risk management where personal capital is actually being put into play. This is where emotional intelligence is far more important than head-knowledge.

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Live trading exposes the fear-based mind that interprets the uncertainty of trading when capital is at risk. Depending on your beliefs about losing, you remain locked into a loser’s mind or you learn how to learn from your losses by bringing a powerfully different mindset to the ambiguity of trading.

Teasing Apart Uncertainty and Fear A highly disciplined mind is the undercurrent that lies beneath emotional management of both methodology and platform. No one becomes successful without emotional discipline. For the vast majority of traders who want to become successful, emotional discipline is built, not found. It is not found out-there in more rules that you will not follow in the heat of trading. It is found by acknowledging your fears and re-training your beliefs so that losing becomes an opportunity to learn and grow from your mistakes – instead of trading NOT TO LOSE. In training a mind to trade, the crucial step is that you and the way you perceive (your mind) learn to embrace the uncertainty of probability. It does not come naturally. And staying in denial about this need keeps you stuck in your self-limiting performances. Until this happens, your brain is always going to chase certainty because that is what it has evolved to do over countless generations. Your brain is biased to believe that there is an answer that will correctly predict what the markets will do. No matter how much evidence there is to the contrary, your brain and your mind will resist probability thinking. It wants to stay in certainty thinking. This is simply not an effective mindset in trading where the illusion of control is dangerous. Now add social adaptation to your biological pre-disposition. Most traders grow up in families, schools, and cultures where they learn to not make mistakes, to not lose, and to always be right -and you have the perfect storm for forging a brain and mind unable to think in probability terms. So the brain and mind that you bring to trading rarely has the capacity to separate uncertainty from fear. And, sure enough, most traders fear uncertainty, which is exactly what they must manage from a probability mindset to be successful traders. If fear is linked to uncertainty, a trader has difficulty moving from paper trading to live trading. And they will continue to have problems until this linkage is disrupted and reformed by new beliefs about uncertainty, losing, and winning. Learning, Failure, and Trading What happens when a trade goes against you? (This will tell you a lot about what you learned about how to be successful.) In our culture being successful is associated with not making mistakes. Success is about winning...being a winner. Yet successful trading involves relearning how to lose. Because you are going to make mistakes and you are going to lose. It is the frequency of winning and losing (and the size of the winners compared to the losers) that counts. Learning from mistakes is the key to becoming a successful trader – it is what separates successful traders from inconsistent traders. The perception and beliefs you have about winning and losing will be put to the test in 38

trading. When you lose, do you trigger to self interpretations of inadequacy, powerlessness, and unworthiness? This will expose your faulty beliefs that link your performance with self-limiting beliefs. The fact is that the brain (and you) learn only from failure, not success. Success actually locks you into a comfort zone that keeps you from growing. People get locked into once-successful strategies and refuse to change when the strategies no longer work. That’s success for you. When you lose, you have high motivation to change. This is key. When you develop a mindset that stops attempting to avoid mistakes but, rather, becomes curious about learning from the mistake – you are on the road to probability thinking. Learning to trade successfully is not about being smart. It is about putting probabilities in your favor and having the emotional stamina to stay in probability thinking, rather than chasing certainty as the Holy Grail. This is the mind that you need to bring to trading. You manage your risk and then move on. Loss is not a statement about the worth of your being. Loss is only about your performance in risk management. Mistakes happen, learning happens, and another trade (with greater skill) becomes possible. It’s not really about whether you like risk or not. It is about becoming comfortable with risk. This is where uncertainty, and its management, is separated from fear. And it is where the journey of a trader moves from the need for certainty to the management of the ambiguity of the uncertainty of trading in the markets. What mindset do you bring to uncertainty, ambiguity, and losing in trading? The effectiveness of the beliefs behind that mindset will be found in the balance of your trading account Rande Howell

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Journey of Self-Development for Trading The Mindset That You Brought into Trading is NOT the Mindset That Will Bring Success in Trading

The Journey Begins – Stumbling Out of the Starting Gates Traders begin the journey into trading with high hopes. They believe, with good training and enough screen time, they will be able to master trading and achieve their dreams through trading. They practice diligently in simulation, back-test their methodology, and/or use a trading organization’s “near money” until they clearly see that they can win at this game with their own money. Confident from their past experience of hard work and ambition having paid off in the past, they assume this ethic will lead them to success in trading also. Methodically, they have trained themselves to achieve their dreams. Then they start trading live. Anyone who has been around trading for a while knows the war stories. The stories of blown-up accounts and the slow bleed of a thousand small cuts litter the landscape of the journey into trading. After the losses, fear takes up residence in the trader’s mind and self-doubt becomes the invisible partner riding herd over the trader’s mind. Even when they have a winning streak, they end up getting over-confident and giving back all their profits – and more. Somewhere the trader’s mind gets hijacked by fear or euphoria and an efficient trading mind is no longer in charge of the methodology that (on paper) gave them the edge to be profitable. The Journey Hits a Critical Moment – Taking Stock of Yourself By this time in a trader’s journey, they have chased the Holy Grail through different methodologies, the latest trading guru, the next “can’t miss” indicator, new platforms, and mechanical trading systems that take the emotion out of trading. But they still can't break through to the next level. By the process of elimination, some begin to realize that they are looking in all the wrong places for the missing ingredient to their success; the Holy Grail is not to be found “out there” in new systems or methodologies. Rather, the Holy Grail is really a set of inherent, in-dwelling resources within the self. The rub is that traders have to find, excavate, and develop these elements of their potential. And that is 40

uncomfortable to do on an emotional level, especially for someone who has avoided the heavy "emotional lifting" required to change beliefs about one’s capacity to manage the uncertainty of probability. Many traders stay stuck at this point in the evolution of themselves as a trader, either because they do not want to hold themselves responsible for their trading results or because they do not know how to change. Unless you were lucky enough to win the genetics lottery for trading pre-disposition, there is really no choice but to re-develop the mind for trading. The first big AHA! moment for the emerging trader is recognizing that the problem with his trading is him (or her) – and that alone. Both emotionally and psychologically, this is a difficult task. Redeveloping the self that trades forces the trader to confront parts of himself that he or she has very successfully avoided for decades. The very psychological dragons that the trader has pushed out of working awareness in other domains of his life now stalk him as he trades. The developing trader has to look into the mirror of the self and take stock. This is where he really needs to decide if his passion for trading has the emotional motivation to see him through confronting his fears and redeveloping his beliefs about his capacity to truly manage uncertainty. Unlike other areas of his life where there is so much "fuzzy grey" area about declaring "success", the condition of success in trading is black and white – it is your trading account. If the beliefs you have about your capacity to manage uncertainty in trading are effective, the results will be reflected positively in your trading account. The reverse is also true. If the beliefs you bring to the management of uncertainty in trading are not effective, they will produce trading performances that show a capital drain on your trading account. The Courage to Build Your Mind for Success in Trading At this point the trader comes to understand that the mindset that he brought into trading is not the mindset that is going to produces success in trading. And if he is going to be successful in trading, his is going to have to commit to self-development. Self-development implies that the trader is going to have to build a mind for trading. There is no reason to feel embarrassed. Just about everyone comes to this moment in their journey into trading. It’s called paying your dues and waking up. Generally, at this point a trader has been developing his technical side for three to five years; and he has read more than a few trader psychology books. At some point he realizes that he, and he alone, is the problem that keeps sabotaging his potential. So he decides to commit himself to selfdevelopment in the same way that he developed other skills for trading. He has been "in his own way", but he is finally ready to change. This is a critical moment. Many people leave trading before they arrive at this intersection because they are unwilling to change. However, if the trader truly has a passion for trading, he also has the motivation to change.

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Change Into What? Many traders have attempted to change with no long-term gain. The battlefield of selfdevelopment is littered with programs that promise change. Many programs deliver a sense of energy (called a seminar high). When you leave these programs, people literally feel as though they could conquer the world. They leave the training in a state of high energy, they are goal oriented, and they are razor-focused on success. And after walking over burning coals or another seemly impossible mind-over-matter obstacle, they are certain that nothing can stop them. They feel on top of the world. They have the affirmations, the success visualizations, they have learned some NLP, they have done some hypnotic guided meditations that released their higher self, and they have become the spiritual warrior of success. No matter how great this euphoric state feels, this is a dangerous state of mind to develop for practice in trading. Euphoria (which is what these programs generate) is just as dangerous to success in trading as fear. Euphoria is an emotional state that makes a person believe with certainty that the good times are going to roll on forever. It is the same emotionally-based state of mind that hedge fund managers or proprietary traders fall into that causes them to blow up their accounts (i.e. JP Morgan’s $2.5 billion dollar loss). The mind that needs to be developed for trading is rooted in an emotional compound state called disciplined impartiality. In the same way that fear creates a belief in the certainty of things going wrong and euphoria creates a belief (cognition linked to emotional state) that the good times are going to keep rolling, disciplined impartiality creates a state of mind that believes in the certainty that probability is on your side as you manage the trade well. Notice the difference here in how the emotional states work. Fear and euphoria produce a bias of predicting certainty of the future as if it were real. Disciplined impartiality produces a mind that manages the probability of what future may come. Fear and euphoria are trying to control the outcome of probability as if it were a certainty. Disciplined impartiality is aimed at controlling the state-of-mind to manage the probability of outcome. Setting Course for the Journey of Self-Development First and foremost, as you explore how to develop the self for trading, look for ways of calming down the excitatory process of emotional arousal – not cranking it up. The more emotionally aroused you are, the more difficult you will find it to create the calm, patient states of mind necessary for trading. Next, look at the way the system is teaching you to achieve success. Are you being asked to produce high-energy states where you can “feel” the energy of success that makes success happen as you envision it? Or are you being trained to develop a state of mind that is receptive (or open) to what life (or the markets) are willing to give you and then to seize the possibility? Trading demands calm, patient states of mind that can seize opportunity when it appears. This is the self-development that works well in trading. It is the difference between the way the American 42

cougar hunts compared to the hunting style of the African lion. The cougar waits in patience for the prey to appear in her ambush zone and then she pounces. This is the kind of strategy that works well in trading. On the other hand, the African lion chases the prey in teams. This highenergy “chasing the trade” strategy sucks the trader into trades and positions that take him out of the state of mind that keeps probability on his side. Ultimately, the trader has to develop a mindset that encourages him to wait to see what the markets are willing to give him and to also conserve energy and capital to trade another day. Understanding the mind that needs to be developed can really help you sort out HOW you go about building that mind. What tendencies are you bringing to your trading mind as it observes the markets? What aspects of your psychology do you need to develop in order to get into the zone where effective trading occurs? Rande Howell

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Learn to Develop Your Inner Game of Trading by Making Better Mistakes The Attitude You Bring to a Trading Loss Is the Key to Transforming Your Trading How you handle mistakes (and losses) in trading, both emotionally and psychologically, reveals your capacity to grow as a trader. Do you seek to learn from the mistake or do you want to avoid making another mistake (which, by the way, is impossible)? When you make a mistake in your trading that leads to losses or loss of profit potential, how do you react? How do you typically engage the mistake? Do you explore the mistake as a way of learning or do you beat yourself up for making a mistake? What quality of conversation do you have with yourself about the mistake – what does the mistake represent to you as a trader and your performance in the act of trading? When most traders answer the above questions, they discover they work with the mistake in a way that ensures continued problems in their trading performance. Are you emotionally swept away by the loss and do you berate yourself for making the mistake (the typical way a trader acts), or do you curiously and thoughtfully examine the breakdown in the emotional and mental process of your performance that led to the mistake, and then re-construct the process from a sense of suspended time for a higher level of performance (the path of peak performance mind training)? Failing Your Way to Success Most traders are so blinded by a mental attitude of “trading not to lose” or “not making a mistake” that they cannot learn from what the mistake can teach them about the very mind that they, as a trader, bring to the performance of trading. However, if you want to develop the mind that trades, then you need to make better mistakes. The attitude you bring to the mistake opens and closes the possibility that the mistake represents. This is what “making better mistakes” means. The mistake that leads to loss is simply a breakdown in the flow of coordinated action in the domain of trading. It is not a reflection of who you are as a human being (no matter what your self-talk may tell you), but, rather, an indication of the current organization of the self (your psychology) that you have brought to the performance of trading. Bringing a “trading not to lose” 44

mindset to the breakdown creates a "no-learn" opportunity. But bringing a “curious and thoughtful examination” mindset to the breakdown creates the opportunity of learning – changing the effectiveness of the way the brain and mind engage possibility. From this vantage point, mistakes help you to see where you need to re-engineer the mind that you bring to trading. Mistakes, in this interpretation, become an opportunity for learning. Mistakes, failures in performance, are going to happen because trading is about managing probabilities rather than predicting the future. There is no certainty to be found in trading, yet, most traders bring a highly biased mind that seeks certainty into the management of their trading (this is the very mindset that has to be re-engineered for increased successful performance in trading). And every time the bias of certainty is challenged, the integrity of a once successful belief (now hardwired into a neuro-pattern) is called into question. Here, you will find resistance to change. The catch-22 here is that if you avoid dealing effectively with the internal conflict generated by the mistake, you stay stuck in the very self-limiting belief and pattern that you want to change. Clearly, a new attitude towards mistakes has to be consciously developed to re-engineer the mind that trades. Your mistakes (losses) point this out and your trading account verifies the need. It is at this point that the trader either re-engineers the neuro-circuitry of his beliefs about the management of uncertainty or he resists change to his already-formed comfort zone (cognitive dissonance). But until the trader develops the emotional intelligence to seize the opportunity presented by the loss or mistake, the historically wired pattern compels the trader to be sucked habitually into a vortex of reactive pattern. And the more you try to muscle your way through the fear-based pattern by sheer force of will, the more entrenched the self-limiting pattern embedded in the neuro-circuit becomes. Essentially the trader has strengthened the very neuro-circuit that he wants to change. (This is why you keep doing the same stupid thing over and over again.) Learning to Learn From an Emotional Intelligence Perspective The very thing that traders have to embrace is that they cannot be separated from their methodology and platform. The mind that you, as a trader, bring to the other elements of trading (methodology and platform) has to be re-trained in order for you to be able to use the tools of trading effectively, in much the same way that a race car driver and his car cannot be separated from one another. (The driver of a Toyota Camry is in no way prepared to drive a Formula One racing machine at 200 miles per hour, as the mental and emotional skills for Formula One racing have to be developed.) It is the same with trading. The mind you bring to trading is not going to be the mind that produces success in trading. You have a brain genetically engineered by evolution to avoid uncertainty. Uncertainty and ambiguity generate confusion in our brain. And confusion has been melded with fear in an untrained trading brain/mind. This is what has to be re-engineered. Until that happens, every time you are faced with uncertainty in risking capital, your emotional brain “sees” a saber-tooth tiger attacking and 45

reacts to this perceived biological threat. And your mistakes made in trading are going to point out exactly where the new skills need to be developed. You are going to fail on your way to success because that is the way the brain learns. It learns from failure – it does not learn from success. However, if you are going to re-organize the attitudes and beliefs that your brain is currently organized around, you first are going to have to learn how to manage the biological system that creates the mind. Cooling the Excitatory System of the Brain/Mind Down Fortunately emotional intelligence is fundamentally different from cognitive intelligence. It can be developed. Before the trader can begin the journey into re-engineering his mind, he must first learn how to emotionally regulate his emotions so they no longer overwhelm him. This is done by learning to observe (be mindful) of the body and to become more adept at catching and regulating emotions before they develop a head of steam and hijack objective thinking. Emotions are biological – they are not psychological. They take over psychology when aroused. The really dangerous emotions in trading are fear (in its many forms) and euphoria. Both, once aroused, contaminate your thinking so that an effective mindset for trading is corrupted. Each has a biological signature defined by breathing style, tension signature, and heart rate that are associated with that emotion. Disrupting the arousal of the emotion, before it contaminates your state of mind, is possible by volitionally managing the way you breathe, relaxing the tension in the body, and calming down your trader’s heart rate. This does not solve the problem, but it does get you to the door of the mind. Practicing Performance in Slow, Deliberate Motion Building the skills to be able to slow the process that your mind was engaged in when the mistake happened is the next step to re-engineering the mind that trades. Most traders do not see what happened to them when psychological trading mistakes occur. The speed of the emotional triggering is too fast and they don’t know what to look for. Fortunately, whenever there is an emotional hijacking, there are precursors that appear before the trap springs and you are swept away. You just have to know what you are looking for. In a process called performance mapping, you can learn how to slow down the process that the mistake is embedded in so you can see all the elements of the performance. This is done by taking really good notes during the process of your trading and/or making either an audio or video recording of yourself while interacting with your charts as you trade. This process is very revealing. By doing this, you can slow down the memory of the process that led to the mistake (much like a movie in slow motion) and correct it. This is done in deliberate and slow motion. It is also done with a state of mind that is focused on excellence in the mindset you are bringing to the trade and not on a mindset focused on winning or losing the trade as you are in it. You then practice the 46

new performance (first in visualization, then in your trading environment) so that you are altering the sequencing of the new learned skills into the old pattern. Developing the Mind that Trades A sophisticated process is described here. And much has been left out from the complete process so that it can be presented in article form. One of the major keys to the process is managing which elements of your mind (all those thoughts running around in your head) are doing the observing and which elements of the mind are doing the practice. It is the mind that you bring to uncertainty that determines the probability of long term success or failure. Building the mind that approaches mistakes and failure from a curious, inquisitive, self-confident, and open perspective is the fundamental skill needed to learn how to learn. At that moment, uncertainty and fear have been untangled from the knot that evolution created and you have become a designer of the self – one that can think and act in probabilities. This is the state of mind that the trader strives to develop. And it is only by learning from psychological mistakes that the trader is able to re-develop his psychology of peak performance trading. Rande Howell

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Learning How to Manage an Emotional Breakdown While Trading 2nd part of a 3-Part Series This is the second in a series of articles about interrupting mindless sabotage and building mindful emotional intelligence into your trading. In the first article in this series, Ken had just watched himself on video in disbelief (like many traders), viewing his own emotional hijacking. If he had not seen it with his own eyes, Ken would never have believed what he saw. (Click here to go back to that article for review.) Before viewing the video, Ken thought that his emotional meltdown came out of the blue. But with the video as a dispassionate recorder of the event, he discovered that the emotional hijacking was an unanticipated ambush only because it came out of his lack of awareness. His comment was, “I never realized how soon I fall into fear and act from fear. No wonder I’m having trouble. It was like not seeing an avalanche coming at you until it consumes you.” (I encourage you to go back and read that article so that you have the continuity to appreciate this article.) With the light of awareness that the video gave him, what he saw surprised him. With the aid of external observation of his body, he was able to see that he had been unaware of a process that was right in front of his eyes – hidden in plain sight. Only he did not have the eyes to see it. His eyes, not being trained to observe his body as part of an emotion, did not detect the ambush. There had been plenty of signs that it was coming. But because he did not know to look for the signs, it appeared to him (in his compromised state of mind) as an emotional hijacking. Learning to Observe the Body to Spot the Arousal and Feeling Components of an Emotion When we reviewed the video of the trade where Ken lost emotional control, here is what he saw: 1. 2. 3. 4. 5. 6. 7.

Eyes fixated on his screens. Also he was hunched over his screen. His eyes were bulging. He was holding his breath initially. His jaw was clenched. He was rocking in his chair. He was tapping a pen fervently on his desk as he watched the screen. He began breathing heavily.

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Ken had not been aware of any of these observable phenomena. Yet all of them are parts of an emotion in its arousing stage. This is when an emotion is preparing for action. The emotion is revving up for fight or flight, anger or fear. Because he was mindless to it, it was able to continue to build over a period of 15-20 minutes – a long time for an emotion to build. Next, he saw and heard himself alternately both pleading and cursing as he lost control of his state of mind to an emotional hijacking where fear chemistry was now coursing through his bloodstream and collapsing his rational thinking into fear-based thinking. This is called the feeling component of the emotion. It is too late at this point to stop the emotion from happening – it is already in the bloodstream and corrupting the mind that trades. At this point the feeling component of the emotion is causing him to believe with certainty that bad things are going to happen. At this point the best thing that Ken could have done is to have stepped away from his computer and let the emotional chemistry burn out. Next Ken sees the third part of the emotion of fear called emotional motivation (i.e. avoid, attack, approach) direct the energy of the emotion to get out of the trade so that no more harm can be done. “I need to bail before this thing goes against me,” he thought. This explanation of his situation makes sense to his thinking mind in the heat of this moment and while he is consumed by fear. At this point Ken believes he is powerless to manage the trade. On an emotional level, the operating meaning is that he believes he is incapable of managing uncertainty while in the heat of the trade. This is the meaning component of the emotion. However, if Ken had caught the emotion at or before the point where it began arousing, he could have prevented this emotional hijacking. And he could have had a much better probability of maintaining the mind that could stay emotionally sober during the management of the trade. But because he did not have the awareness to manage his emotions, he never even saw the hijacking coming. Interrupting the Arousal of an Emotion Because emotions are biological, they have a physical signature that is observable. This signature is observable as described by Paul Eckman is his discovery that emotions have consistent encoded expressions embedded in the human face that cuts across all cultures – and Herbert Benson's discovery that each emotion has a unique breathing and tension signature. Fear and joy will have the same encoded expressions in the muscles of the eyes (in particular) and mouth (in general) no matter what part of the world or what culture you come from. Similarly, fear will produce a particular style of breathing and muscular tension required to arouse and maintain the emotion of fear and its impact on thinking. If you disrupt the breathing pattern and the muscular tension associated with the emotion, the associated emotion cannot maintain itself and it cannot ambush and take over the mind. With Ken’s video of himself, he could see his particular signature in action once he began to watch for the signs. For fear to arouse and take over the mind, it has to arouse physically through his muscle tension, breathing style, and his locked-on fixation. This became the focus of where he was going to learn to disrupt the emotion of the fear of missing out on profit from corrupting his mind and causing him to become an irrational human being. Ken was trained to breathe diaphragmatically in moments of stress, rather than to stop breathing or shift to rapid breathing. Fear required the holding of breath or the rapid shallow breathing (that he described as heavy breathing) to ramp up. He also was taught to relax the tension in the body as he entered trades rather than to allow the tension to build up or to ignore it. By volitionally maintaining breathing focused on moving air into the abdomen first and then allowing the breath to expand into the upper chest in a rhythmic manner, Ken is not only disrupting the emotion of fear – he is also calling forward a state of calm. Calm, as an emotional state, requires

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bellows breathing rather than shallow breathing to call it forward and maintain it. And by relaxing the tension in the body, Ken is doing the same thing. He is physically creating the conditions necessary for the emotional state of calm to produce the mind that "thinks". No longer is Ken mindless of his body. He is able to observe his body as a way to look into his emotional state and to the state of mind that emerges from the emotion. And by training himself to observe breathing and tension in his body as he trades, he is a step ahead of the emotional hijacking pattern of the past. The key here is that he is training himself in both self-awareness and emotional awareness in the context of his trading. Now, not only does he monitor his body with emotional awareness, he also anticipates the times he has a tendency to have problems. He pre-empts waiting for the triggering to happen by calming himself as he moves into the zone where he has had trouble in the past. He is prepared now. Ken is now developing the skill of emotional regulation. He can manage the intensity of the emotion so that it no longer sweeps him away into regrettable emotional vortexes and compromised thinking. (Remember, it made sense to Ken to get out of the trade in the heat of the moment – his thinking was compromised by fear). The problem with most emotional regulation training programs is that they do not focus on managing the emotion in the context of stress. Ken literally was trained to manage his stress by learning how to manage his breathing and muscle tension AS HE IS TRADING. Otherwise, the skills do not transfer from learning in the classroom to learning in the environment that they are to be used. This is why any student of mine spends 3 weeks habituating the emotional regulation skill while he is trading. It takes this long to train the body. There are no other ways to effectively learn this skill. The big factor is that the learning has to be contextual. I often get traders who practice meditation or yoga and wonder why the breathing and relaxation skills learned in these pursuits fail when they apply them to trading. Remaining calm under pressure is not the goal of most breathing and relaxation programs. Trading demands this skill and it must be taught in the pressures found in trading. Otherwise the skill does not generalize from one domain (like the Yoga studio or your calm and quiet place) to the emotional flux of trading. Remember, all thinking is emotional state dependent. You have to train within context. Does Emotional Regulation Solve the Problem? No. Emotional regulation of your emotional nature gives you the skill to manage the intensity of the emotion – not to discover its underlying meaning. Regulating emotions gets you to the "door" of the mind. Without emotional regulation you never get to the door – so it is a necessary element in the design of the trading mind. But once calm, you can look into the mind and begin to observe the hidden beliefs that are at the core of the problem of your performance in trading. Next month we will be looking into the hidden beliefs that keep sabotaging Ken’s trading performance - although he is trying really hard to trade effectively. If you think of hidden beliefs as a submerged submarine armed with torpedoes, you begin to see how your beliefs about your capacity to manage uncertainty that you have pushed out of awareness come back to haunt you in the heat of the moment. These are primitive beliefs that you must come face to face with, acknowledge, and transform to become the trader you know to be possible. Out of the depths either comes the awareness of these submerged beliefs or your mindlessness of these hidden beliefs. If mindless, you meet the torpedoes after it's too late – again. Stay tuned. Rande Howell

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Managing Emotions While Trading Integrating Left Brain and Right Brain Thinking for Balanced Trading Trading seems so easy on the surface. Traders, while learning a methodology, are told (and believe), "Just follow the rules of your methodology and trading plan and you are on your way to achieving your dreams. Oh, and by the way, keep your emotions in check." This little add-on after-thought, "just keep your emotions in check", comes to haunt nearly every trader until they learn to master and learn from their emotions. Curiously the highly left brained orientation (logical problem solving skill sets) of trader educational systems blind both educators and traders to the influence that our right brain (our emotional brain) has over a trader’s capacity to think effectively - and consequently the success of a person’s trading. The flaw is simple and counter intuitive to the rationalistic lens through which we view the world. Particularly given a trader’s bias to find predictable certainty in the market. We get stuck in a way of viewing the world that believes, on a basic level, that if we really know the causal rules that logically govern the market, then we will succeed. This mindset depends on the existence of a set of rules "out there" that, once found, will be the Holy Grail of trading success. This is the essence of left brain thinking. What neuro-science has discovered, however, turns our understanding of thinking and states of mind on its head. That seismic shift is this: The kind of thinking that a trader’s mind produces (for better or worse) comes out of the emotional state of the trader. And that is what influences the world that the trader sees and reacts to. There is no world "out there" that is deterministic - the world the trader sees is colored by the mindset of the trader who observes the world. And this is where traders get in trouble. All thinking is emotional state dependent Thought and state of mind follow emotion. Emotion does not follow thought. You trigger to emotion based on a disruption of an established familiar pattern. Then you begin thinking and reasoning from this emotional cloud. How can that be? It does not sound rational at all. And it’s not. It means we create our understanding of our world from our adaptations to our deepest fears and desires. Take the housing bubble fiasco as an example. After the housing market blew up many observers 51

began examining just how lenders could have possibly thought that they could loan money for houses to people who could not afford to pay back the loans. In fact, these people were incapable of making even the first loan payment. Yet, the house of cards continued to build. Everybody was doing it and nobody "saw" there was a problem. The entire industry never saw the disaster coming. When it blew up, they were surprised. But other people, who had not been sucked into the delusional thinking that comes from greed (fear of missing out), saw it coming and bet against it. They were not surprised. Very bright people were seduced by greed, and in the mindset that came out of greed, they became blind to the long term consequences of the short term nature of the emotion of greed. They became drunk on greed and their thinking was compromised. What does this look like in trading? Most traders actually lose before their trading day begins. They enter their day already in a cloud of fear. (Most will have pushed the awareness of this fear out of their mind so they can avoid dealing with it - which is the biggest mistake the trader can make.) From this state of fear, their right brain’s biological wiring for negative appraisal biases their evaluation of trading opportunities. The emotion ramps up, seizes any semblance of impartial evaluation of the trade, and either the trader jumps in impulsively to avoid having to endure even more fear or he stays on the side line of the trade, waiting for more confirmation, until the opportunity passes. And here is the kicker. When the trader goes back to review his trades, he looks at his trades incredulously and asks, "What was I thinking? I know how to trade - how could I have possibly made such a stupid decision?" The difference between the thinking from which he later evaluates his trading day and the thinking that drove his trading during heat of the trade is his emotional state. Even before he started his trading day, his thinking was corrupted by fear. Out of his emotional state of fear came the mindset that evaluated the market. That mindset saw danger, not opportunity. That mindset blinded him to his risk management skills, and, instead, focused his attention on the avoidance of fear. Out of that, he acted irrationally and made decisions not consistent with his trading plan. Then, after his trading day was over and he was in a calm state of mind, he reviews his trades and could not understand what possessed him to trade so foolishly. In his rationally (that’s an emotional state just like fear) trained mind (read bias toward the left brain), he can execute trades with confidence and consistency. Unfortunately, not being able to regulate his emotions, the trader does not know how to manage his emotional equilibrium in the heat of battle. This is exactly why the military trains their soldiers in conditions that resemble the chaos of battle where the fear of death is a real and present danger. They train soldiers to the clear-headed thinking that is needed for the emotional state of fear and its management. Traders need to train in a similar way. Rande Howell

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Mastering Fear and Impulse in Trading: Still Losing When You Know How to Trade ___________________________ “I have finally concluded that the reason my trading is not progressing is because of what is going on in my head, and has nothing at all to do with what is happening in the markets.” AS, Dallas TX

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What Keeps You Stuck in Trading Purgatory? After a number of years of training yourself to trade, most traders find themselves stuck in the same predicament as the above trader. Inconsistent results follow no matter how much their trading system is tweaked or changed to create external discipline. Finally the trader comes to the uncomfortable conclusion that the problem is not in their methodology, their system, or the markets (these all work well in simulation) – the problem is in the 5 inches between their ears. Traders read about expert traders who seem to be born with the right attributes for trading. These expert traders trade dispassionately with a powerful discipline that allows them to park their emotions at the door. And students of trading, who read about these characteristics of successful traders, often try to emulate the emotional control and state of mind they read about. They, like Dorothy in the Wizard of Oz, click their heels and magically imagine themselves to have the “right” emotional and mental traits. They may even watch a trader psychology DVD, listen to a guided meditation, mess around with their brain waves, or learn some NLP tricks in hopes of an easy fix. Try as they might though, the emotional roller coaster ride of their trading persists. The mistake the student of trading makes is that they compare themselves with these rare people who are born with a genetic predisposition and emotional temperament that is well suited for trading. Though they are rare, many aspiring traders set these off-the-shelf exceptional traders up as the 53

psychological model for their trading. The problem is these rarified traders come equipped with a very different emotional and mental predisposition than the vast majority of people who enter trading. Individuals may come equipped with a certain genetic inheritance that, under the right conditions, are expressed in such a way that it gives a person an advantage in certain domains. Taken to an extreme, you also see this genetic engineering in breeding dogs for certain traits. This kind of genetic engineering is simply not possible in humans. This does not mean that trait selection is not used to enhance performance though. Though humans are far more complex, the Russian and Chinese have used trait expression to steer young people with athletic promise to great advantage. And some traders win the genetic trait lottery for trading. The vast majority do not. They have to learn to develop a psychology built for trading. Nature vs. Nurture No matter how much they read about what the mind is supposed to look like to trade well, little is spoken about how the trader goes about building the very emotional and mental skills and attitudes necessary for successful trading. Just because nature did not equip you with the “right stuff” for your trading mind does not mean that you cannot nurture your psychology so that you build the state of mind needed to successfully execute your methodology. Nurture is far more importance in developing a mindset than nature. Nature may give potential, but it is the individual that must develop that potential in order for it to become a talent. This means, even if you did not win the gene pool lottery, you can train your emotional and mental predisposition to your advantage in trading. Problematic emotional biases about money, worth, risk, and uncertainty are genetically handed down from one generation to the next. They are not deterministic traits. They are learned patterns that become wired into your brain/mind as habits. It's not genetics, but it is adaptation to circumstance. This is how the money narrative to which you adapted shows up in your trading. It is transmitted through the generations and your brain’s adaptation to circumstance. And fear-based habits and beliefs can be de-constructed and reorganized into a much more trader-friendly perceptual map. Deconstructing the Fusion of Uncertainty and Worry Most of us grew up in environments that exerted pressure on our developing brain that organized us to "not make mistakes" and to focus on certainty rather than the management of ambiguity. It is from this constantly adapting brain that our “mind”, the way we interpret reality, emerges. For the vast majority of traders, by the time that a brain has approached maturity it is biased to seek certainty and avoid uncertainty. This is simply a biological bias of the human brain that has been amplified by what we are taught about risk and uncertainty. This is an organization of the mind that is not going to work well in trading. That particular adaptation can work well in other domains, but not in trading, where the emphasis is on embracing the management of uncertainty and risk. 54

Your brain fused uncertainty and the fear of death into a single construct (very appropriate for physical survival in a dangerous world), but was never prepared for trading markets. This particular organization of our perceptual map has to be de-constructed, de-fused, and re-organized from a fear-based interpretation of uncertainty to a probability and risk management based perception of uncertainty. This is the mindset that works in trading. The problem is that the uncertainty/fear construct has become the historical narrative that guides your perception of the markets. It is at this point that the assumptions about fear and risk to which your brain adapted you become embedded as unexamined self-limiting beliefs. They sink into the background of your awareness and contaminate effective perception without your ever knowing it. Out of Theory and Into the Trading Room What does all this theory look like in trading? Let’s take a look. Jim is a trader who is literally a rocket scientist. He has a deep working knowledge of computer systems, aeronautics, and mechanical engineering – and now he is an attorney who practices intellectual property law. In simulation his trading reflects the clear thinking and impartial state of mind that you would expect out of a person with this kind of training and experience. However, when he trades and risk enters the picture he does not “see” all of the options and patterns that are reflected in his charts and indicators. His training is highly biased towards certainty (remember people’s lives and expensive equipment were at stake based on his calculations) rather than the management of risk and uncertainty. He was trained that losing was not an option. This training became habitual and went into the background of his awareness. Now it is an unexamined bias that colors the perceptual world he sees. (Uncertainty = Fear of being wrong.) This assumption that uncertainty must be eliminated, now a belief embedded in the neuro-circuitry of his brain, became the unexamined belief (or historical narrative) that he brought with him into trading. This belief was highly effective for him both as a rocket scientist and as a patent attorney where a high value was placed on certainty. However this same thinking, so successful in one domain, was producing near panic for him while he was in a trade. As a result, he got out of trades too soon and he took his profits too quickly – long before he reached his target. Once in a trade, nothing was certain. Managing the trade was an exercise in the management of uncertainty in terms of probability rather than certainty. Uncertainty, still fused to fear, triggered and his rational and clear thinking mind was contaminated by fear. From this fear-based state of mind, options that would have appeared to him while in an impartial state of mind were swept away and replaced by the negative anticipation of worry. This is the impact of your historical narrative on your trading. And, of course, when the trading day is over and he reviews his trades, he cannot comprehend why he missed so many signals and patterns. All he knows is that, yet again, he made bad trading decisions resulting in more draw-downs.

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Changing the Historical Narrative of Uncertainty and Fear into Probability

Like the trader quoted at the start of this article, most traders come to realize that their historical narrative, now embedded in their neuro-circuitry of belief, is what has to be changed. There are no tricks or magic bullets. Most traders muddle through years of desensitization (of their fears and self limiting beliefs) before finding consistent success in trading. This process rewires beliefs about self and uncertainty that eventually open the possibility of trading on a new level. Fortunately, this re-organization of the trader’s mind can become more streamlined when we begin to understand how meaning is organized in the brain/mind. There is no single organization of the self. There is no final “me” “Me” is simply the current organization of self beliefs that you hold as true. We do not see reality, we see shadows cast -- and there is always an observer interpreting what it is experiencing. Traders come to hold certain assumptions about the market. Some of these assumptions have been worked out and have become an effective way of dancing with the market. Yet, the market does not care what assumptions you attempt to place on it, nor does it have awareness of the "truths" placed upon it by men. Before traders recognize that they are the problem, they usually have traded for a number of years and are successful in simulated trading. They know HOW to trade a methodology that works in a classroom. It is when risk of capital is put in play that their "truths" about the market are challenged. It is at this point that the trader is not separating uncertainty from worry or fear. This situation is highly trainable. The assumptions of self that have become hardwired as self-limiting beliefs (their unexamined truths) are not failing because they don't know how to trade, but because they are not trained to operate in an environment of uncertainty. They will have to reorganize their beliefs about operating in an environment of uncertainty and their skill to manage it, which can be accomplished if the trader accepts full responsibility for the outcome. Fundamentally, traders need to learn a set of skills and tools by which they do brain surgery on their belief system. Trading becomes a great place to see "up front and close" the trader's beliefs about self in action. There is no hiding from the "truth" as it has been organized within the self. Yet most find that their "truths" are only unexamined assumptions about the world that drive their perception. It is at this moment that the assumptions behind the self limiting beliefs can be observed and re-constructed. Building your beliefs into managing risk rather than avoiding risk is then possible. Anxiety at this point can be regulated and listened to, not from an avoidant observer, but from a disciplined and impartial observer - with very different outcomes. The "truth" they see allows them to be present in their trading very differently. The gap between simulated trading and live trading narrows as they train their state of mind to embrace uncertainty from a perspective of discipline, patience, courage, and impartiality. A far cry from the anxious state of mind that had them hesitating or trading impulsively as fear swept their thinking capacity away. 56

Very few brain/minds have been shaped to trade well. Getting to the impartiality and discipline necessary for trading is like trying to tell a horse in a burning barn to remain calm and simply walk out of the barn by carefully considering its options. Fortunately, belief can be changed. It begins with learning emotional regulation skills so that fear and greed do not sweep away your capacity to think from a disciplined and impartial state of mind. Then the trader must begin really examining themselves. This is done by developing the capacity to become mindful. Mindfulness, in essence, is the capacity to observe the coming and going of thought and to recognize that thought is not who you are. Thoughts, through the observation of mindfulness, become the voices of your beliefs that drive your trading. This is where the door to change opens. The observer that we bring to uncertainty is what allows the trader to see what they see. A really good trader, as a trained observer of market phenomena, is seeing distinctions through his skill and an impartial mindset that a fear-based trader does not see, much like the rocket scientist turned trader was experiencing...very different observers of uncertainty with very different outcomes. There is a great Zen koan that goes like this. “Things are not always what they seem to be -- nor are they any other way.” Becoming Architect of the Self that Trades Applying mindfulness as a tool to your trading allows you to bring the self limiting beliefs that sabotage your trading into your awareness where they can be worked with. Instead of drifting on the currents of unseen self-limiting beliefs that limit the way you manage uncertainty and risk, you become the architect of the narrative you bring to trading. Uncertainty becomes decoupled from worry and fear. And you develop inner resources that allow you to bring forth into your awareness the discipline, patience, courage, and impartiality that live as possibilities in the totality of your being. In the face of uncertainty, you no longer have to be compelled by your fears to produce inconsistent results. Instead, you bring a state of mind to the uncertainty that creates the probability of successful trading. Trading is a journey into the possibility of who you can be. The “you” that you brought to trading is rarely the “you” that will bring you success in trading. Emotional regulation and mindfulness are the cornerstones of re-organizing the “self” that trades. It is your passion that gives you the motivation to learn and use these tools to become who you need to be for consistently successful trading. Rande Howell

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Managing the Mind that Trades: Micro-Management of a Trader's Psychology What mind do you bring to your trading day? Can you be specific about describing that mind? Have you intentionally organized your mind for the performance of trading centered in patient discipline? Is this carefully prepared mind rehearsed BEFORE you start your trade day so that you are emotionally and mentally fit for the rigors of the trade day? Or is preparing the mind for the performance of trading more of a hit and miss situation? And if you do bring an intentional mind to start your trading day, what happens to it once you begin your trading day? What is your plan to prepare the mind so that you maintain excellence of execution? Preparing the mind for the trade day is not a sprint where there is initially concentrated effort for a short duration. Rather, it is a marathon where the runner has to take stock of his faculties at various points in the race and manage them for the duration of a long race. As much as traders hear about how important emotional and mental attitude is in the performance of trading, very few traders actually manage the mind that trades as they move through the process of a trade. In the Traders State of Mind training programs I teach, a considerable amount of energy and training goes into preparing the mind for the trading day BEFORE the day starts. This becomes the foundation from which the trader learns to manage the mind WHILE he is in the process of trading. In order to achieve a calm, disciplined impartial mind from which to trade (the Traders State of Mind), a trader must be vigilant. This aspect of the management of the mind is focused on getting the brain and the mind ready to trade. Typically, preparation for the trading day begins the night before. And preparing the mind continues when the trader wakes up and before he gets out of bed. Then, always, a period of time is devoted to mental preparation and rehearsal that includes a prayer/meditation/centering period where the trader tunes his mind into the peak performance organization of self that is suitable for trading. It is here that the trader can volitionally construct a mind rooted in calm, disciplined impartiality. With his mind now calm and ready for trading, the trader starts his day. The earlier preparation readies the trader for the trading day so that he/she is fit to trade from a state of mind grounded in calm, disciplined authority. However, this is not enough. This calm, disciplined authority has to be maintained through the cycle of a trade. Now, let’s take a look at this cycle. Psychology and Process Conjoin All that preparation is washed away within a short period of time if the mind is not trained for the process of the trade. What I have found is that the early preparation stage of mental readiness is good for about 30 seconds to 30 minutes. This is where a particular psychology of performance needs to be integrated into your actual trade plan. Your trade plan and your psychological plan are not separate. Your mind is an integral part of the trading system. It is what drives your platform and methodology. So this driver has to be trained to drive his system proficiently.

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The following process represents critical stages while trading where you need to be psychologically prepared (trained) to manage the circumstance of the moment. Watching For Set-ups Many traders become immediately blinded by an insidious bias while in this stage. With an urgency to act, they approach their charts seeking set-ups. This very urgency to act contaminates the mind that is supposed to be patiently waiting for set-ups. Instead, believing that they have to be "doing something" to be trading, the skill of patience (necessary to wait for trades to come to them) is vaporized from the mindset in a flash and replaced with an urgency to trade. And, suddenly they are chasing trades that are dubious decisions at best. This bias gets them into trouble because it SETS THEM UP to take trades not in their trade plans or has higher risk to reward parameters than their trade plan dictates. Many a trader has done a good job of preparing the mind for the trade day, only to sabotage themselves at the beginning of the trading cycle due to this bias. Therefore, this point is critical to managing the psychology of the trading mind. Your job is to patiently wait for set-ups to come to you. Your job is not to make things happen. A Trade Warms Up Have you ever noticed what happens in your mind when you start seeing all the confirmation coming in as you watch a possible trade set up? The warmer the trade gets, the more an untrained performance psychology is tested or seduced. This is a moment to take pause and regulate your psychology so that, in your excitement, you do not get in early. Or, perhaps, in your anticipation (untrained performance mind) you keep seeking more and more confirmation until the trade potentiality is over. Is the mind that watches the set up calm, patient, and disciplined? If not, you need to train yourself to be. Trade Entry As you go to pull the trigger, what is your mental composition? Are you pulling at the bit to jump in (euphoria) or is your trigger finger paralyzed and incapable of clicking the mouse (hesitation)? This is a moment for which you must prepare. It is not a moment that is pushed aside until it cannot be ignored. All the "man-up"ing you can muster at this point is a dangerous exercise in futility if you have not developed the mind that is prepared for this moment. Order Confirmation When they hear that “cha-ching” of an order being filled, something dramatic happens in the mind of many a trader. They are now committed to the trade and there is no way out of it, except through it. Risk is real now and you could lose your money. This is where many traders start a downward spiral in their ability to manage a trade effectively. Their mind has not been organized to bring the proper elements together for trade management. Traders need to take a pause here and recollect themselves. They have now moved from looking for opportunities to exploit (offensive coordinator) to defending turf (defensive coordinator). It is at this moment that it is critical for the trader to reassert his performance psychology, or it is going to be a long ride down. In the Red

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There is nothing more unnerving for the evolving trader than to watch a trade in flux. The trade is bouncing around and spending a good bit of time in the red. You can see the red indicator light and can feel the fear and excitement. The mind starts really decompensating and the resolve to adherence to the trading plan is taking a beating. Preparing for this situation should be part of every trader’s practice. The trader must learn to regulate it, or the trader’s performance mind moves from focusing on execution to being fixated on losing capital. The trader’s job is to maintain the mind that is focused on the performance of execution. Yet, an emotional hijacking is underway. This is why this moment in trading needs to be anticipated and trained for. Otherwise, it keeps you from becoming the trader you could be. Taken Hostage by Marginal Profits This is one of the biggest moments that separates a scratch trader from a consistently profitable trader. If the trader has not managed the mind that manages the trade before this moment, there is a powerful urgency for him to take the profit early from the trade, while the trade is still profitable. Then when he cashes out and feels the temporary emotional relief, he watches the trades move to his targets – just like his trade plan outlined. The problem is that the trader’s emotional state has not been managed somewhere along the progression from trade entry, to being in the red while in the flux, to the moment of profitability. Any of these moments can become a signal that triggers the need for practicing emotional state management. Maintaining these critical trade management moments, to the trained mind, are planned for and practiced. The key emphasis here is training. The trader is taking the mind he prepared before trading began and reasserting it – anticipating these moments so that he is prepared for the stressful conditions of trade management. Exiting a Trade – Taking a Loss During the process that is being laid out here, the emphasis is on management of the mind that executes the trade – and not on whether you are winning or losing. If you manage the mind that trades so that you execute your trade plan from a peak performance state of mind, your methodology will take care of the winners and losers. Your job is to manage the mind that trades. The questions to ask when taking a loss are: (1) Was it a method mistake? (2) Was it a psychological mistake? Or (3) was it simply being on the wrong side of probability? If it is a method or psychological mistake, then you learn from the mistake (which is how the brain learns) rather than dwelling on the loss and deepening your fear of losing. If you don't learn from this, you bring this fear of loss into your next trade. And that contaminates the mind that trades. Exiting a Trade – Winning One of the most dangerous things that a trader can do is to get excited by a win while he is still trading. (After your trade day is over is the time to celebrate the win.) While trading, the thinking mind is greatly influenced by the emotional state that you bring to the act of trading – particularly to the evaluation of set ups. When you feel good, you are bringing a mind fed by euphoria into the evaluation of set ups. And euphoria will cause you to believe with certainty that the good times are going to roll and then you no longer can evaluate your trading risk effectively. When you win in trading, the calm, disciplined impartiality you worked to achieve before you started trading is maintained by regulating your emotions and mind. Until the calm, disciplined impartiality is re-established, you are not fit to trade with a mind designed for trading success.

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Reviewing Your Trades Particular emphasis and attention needs to be placed on the mind with which you review your trade day. Are you beating yourself up for the mistakes you made or the lost opportunities you now see in your charts and performance? Or are you acting as a kind, wise teacher to yourself? The latter creates an emotional space for learning to occur while the former creates an emotional vortex that keeps emotional reactivity at the forefront and compromises the capacity for learning Toward a Peak Performance State of Mind This is the work of the inner game of trading. Once you establish a process that brings forward into your working mind a peak performance state for trading (calm, disciplined impartiality), then you can begin to practice it in these specific moments in the trading cycle. The mind you brought to trading is simply not going to be the mind that is going to produce success in trading. The whole notion of winning has to change. Success in trading is not about winning (or losing for that matter). It is about the psychology you bring to execution. It is about the mind that you bring to the performance of trading, so that you execute the trade with excellence. There is no "need to be right" about the trade, only its execution. If you do this, your methodology will take care of the winners and losers – and the money in your trading account. Rande Howell

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Mastering Fear: The First Step in a Successful Psychological Plan for Trading “Until you understand the power of fear over thinking, it will dominate you.” J. Rande Howell

What You Need to Know About the Impact Fear Has on Your Trading Poised to pull the trigger on the trade, Carl held his breath and hesitated. A current of uncertainty swept him away into second guessing his decisions. Spontaneously thoughts began to rapid fire in his head, “Should I really take this one, what if I’m wrong, what if I lose again?” His confidence was melting like snow in a desert and was being replaced by his fear of losing – again. “Should I push through my fear or should I back off this trade?” he asked, trying to gather his wits. To no avail he gazed into his screen and tried to summon all the psychological tricks he had learned. But all he could hear was the continuing battle going on in his mind. And this was not the first time. It was déjà-vu all over again. Reaching for his antacid to calm the knot in his stomach, Carl realized that he found himself in this situation all too many times. The First Step to Your Successful Inner Game of Trading: The Biology of Fear and Its Impact on the Psychology of Trading What’s going on here? Carl is a conscientious trader. He uses a proven process and has his daily plan in place. Unfortunately he does not know how to effectively deal with the impact of his emotions on his personal psychology. Nor does he have an understanding of how emotions, particularly fear, impact perception and performance. Since 90% of trading is a balance between a trader’s emotions and his thinking, understanding the impact of emotions is an essential part of achieving success in the inner game of trading. The complicating problem here is that Carl (like most traders) does not know how to effectively regulate his emotions and consequently, does not know how to produce a peak performance state of mind specifically for trading. And this blind spot is the difference between success and failure (profit or loss) in trading. And until Carl learns how to deal with his emotional nature, his fear, self doubt, greed, and impulsiveness will dominate his thinking and performance. Thinking is Emotional State Dependent

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Why can’t Carl, or any trader (including you), just push his emotions aside? It is because our bodies, our brain, and our emotions are woven together and are inseparable. If you are breathing, you are experiencing emotion. And they dominate the way we think and perceive – whether we acknowledge them or not. Deeply rooted in human evolution, emotions (including fear and greed) create our capacity to survive. To become a successful trader, managing your emotional nature is far more profitable than attempting to ignore or be consumed by your emotions. Taking it a step further, all thinking is emotional-state dependent. Emotions are biological (not of the mind) – and they overwhelm thinking and states of mind. The way we think and reason comes from the emotional state or mood in which we live. Thinking does not create emotions on a biological level. Rather, emotion determines our thinking and our perception of the world. Therefore, only to our detriment can we push emotions aside. Can you see why learning to managing the biology of fear is so important to successful trading? As an example of this principle, take a look at our friend Carl’s situation. Everything seemed okay until Carl was ready to pull the trigger on a trade – the moment where money entered the game. Suddenly uncertainty and fear clouded his judgment and his thinking got consumed by self doubt. The truth is that Carl had pushed his fear away from his awareness until the moment of commitment. Then it flooded forth and ambushed him. Not having the skill sets in place to deal with his fear, his emotional arousal generated his self doubt and indecision. Depending on personal history and adaptation, other traders in this situation could have resorted to impulsiveness and grandiosity instead. In either case the emotional ground from which behavior arises is fear of loss. Often traders jump impulsively into a trade decision to remove themselves (temporarily) from uncertainty. Others get consumed by a sense of grandiosity (false courage) to escape the fear of uncertainty. Pushed by the emotion, all these personalized adaptations to fear tend to divert us from trading our plan and sticking to methodology. Until we learn to regulate the fear our brain associates with uncertainty, our desire for a calm, dispassionate, impartial emotional state (essential for effective trading) is hijacked by our lack of skills to deal with fear of loss. The Trader’s Brain on Fear The brain is organized around fear – the most primal of survival emotions. To the brain any threat is a threat to life, whether it is a saber tooth tiger flashing his 6 inch canines at you or your fear of losing money. It is one and the same to the survival brain. It does not distinguish between biological fear (the saber tooth tiger) and psychological discomfort (the fear of losing money). Once the threat activates the emotion, fear sweeps away your capacity to think rationally and impartially – which is absolutely vital for trading effectively. Once triggered, the chemistry of fear is coursing in your body in .003 seconds while your ability to react to the emotion takes more than .5 seconds. For effective trading, this is too late. The trader, like Carl in the example, then finds himself in fear-based thinking (obsessive thoughts of self doubt, focusing on negative outcome, trying to make up for losses, and an urge to avoid the stressor). And until Carl, or any trader, learns how to effectively deal with and separate the biology and psychology of fear, he will not be able to 63

produce long term success in trading. The Trader’s Brain Turns Avoidance of Fear Into a Self-Fulfilling Prophesy This is where well intended psychological techniques, without being grounded in emotional intelligence, fail. The biology of fear simply overwhelms the thinking process and creates a biological pattern based on the avoidance of fear. This is what has happened to our friend Carl. He has triggered a biologically wired pattern of avoidance based on fear. Until you can manage the fear, thinking is simply hijacked by the primal power of the emotion. Thinking is not king, emotion is. The point here is that the brain wires patterns of perception based on emotion. These patterns become so familiar to us that we do not see them. Yet, they are there – producing a self-fulfilling prophesy that dominates how we create the world in which we live. And once the brain creates the pattern, the pattern starts creating us. In Carl’s case, his fear now dominates his thinking and his expectations of the future. Out of this state of mind come his negative expectations of the future, his focus on the negative, his self doubt, and his growing impulse to avoid further stressful thinking – a vicious cycle. Managing this aspect of our biology that deeply influences our emotions, perception, and our trading is the first step to long term success in trading. So, How Do You Stop Fear From Taking Over Your Thinking? In a successful psychological plan for trading, the trader will establish a sense of calm authority before he begins to trade. He does this by first managing his fear before it can contaminate his thinking. If you imagine fear as a freight train, the first thing you want to do is to stop it from getting a full head of steam. If it gets beyond that, the best thing to do is to simply stop trading until the emotion has run its course through your body, brain, and mind. However, it is better to learn to interrupt fear’s capacity to cloud your thinking before it causes problems in your trading. Fortunately, because fear is biological in its nature, it will have an individualized physical signature for each trader – which the trader can use to begin to manage his emotional state. That signature is composed of several components including (a) a breathing style that supports fear and its escalation and (b) specific muscle tension. It is these two areas on which we will focus. A Little Experiment The following is a very simplified process that can be developed into a skill set. It is only for illustration and not intended to be a trick or tip that will change your trading on a short term basis. Think of a time when you were trading when you experienced fear, stress, anxiety, or self doubt. Really focus on the memory. Build it up for a moment so that you can feel the tension in your body build. Feel your mind begin to race. Build it up more. Notice what happens to your breathing. Now, while it is still fresh in your memory, write down how you were breathing and where the tension was concentrated in your body. Also write down your predictions of the future (or prediction of trading outcome) while in this state of fear. All of these combined are your individualized fear signature. Now let’s learn how to disrupt it for more effective trading. 64

Most people find that they either hold their breath or breathe rapidly when they are in fear states. This is part of the biology of the emotion and is a barometer of the emotional state you are thinking from. These breathing styles maintain and accelerate the emotion’s momentum. Also notice where you experience tension in your body. The neck and shoulders, gut, and chest are common – particularly while holding your breath. The breathing and tension are parts of the physiology of fear. Also it is vital that you notice the connection between your emotional state and the kind of thinking you had (your predictions of trading outcome) while in the state of fear. This is where you can disrupt the fear and can manufacture a calm state of mind instead. The first objective to a successful inner game of trading is to disrupt fear-based states of mind and replace them with a calm state of mind. Out of a calm state of mind you can think and perceive the market impartially – rather than having your thinking clouded by fear. Let’s take the experiment a little further so you can see the difference in perception between fear states and calm states of mind. This time you will use diaphragmatic breathing as you bring the memory up. In this style of breathing, you will first pull air into your belly or abdomen and then let the air expand to your upper chest. To make it easier to learn, you can imagine that you have a bellows in your belly and that you are pulling air down your windpipe into your abdomen and allowing it to expand into your upper chest. Practice breathing diaphragmatically a few times and then bring the stressful memory back into your mind. Keep focusing on the memory and notice how easy it would be for the memory to influence your breathing. But continue pulling air into your abdomen and then letting it expand into your upper chest. Stay focused on your breathing so that the memory does not activate the fearful breathing style. Continue doing this for a few more moments. What do you notice about your ability to manage the emotional state and the resulting thoughts? Most people experience emotional regulation of the fear. They can feel the fear, but it never sweeps them away. And after a few minutes, they are able to establish a calm state of mind. It is this calm state of mind that you are looking for. From this calm state of mind, your perception of the market changes. Which is more effective - observing market data from a fearful state of mind or a state of calm? Notice how your decision process changes as you are able to interrupt negative fear-states and the thinking that comes from them. And notice that as you are able to establish and maintain calm states of mind, you are better equipped to think from an impartial and objective state of mind. Which is better for your trading? Moving beyond the First Step This aspect of emotional regulation is only one part of a successful psychological plan for trading. The calm state of mind is like a launching pad. Once you establish skills to regulate the biology of an emotion, the door is opened to much more. New skill sets become possible for your growing success out of this first step. Successful trading is a journey – and biologically being able to interrupt fear-states from sabotaging your trading plan is an essential part of that journey. This new skill, once developed, opens the door to increased realization of your 65

trading (and human) potential. It will not work by itself. What it represents is a way for you to recognize fear dwelling within you (before it sabotages your efforts) and to mechanically disrupt fear’s hold on your thinking. Once you learn this skill set, you can begin to learn how to call up emotional states (calm impartiality and courage) as part of your inner resources that move your trading psychology beyond fear – and into peak performance. Rande Howell

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Mastering Trading Emotions and Self-Deception There is a big AHA! moment that you, as a trader, will experience before becoming consistently profitable. It is the realization that YOU are the problem that prevents your own success in trading, and to succeed in trading you must accept that you are going to have to work on yourself. To do so, you have to stop looking for answers outside of yourself and, instead, begin to take a good, hard look at yourself. This is the dawn of the inner game of trading. It is a big moment. Before this epiphany traders will seek external solutions to the problems in their trading. New methodologies are tried in the search for the “right one”; new platforms are acquired to replace those that have lost favor. Old indicators, books, and teachers litter the landscape of a trader’s education. He will think, “There is just a missing ingredient to my trading that I need to find. And when I find it, things will fall into place.” A trader will even try mechanical systems that “take emotions out of the equation”, but they keep creeping in anyway. So, the trader continues to seek solutions to keep his emotions "at bay". Most traders stay stuck in this “arrested development” for years by convincing themselves that, somehow, they can take emotions out of the trading success equation - that they simply need to find the right ingredients to produce success. And when they put all the external pieces of the puzzle together, they will be able to trade successfully. The problem is that they continue to blow up their trading accounts or they bleed the death of a thousand tiny cuts. Gradually the evidence becomes so strong that their inner game is causing the problem, that they can no longer deny it. Up until this moment they don’t grasp that their mind, and their emotional intelligence, are what drives their methodology and platform. Mind, methodology, and platform operate as a single unit. And until the mind is right, it really doesn’t matter what methodology and platform are used. But to get the mind right, traders have to stop pretending that emotions can be ignored and start to work with their emotional nature. An Unexamined Life: Understanding Your Self-Deception What traders come to realize is that their deepest fear comes in facing themselves, because they fear what they will find. They do not want to see what lurks in the shadows of their minds. Before they start trading, most traders have lived in a carefully constructed narrative about themselves that depends on external gratification and validation as a way to experience self67

worth, with a healthy dose of self-deception thrown in for good measure. But trading will bring your personal issues to the forefront. A trader can talk the talk of bravado, and get away with it - in the outside world beyond trading. After all, who is checking the facts? It is kind of like putting the fox in charge of the hen house. Self-deception is easy when we turn a blind eye to the fallible human beings that we are. Listen to any two traders talk and you will see this in action. They "talk the talk" of trading – all surface talk. Rarely do they talk about what drives their trading – their emotions and their mind. Do traders ever talk about the humanness of their fears that rattles their discipline and confidence? Do they ever explore just how dangerous euphoria is when it creeps into the trading mind and sabotages a string of good trades? If they do, they turn to an external solution (i.e. a new platform or methodology) that they believe will fix their problems. Rarely do they ask, “What is going on with me emotionally that keeps hijacking my trading mind? What is at the root of this consistent pattern of self-defeating behavior that keeps plaguing my trading?” The moment that these types of self-examination questions arise in the external and internal conversations of the self, the trader avoids them and goes back to maintaining the illusion of being in control – rather than taking the harder course of action to develop the capacity to manage the self in the face of uncertainty. Eventually this carefully constructed sense of identity is shattered by the light of awareness called your trading account. The trading account is a truth meter. It cuts through the self-deception of "talking the talk" and clearly tells you how effective the self-beliefs are that you bring to trading. It forces you to "walk the walk". So What Is It You Are Hiding From? People, more often than not, bring a hidden sense of inadequacy or powerlessness into trading one that they have carefully hidden from themselves, and one that depends on performance as proof of their adequacy or power. They confuse "doing" with "being", or net-worth with selfworth. They have to be right and to win to feel adequate about themselves. It is this "having to prove themselves" that is their undoing in trading. Until your assessment of performance, and value as a human being, are separated from one another, your trading performance will be compromised. Unfortunately, traders also hide from the discomfort caused by the tension between the two. This is why it is so important, as a trader, to really examine your beliefs...not the ones you say you have, but the ones exposed (for better or worse) by the balance in your trading account. The confusion here lies with misunderstanding performance in trading. Trading is about competency in the domain of trading and how to bring a particular mindset to the performance that will give you, the trader, an edge in using your platform and methodology. It is not a measure of your worth, your adequacy, or your power to negotiate a life. When trading becomes a measure of your worth or power, then you no longer bring a mindset to the performance of 68

trading that will truly give you an edge. The edge then transfers to other players in the market. However, most traders' beliefs about their worth and power comes from having to be "right". Part of this problem is psychological and part is biological. In our families and our culture there is a strong drive to be “right” and not wrong. This creates a historical circumstance that forms our psychology long before trading, which produces a mind that needs to be "right" to feel adequate, worthy, or empowered. The brain is also organized to avoid uncertainty. It evolved to seek certainty in pattern-recognition. Unfortunately this bias, when brought to the venue of trading, has the trader looking for certainty where only probability exists. Getting past this illusion of control is essential to becoming a successful trader. Befriending Your Fears Instead of avoiding your fears in trading, developing a curiosity that seeks the root-belief that lies beneath the fear is a far better long-term solution in developing the mind that trades. In the examined life, it is your very fears that point the way out of the fear that will compromise your trading performance. Avoidance of the fear will give you short-term relief from the symptoms of the fear, but engaged curiosity will lead to transforming the fear of your capacity to manage uncertainty into a mindset built to manage the probability of uncertainty – perfect for trading. Getting equipped for this new kind of journey is the essence of self-development. Recognizing our fears and learning from them becomes the path to an emotionally stable state of mind. Who would have thought that trading would become a path into self-awareness? The Buddha must be laughing. Rande Howell

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Mindfulness and Fear-Based Trading Wrestling Control of the Mind From Limiting Patterns ______________________

There's someone in my head but it's not me. "Brain Damage" from the album Dark Side of the Moon – Pink Floyd

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Diary of a Trader Waking Up to the Internal Dialog “It's never going to happen for you. You’re never going to see the performance you see trading simulated with your real money account,” erupted the intrusive thoughts into Bill’s awareness. It sounded so final. And it sounded so on target that I believed it without question – yet part of me fought back. “Whoa! Where did that come from?” astonished, Bill jotted the thought down into his trade log. Later while he reviewed the thought and emotion log portion of his trade log, he realized, “I've obviously have been dealing with that voice for years, but, out of my discomfort, I’ve avoided dealing with it.” The distinction of separating thought from identity was opening up a whole new can of worms for Bill. Now he was being asked to become mindful of the different characters present in his thoughts. “This Mindfulness stuff is beginning to make a whole lot of sense. I had no idea that so much was going on in my mind while I’m trading – I just thought it was my dumb thoughts,” Bill recounted. And as he reflected on this new revelation, he discovered another voice also. Focusing hard he 70

thought, “That’s the voice that continually tells a very discouraged part of me, "you’re gonna do it, keep fighting, keep going, it’s gonna happen." But it’s not as loud as the Inner Critic and it gets drowned out. When I make mistakes or have a losing trade, the Inner Critic berates me, "you’re an idiot; you’re a stupid ass." But then there is an accompanying voice that says, "It’s ok Bill. No big deal. Making a mistake, and losing on a trade is part of the game. You have the skill set to make it up. Forgive yourself and let’s get in on this next trade." But the critical voice is louder and drowns it out. I think the fear of pulling the trigger on my analysis stems from me not wanting to make a mistake and be wrong. Being wrong adds fuel to the Inner Critic’s beratement of me – gives it confirmation. “It’s this battle going on between this Inner Critic and this part of me that wants to prove himself – and the critic is winning. This fearful part of me seems to want to prove himself to this critical part of me – to prove that he matters; that he has purpose. But no matter what he does, it’s never good enough. It just goes on and on. And I get exhausted by the internal struggle and my trading day gets blown up,” came Bills analysis of this internal trading dialog going on his mind. The most prevalent thought to pop up in my mind is that I'm basing my self-worth on my success or lack of as a trader. As embarrassing as it is to admit, I want the accumulation of things and power that trading can give me. I want the recognition of family, friends, co-workers. I want them to see that the years of sacrifice reaped a reward. The crazy thing about this is that I'm a well liked and loved person by these people with or without trading but obviously it's not good enough. I also want the recognition for my professional and financial success which I still haven't attained through my trading. I do have a sense of entitlement. I worked my ass off. I gave up everything to go after this dream. 6 years of sacrifice, thousands and thousands of hours over this 6 year period of studying and honing my craft. Sitting in front of this damn computer and I still haven't gotten what I think I deserve. The thoughts are there, but I’m not being swept away by them as much as I used to. But I don’t feel detached from them either. The difference is that I’m not observing them and am aware of them. And I’m beginning to realize that I have been mindless to this conspiracy running around in my head. Because of my blindness to it, it has been able to sabotage my efforts with relative ease – I’ve been asleep at the wheel. I haven’t been directing my life. This person inside my head that is not “me” has. This has to stop.”

Using Mindfulness to Uncover the Internal Dialog Bill is making progress in his evolution as a trader. At first he sees no difference between his thoughts and who he is. Now, it is beginning to be different for him – and his trading. He is waking up to the powerful, and unseen, forces that drive his trading – his hidden beliefs about himself and his worth. It is these unseen beliefs, showing up as conversations in the mind, that has stymied Bill’s trading for years. Remember from previous chapters how beliefs become 71

embedded into your neural circuitry. Once wired into, they become the oh-so-familiar voices that you come to identify as “you”. Because they are so familiar, the brain pushes them out of your awareness – where they bias your perception without your knowledge. It is here, out of your awareness, which they blow up your trading. It is through these unseen and unexamined assumptions, that we interpret and understand the world. In Bill’s case, and 95% of traders, it produces mediocrity. To break free of these unexamined assumptions we must first become aware of them. Becoming mindful of these shadowy, hidden, conversations within the self is the first milestone of waking up and becoming the trader you can become. No amount of fundamental or technical analysis will substitute for awareness of the self organization you currently exist as. In the vignette above, taken from a trader’s psychological trading log, you can see this in bold relief. Bill has experienced powerful financial success before he began trading. But in the course of trading for six years, he lost hundreds of thousands of dollars before he concluded he needed help with his psychological organization. He has a methodology trading coach. And when he is trading simulated, he is a master trader. Yet, when real money is risked, he is possessed by an internal struggle of self doubt after losing nearly all his life savings. Now, far removed from the large-and-in-charge persona he had developed to cover a deep sense of inadequacy, he discovers a fight going on within him. That internal struggle has been going on for his entire life. But it did not come to the surface until he began trading. It is the structure of this deeper fear that he needs to become mindful of. Even then outside of his awareness in his mindlessness, the large-and-in-charge mask he wore drove his trading. The problem was that underneath it all was a sense of unworthiness and inadequacy that he had never had to address – until trading. This is his deeper fear – deeper than his fear of loss -- that he has been avoiding for years. It is inescapable in trading. In sales he learned he could bluster his way through – producing a false sense of self confidence that he hid from others and himself. Like a surgeon’s knife, trading exposed it. What, exactly, did trading expose about Bill internal landscape as it relates to trading? People avoid dealing with their psychological demons very successfully before coming into trading. People, including you, distract themselves, they busy themselves, they bluster, they drink, they talk sports, they talk business, or they con themselves. They even do this as they enter trading. They talk a game. Then they discover, to their dismay, that the very psychological demons that they invested heavily in to avoid before trading are now stalking them. In trading there is no room to hide from our self limiting beliefs. You find them in your fear based trading. Now that they cannot be avoided, let’s look and see what you have been avoiding.

Locating and Deconstructing the Internal Dialog As Bill builds the skills of breathing, relaxation, self-soothing, and mindfulness – he learns 72

how to slow down his thinking and discover powerful hidden beliefs that shape his trading – behind his back. When he first begins, his thoughts appeared to him as a blur (after all, he has avoided getting to know this part of himself for a long time). As he developed relaxation and mindfulness skills, the speed of his thoughts began to slow down. First they showed up as a blur and were of little interest to him. His belief was that all he had to do was learn fundamental, and particularly, technical analysis. From here, he would be able to trade and make buckets of money to fulfill his dreams. The problem was that when he went from simulated trading to actually risking his capital, his trading fell apart. His putting capital at risk triggered his deeper fears of inadequacy and failure as a human being. This very fear he was able to cover up by developing a large-and-incharge persona. Trading was merciless in exposing this hidden belief. His trading coach encouraged him to explore his psychology as it related to trading. But Bill, and most traders, brushed this suggestion aside believing (self deception) that they had the psychological part down – all they needed was methodology. They were going to find the Holy Grail, and it was going to be in methodology after trading platforms failed to deliver the goods. From many years of avoidance of discomfort, they ignored the sage advice. They ignored their thought life. They ignored it until it smashed them in the face. This can come in the form of tens of thousands of dollars lost or, in Bill’s case, hundreds of thousands of dollars lost. For Bill, and for you as a trader, thoughts have to be slowed down from the blur used to avoid the discomfort of unsettling thoughts. That is what Bill has learned to do by following the skills management guide presented in this book and through training. As he developed the skills to slow down the blur of racing thoughts, they still raged by as a torrent of uncontrollable thoughts. But, even at this speed, he could begin to feel the emotion and meaning attached to the thoughts he had been trying to ignore. With a little more work, he was able to slow them down until he could identify them. That is where Bill is in the diary vignette from the start of this chapter. This moved him from simply using emotional management tools to calm the self down to using observation skills to detect the dominant emotion/thought/belief patterns (internal dialog) driving his thought life – and his trading life. And it was not a pretty picture. He could understand why he had avoided it for most of his life. It made him uncomfortable. Apparently they had been an active underworld going on beneath his awareness that had powerful impact on his sense of self and his decision making – particular when risk was involved. What was this underworld of thought composed of? One thing I want to make clear as we enter this section. All of us have an internal dialog. It is inescapable. We are all faced with challenges or struggles in life – they are unavoidable. Trading exposes these challenges, and your adaptation to them, like a mirror in your dressing room. The mirror in your dressing room reveals all the warts and blemishes that you attempt to hide from the world and from yourself. The difference is that in trading, you are forced to look into the 73

mirror and acknowledge your incompetencies. The very things you have been avoiding in real life. In real life, you can avoid the mirror by busyness and all sorts of distraction. You can cloth yourself so that you, nor anyone else, see the flaws. In trading, your trading account is the barometer, not the avoidance mechanisms of the mind. Here, we are looking at thought patterns that exist within all humans – this is what I am calling the internal dialog. Often you distance yourself from the discomfort of these self beliefs showing up as thoughts in your mind. They become painfully real and can become debilitating in trading. That is actually the good news because it actually forces you to examine what your really believe about yourself and trading. As long as you continue to avoid them, they will own your trading. And you forfeit the possibility of learning from your mistakes.

If you recognize that your trading performances are a reflection of the beliefs that you bring to trading, you are in a much better position of finding them. Most traders give lip service to a belief they “should” hold, but when trading performance does not match the surface belief, they do not delve deeper into their personal psychology. Here they would find their core beliefs that they, most likely, hide from themselves. Mindfulness is the methodology I teach to help people to get to this level of understanding of themselves and their trading. Here change in performance becomes an indicator of change in core belief about the self as a trader – and as a human being.

Rande Howell

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So close to Being There, But Still Falling Short as a Trader First Article of a 3-Part Series This article is the first in a series about the need to bring awareness (mindfulness) to the management of a trade once you are in the trade. It is this potentially turbulent period that continues to vex many traders due to their blindness to their emotional nature. Out of nowhere, their conviction to manage their trade according to plan is blown out of the water. Despite hard work and long hours of study, this extended moment in the life of a trade remains the hurdle that separates traders from their current breakdown in performance and what they know to be possible for them as a trader. It is the difference between spinning your wheels and getting traction... between making money in the markets and flushing money down the drain. Let’s start by looking at what typically happens when a trader experiences loss of control in the heat of the “moment”. ___________________________________________

Ken saw the trade set up. His patience had paid off – the trade came to him, no chasing a phantom. “Sweet,” he said to himself audibly but under his breath. It felt good. Patiently he checked off the criterion from his list. This one met 8 out of 10 of his criterion. It was a go – high probability, low risk. And he was a little excited, but he was practicing calmness. He affirmed again and again – "I am a disciplined trader, I am a disciplined trader". It was his mantra and he was making it so. He understood the market structure of this trade from the perspective of his methodology. He knew what to expect from his charts. He could see set-ups and trade structures like these in his sleep and knew with confidence that his predictions were high probability trades, like taking money out of an ATM. People even called him and asked him what he saw. And he was on target. All he had to do was “do it when the money counted”. All the structure was there for a good ride. He had confidence in that. There was going to be some flux, of course. That was to be expected. But all he had to do was believe in his methodology’s effectiveness and manage the risk as the trade followed its probable course - and hold himself together and keep his emotions at bay. And he kept telling himself that he was a disciplined trader. All was good. He pulled the trigger without a moment’s hesitation. He was beyond that problem. Order filled, he was now in the trade. He still seemed to be in control. He was going to let this trade ride. He focused on his screens, really watching the trade. Then the trade started going against him. It was in the red. It began flirting with his stop, then it would move again. This was stressful for him to watch. He begin to see red.

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Up and down. Down and up. When was it going to trend as his methodology predicted. More bounce. More sweat. More excitement. More fixation on the screen that now seemed to hold his life in its unpredictable hands. How much more could he take? He felt the pressure. He kept thinking, “You’re going to lose” as he sensed his gut tightening. Then it ticked in his direction. Finally it came out of the red. He saw profit. Thoughts in his mind urged, “Take it now, while you’ve got it. It’ll be gone in a minute. Take the money while it’s there!” The buildup of energy was intoxicating. Now. Now. Now. He cashed out. And made some money, kinda. Then he watched the trade hit the targets his methodology has predicted. The structure held just like so many other set ups he had seen. Meanwhile, he paid his broker and walked away from the trade with nickels and dimes, with a lot of money left on the table. There he was, a little better than a scratch trader, with his potential "good living" lying on the table. What happened? The Trader Never Sees the Emotional Hijacking Until After It’s Over – And is Too Late This is actually a vignette derived from a video taken of a trader trading. What we were able to do was capture what his body was doing as he was caving in to the pressure of managing a trade. Before studying the video, he had no idea how he fell into the “fear of missing out” and exited the trade as soon as the trade was in the black. And, of course, this was a pattern of his that happened nearly every time he traded – and this was the difference between mediocrity and consistently profitable trading. All he knew was that, while he was managing the trade, “something happened” and he was no longer in his sane mind. He seemed to be instantly possessed by a sense of powerlessness and he went to pieces. But the video showed something different. In the video the trader could see a process begin to build when his order was filled and he was committed to the trade. Then this emotional energy really accelerated when the trade started going against him. By the time the trade finally started trending in his favor (and profitable), he was no longer a trader with a mind fit for trading. He was already ambushed by his ignorance of emotion and his lack of skills for managing emotions. Instead of managing his emotions, he tried to ignore the very emotions that create the quality of thinking that he needed to bring to trade management. Observing Emotions Expressed Through the Body As he did a review of this trade, he brought both his charts and the video of his performance for study. The video was a window into his psychology at any particular moment in the trade. And what he found was not pretty and definitely not something he would want to show a bunch of guys over a beer. It was way too embarrassing. Everything looked good on the video until the order was filled. Then, surprising things that he had not been aware of began to happen in the video. First, he saw himself become fixated on the chart at the point of order fill. His eyes were bulged and non-blinking – and riveted on the chart. The next thing he noticed (with coaching) was that he was holding his breath. His jaw was locked also. These are signs that the body is revving up an emotion – preparing for fight or flight. Not something you want to be happening at such a moment. The problem was that he did not know to look for this as part of an overall strategy of emotional regulation. Instead, he succeeded in ignoring the arousal of the emotion. He was so focused on his affirmation, “I’m a disciplined trader”, that he did not see that an emotional hijacking was in the making. But the tell-tale signs were all there, if only he had had the eyes to see. And later, as a much more humbled trader, he learned how to become an observer of his body as a window into his

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emotional life. Learning emotional awareness pays off handsomely for a trader. But his videotape gets even more interesting. He starts getting charged up – and tries to will himself into being a disciplined trader. Then the trade starts going against him. Suddenly, on the video, you begin to see a man that looks like he is possessed. The video shows him rapidly rocking in this chair, tapping his pen vigorously, and breathing heavily. Of course, before the video he has no awareness of these unmistakable behaviors. It certainly is not normal for him. But there he is – getting set-up for an emotional hijacking. The video shows the process clearly, but he still does not have awareness of the symptoms of the hijacking. It is at this point that the emotional hijacking takes over. The emotion of fear of loss is no longer revving up. It is now exploding, as emotional chemistry, in his body and brain. Cortisol levels are now contaminating his capacity to think clearly. Now he is thinking from the emotion of fear of loss. In the video of his trade, he is now cursing, pleading, and looks like a horse in a burning barn. He now knows that “something has taken over him”. Yet, when a review is made of his charts compared to the video of himself trading, it is easy to see that there were many steps along the process before he became aware of the hijacking. Fore-warned Is Fore-armed What the video exercise did for our trader is to show him his tendencies BEFORE HE GOT SUCKED DOWN AN EMOTIONAL VORTEX. Being armed with the emotional knowledge of this potential hijacking allowed him to be prepared for this recurring “moment” that had vexed him for years. He had never seen all the precursors to the emotional ambush he had been experiencing – until now. They had been hidden in plain sight, only he had now developed the eyes to see them. Now he was prepared – his eyes were open. He was able to see what he had been unable to see before. Now it was time to develop an intervention strategy based on his emerging mindfulness. That next step, developing an intervention strategy based on his new emerging Emotional Intelligence, will be covered in next month’s article. There, our trader friend will learn not only to observe an emerging emotion that he had been blind to before now, but will also learn to regulate it as he develops the skills of an emotionally intelligent trader. Over the next several months, we will drill down into this trader’s problems with trade management deeper and deeper until we get to the core of the problem. First, he needed to develop a new awareness of emotion that allowed him to make more sense out of what had appeared to him as emotional meltdowns coming out of nowhere. By using a video of himself trading, he became aware that he had been wearing his emotions but had been blind to them. Out of that blindness, he had been caught in a vicious cycle of meltdowns while trading. In next month's article, you will see how he learns to manage his emotions and transform the way he performs in the act of managing a trade. Stay tuned. Rande Howell

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Taking Responsibility for Developing Your Trader’s State of Mind “We create the possibility of our future based on the way we interpret our world. Becoming a new observer of our world opens the door to new ways of being in the world.” J. Rande Howell *(Note: For educational value, this article is presented as a case study)

Between the Crosshairs of Emotion and Trading Hesitation gripped Jack’s tensed hand. He couldn’t decide when to enter this trade. His trading plan said he had really gone past the entry point he should have taken. But he had hesitated – what if he was wrong? He decided to wait and track it just a little longer – just to be safe. This was the story of his trading life – waiting on the sideline frozen by his fear of uncertainty. “If I stay on the sideline, I’ll be safe,” he consoled himself. He watched the price go higher and higher. Still he hesitated. Ex-banker that he was – he wanted to be sure. But as he hesitated on the sideline pondering this trade, Jack also began to fear he was missing out on a profitable trade – he wanted in. He felt the urgency build. “Just a little more proof”, his tentative side whispered in his ear. “Get in this trade before it’s too late!” urged another impulse, “Sitting on the sideline isn’t getting you anywhere. You’ve got to get in to win.” This internal struggle in Jack’s mind escalated. Finally, to prove he had the courage to face his fears, he jumped in. The impulse to get in on the trade finally trumped his fear of uncertainty. In a matter of moments, however, the price began to tank and hit his stop. Because of his hesitation, Jack bought beyond the higher end of his entry range. He had missed the opportunity of profit. Instead, he took a small loss. Hesitation was fatal. Why Jack Can’t Trade An emotional roller coaster ride is not what Jack imagined trading was going to be like. Before he started investing in trader training, he studied the opportunity. With his deep institutional investing experience, Jack reasoned active trading was a skill set that he could learn and develop successfully. It was going to require practice and training – he was prepared for that.

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What he was not prepared for, however, was the role emotions play in trading – and the need to manage them. None of this was mentioned, or he did not hear it, before he committed himself to learning how to trade. No one told him that 90% of trading was in his head – putting himself literally on the line really fired up his stress level. After investing in a solid trading system and training to develop a methodology and trading plan, he was finding that he had a difficult time sticking to and executing his trading plan. And, it was the moment that he moved from simulation trading to having his money in the game that things changed. After all, this was his money he was risking now! In this new world, he seemed to be pulled emotionally in various directions at once. Fear and self doubt collided with a child-like impulsivity that left Jack stressed out and making poor trading decisions. Jack had spent a lifetime pushing emotions away like a nuisance. Now he felt emotional chaos and did not know how to get it under control. Whether it was getting into a trade or getting out of a trade, Jack was often confounded by a mixture of self doubt fueled by his fear of uncertainty or impulsiveness egged on by his fear of missing out. Caught in the crosshairs of these two emotional positions, his winning percentage was dismal. What he knew is that if he did not get a handle on his emotional nature soon, his trading account was not going to survive his learning curve. Thinking Hijacked by Fear A trader’s emotional state determines how he will interpret the market and what he sees as possible in the market. This is because all thinking is emotional state dependent. What does this mean for the trader? Everything – because we trade our psychology. And emotion drives psychology. In the example above, Jack was being pulled in different directions by competing fears. Initially his thinking was contaminated by a fear of uncertainty that kept him tentatively on the sidelines of trading. As he sat out watching the price climb, a fear of missing out on a profitable trade fueled an impulsive entry into a trade. And with no understanding of how to manage them, he sabotaged his trading plan and himself. Without a capacity to manage his emotional states, Jack’s thinking historically fell into self doubt and caution. When he was in the corporate world, this was never a problem. He was always able to steer clear of having to deal with the messiness of having to deal with emotions. In business, there was little need for introspection and he could always hold other peoples’ behavior responsible for the way he felt. It did not work this way in trading. There was no one responsible for his trading but Jack. In taking full responsibility for his trading successes and failures, he discovered that he had developed a habit of avoiding emotional discomfort. The breakdown for Jack, and many traders, is that there is no room to avoid the fears and self doubt in trading. They had to be dealt with head on – a talent he had never developed. Its time had come. Distinguishing Biological Fear from Psychological Discomfort To help him identify and resolve issues that affected his trading performance, Jack found a trading coach. By taking responsibility for his profitability, Jack came to recognize 79

that he could develop himself into the trader he needed to be. The first thing that he learned to do was to separate biological fear from psychological discomfort. This is critical. The brain cannot distinguish between a real threat to life and psychological distress. Jack’s biological fight-or-flight system had been triggering him to avoid risk because the body interprets all risk as a threat to life. His brain’s hardwired motivation to avoid uncertainty (biological risk) put Jack on the sideline. But risking capital is not a biological threat – it does produce psychological discomfort though. When we are faced with the trials and tribulations found in life (particularly trading), our motivation needs to shift from avoidance of the threat for short term gain (biological fear) to approaching the source of the discomfort (it is not going to kill and eat us) in an emotional state of calmness, curiosity, and impartialness. It is in these emotional states that we become capable of long term problem solving. By learning how to calm his body and mind down so that fear did not sweep his thinking into negative appraisal and catastrophic thinking, Jack was able to learn how to take biological fear (and its avoidance motivation) off line before it swept him into reactive behavior. And he was able to replace it with the confidence of a risk manager. A risk manager knows that there will be losses – but there will also be a higher ratio of gains. His job was to reasonably manage risk over a larger number of trades. He had to develop a longer term view rather than a biologically driven, emotional, and short-term knee-jerk reaction to risk. Before, Jack placed life or death significance on each and every trade. With training he was using his psychological discomfort as a reminder that he needed to trade from a calm and impartial state of mind. His ability to take a step back from his automatic fear response into a calm state of mind allowed him to develop the qualities of a successful trader. Freed from habitual triggering to fear and dread allowed him to access inner resources within himself. By cultivating these aspects of his psychology, Jack developed his inner game of trading to a new level. Creating and Managing Peak Performance States of Mind He now mentally rehearsed his trading day, rather than just allowing it to hit him with full force. He used breathing and relaxation to calm his body and mind so that accessing calmness, discipline, patience, courage, and impartialness became a possibility – he achieved emotional state management. And with a disciplined daily practice of keeping the body and mind calm and mental rehearsal of calm assertive states of mind, he was prepared for the trading day. His inner game was in the zone. Developing this part of his inner game of trading led him deeper into his ability to manage his emotions and his states of mind – and it positively impacted many other areas of his life. He had come a long way from being stuck on the sidelines by his fear of uncertainty and then impulsively entering trades out of a fear of missing out. Jack’s decision to take responsibility for his states of mind and to learn to manage them created a very different trader. As a result a very different psychology of the self was deciding when to enter and exit trades – calm, relaxed, impartial states of mind rather states of mind rooted in fear. J. Rande Howell 80

Taking the Blinders Off the Trading Mind After investing significant personal and financial resources into your commitment to trading, what stops you from breaking through to successful trading? Is it your methodology? Is it your platform? Or is it the way you interact with the markets through your methodology and platform? Until you stop chasing trading success externally (believing that the right methodology, the right guru, or the next indicator “out there” will be the secret that transforms your trading) you will remain locked in a mindset that keeps trading success at a distance like a mirage in the desert. You know the potential is there, but it is never realized. Most traders stay stuck in this illusion until they have experienced significant pain that jars them into re-examining their beliefs - beliefs that stay beneath the radar of their awareness, but that torpedo the development of these traders' potential in trading. Traders avoid dealing with these hidden self-limiting beliefs because they are uncomfortable to acknowledge. After a number of years wandering in the desert of their denial, vigorously holding on to the belief that success is “out there” in the form of things, traders either (1) continue the pain of losing as a way of life, (2) get out of trading, or (3) wake up to the understanding that they need to change themselves – not the outside world. This is the nature of a self-limiting belief. The third option, that they must develop a different trading mind, opens the door to a new way of understanding the self and the world that the trader lives in. What does this world look like? Re-examining the World You Believe You Live In If beliefs are such an important part of successful trading, why don’t all traders simply examine and change the beliefs that shape their understanding of the world and of their interaction in the markets? It seems so simple, however "you can’t see what you can’t see". You, the trader, remain blind to the very self-limiting beliefs that keep you from moving to the next level. Yet these self-limiting beliefs are hidden in plain sight. You just haven’t developed the eyes to see them. Until mindful awareness is developed, the self-limiting beliefs operate in the shadows of your mind, out of sight of your capacity to change them.

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When mindfulness is applied to trading, a powerful new understanding takes root. All perception of reality is observer-generated. This is the assumption that forces the trader to reexamine his or her beliefs from a different perspective. In this way of understanding the world you find yourself in, you live in worlds that are created by your beliefs. There is not a world “out there”. Based on the beliefs that you bring to life and trading, your world of experience is created. Change those beliefs on a biological response level and you change the way you use your methodology and platform to engage the markets. As an example I worked with two traders who trade side by side. They share the same methodology, the same indicators, and the same platform. The difference between them is that both brought different beliefs about the management of uncertainty to their trading. One became successful while the other continued losing. They shared everything outwardly, but as they evolved as traders, they did not share the same beliefs about themselves and the beliefs they brought to trading in the markets. One had an AHA! moment and became open to the notion that all perception of reality is observer-generated. This allowed him to move from a mindset that tried to predict what the market was going to do to a mindset that became comfortable managing probabilities (and their probabilities) detached from a biologically-driven predisposition for certainty. The other trader held on, entranced by his biologically-driven need for certainty, to the notion that there was a reality “out there” full of objects that he could define rationally and therefore, could allow him to predict with relative certainty what the market was going to do next. In his perception, there was a set of rules, once discovered (read, the Holy Grail), that would produce certainty in the face of ambiguity. He was held in a mindset that was organized around a belief in the certainty of his feelings. The trader who opened himself to change stepped out of an ingrained way of seeing the world to a new way of seeing and interacting with the world that allowed him to trade from a new position, the management of chaos or the lack of certainty – of an observer-created world. An acceptance that chaos and uncertainty are simply part of the human experience of life. Although this was a difficult shift in his mindset, it also opened the door for him to manage uncertainty rather than look for certainty. Do you see the difference here? The one who stayed stuck in his old ways kept looking for the Holy Grail that would allow him to predict reality. This is where many traders stay pinned down by their blindness. They keep believing (in the face of continuing losses) that there is a world “out there” that can be defined and manipulated. Certainly the rise of rationalism and the scientific method laid down the assumptions that reality could be defined as objects “out there” for many centuries – until quantum theory blew the certainty of Newtonian physics away like smoke from an extinguished match. In the same way that rationalism and Newtonian physics breaks down at a certain moment, so does the mindset (and the beliefs creating the mindset) that you bring to trading. The order of thinking that you brought to trading worked in domains outside of trading. But when that order 82

of thinking was applied to trading, it was no longer capable of producing effective action on a consistent basis. At that point, the assumptions of your beliefs have to be re-examined and reinvented. In trading, the art and science of trading is more akin to the uncertainty of Heisenberg and the "observer-created" world of Schrödinger than to objective reality. (So much for an ordered world to believe in!) Re-examining Emotion and Thought Have you ever heard the expression: “You must leave your emotions at the door when you trade.”? It seems like common sense. Bringing emotions to trading is risky business. But not bringing emotions to trading is simply not possible. Without emotions, there is no thinking (or life for that matter). Even what most traders aspire to trade from (dispassion or impartiality) is, in actuality, an emotional state that leads to a particular kind of thinking that is highly effective for trading success. The neo-cortex in humans grew out of other older brain systems that are emotional in nature. Because of this, thinking and emotion are inexorably linked. All thinking is emotional-statedependent. Once a trader wakes up to this highly validated assumption from neuro-biology, emotion becomes something to manage and use to build a way of thinking (observing) that allows the possibility of effective trading. This may sound far-fetched, but consider your trading and your state of mind while trading. Before the threat of real loss (risk) becomes palpable (entering the trade), the mind that you, as a trader, bring to evaluating set-ups is commonly rational. With no threat in view, the emotional state of fear is not present to influence your thinking. But as the trade warms up and confirmation is evident by your indicators or methodology, the chance of real monetary loss becomes cogent. Then it is time to find the entry point and pull the trigger. The moment is now. Suddenly the perceived uncertainty and risk becomes a disruption to the logical and impartial state of mind that guided your thinking minutes before. What is brought to the forefront of awareness is no longer management of uncertainty by a rational mind, but a mind now driven by fear. The closer the entry point, the greater the uncertainty, the more confusion, and finally fear triggers and dominates your mind’s thinking. The trade passes, and you feel relief, and later, disappointment. Then as you review your trading, you wonder what on earth possessed your ability to think rationally and act from logic. The emotional thinking shifted from rationally-based thinking to fear-based thinking. Each emotional state (rational and fear) drove the kind of thinking that was possible for you in any given moment. The assumption that emotions are in your head is dangerous to the development of a peak performance state of mind. Emotions are biological. They and your body are one and the same. And your brain and the emergent mind are rooted in that biology. Your brain/mind, by its predisposition, seeks the certainty of pattern-recognition and reacts to uncertainty as the fear of death – something to be avoided. When triggered instinctually, uncertainty is biologically 83

interpreted as the fear of death and takes over the mind – or what can be called cognition. That is the uncertainty turned into fear-based thinking that you bring to trading. And now it colors the psychological world of your mind into thinking from a fearfully. Your capacity to trade effectively goes downhill from there. Your brain, unless you significantly redevelop it, is not built to distinguish between uncertainty and fear. And fear does not allow a probability-based mindset. It has to be trained for this new perceptual world. Belief, Feeling, Mind, and the World You Trade In Humans are born into a historical narrative, a kind of ontological soup, to which our brains adapt us. In this ontological world, you do not shop for your beliefs and decide which ones you will wear. Long before your could think or reflect, the beliefs you were born into were already internalized into the perceptual map that interprets and interacts with the world of this ontological soup – your perception. Your beliefs, as long as you stay mindless of how your brain and mind operated to work with uncertainty, are simply adaptive responses to the environment of which you are part. And you do not have beliefs – they have you. They create the world you live in and they are hidden from view. They are so familiar that they are not noticed – much like a fish does not notice the water it swims in. But then take the fish out of water and blindness is suddenly erased - and water never seemed so precious. If beliefs (that shape your perception of the world) become integrated into your emotional responses to the world around you, emotional awareness is crucial. Suddenly the emotions that arise, either denied or acknowledged, begin to force explanations to spring into your mind based on the feeling element of the emotion. This is why feeling is so important to manage as a trader. First, what is a feeling and how does it affect thinking and perception? "Feeling" is the subjective experience of an emotion. This subjective experience is also the chemistry that is coursing through your body and brain. In feeling an emotion, your brain and mind are swimming in the current of the emotion. And you (your perception) are being pulled wherever the emotion is designed (by the force of evolution into adaptive responses) to take you. The feeling does this by creating a sense of certainty based on the direction of the emotion. The chemistry of feeling has now colored your perception of the world based on the belief embedded into the emotion about your capacity to manage uncertainty. What does this look like in trading? Consider the turbulence of being in a trade, where you are no longer looking for opportunity, but are protecting your position from turning on you and creating a loss. You are in the midst of uncertainty. It is too late to back out without risk to capital – you’re in for the ride now. The trade is bouncing around on you, flirting with your stop, while you are wondering if it will refresh, get some momentum, and produce the predicted trend. 84

The uncertainty is palpable and your anxiety is building. As the feeling of anxiety builds, all the certainty of this being a good trade evaporates. Suddenly, without trained emotional regulation, you feel certain that you are doomed if you don’t get out of the trade right now. The sense of certainty has changed directions based on the feeling element of your anxiety. Feeling, beyond its subjective experience, creates a sense of certainty in the direction that the emotion is carrying you. You are now certain that if you don’t get out of the trade quickly, you will lose the meager profit that you have RIGHT NOW. The prediction is not true in an absolute sense, but it feels true. Rational thought (based on the feeling state of impartiality) has disappeared. And what appears true is the certainty that the sky is falling, although the trade is within the rules of your trading plan. Once a feeling has taken over the direction of your thinking, no amount of evidence to the contrary will turn your thinking back from catastrophic thinking to probability-based thinking rooted in the feeling of impartiality...not, at least, until the chemistry of the feeling of doom rooted in anxiety burns out of your body and brain. This is how the feeling element of an emotion impacts trading and your perception. Ignoring the emotion, so useful in other domains of your life, is a dangerous strategy to employ in trading. Toward a Peak Performance State of Mind Emotional illiteracy is not an option if you plan to become an effective trader. And, except for the lucky few who come equipped with the genetic predisposition and social adaptation that puts them into elite trader status, the vast majority of traders who are really committed to becoming successful traders will have to deconstruct their old habits and construct a perceptual map (an organization of self) that embraces the uncertainty and risk of trading with a mind built for performance in this environment. This requires real emotional work and rigor. Amazingly, my observation is that traders resist the heavy emotional lifting to do this because of their own beliefs and feelings about uncertainty. They would much rather live in their explanations of what “should be” according to their brain’s need to bring order to markets that they outwardly acknowledge defy deterministic interpretation. Historically embedded beliefs and feelings color their perceptual world that keeps them from the very thing they want most. The deeper question is: are you willing to re-order the way you understand and act in your world for the sake of becoming successful in trading? As you embrace this question (or not), a path opens before you – simply because you ask the question. One way or another, this question is answered in your performances in trading and the impact those performances have on your trading account. And whether you explore new, more effective, ways of understanding the “self” that trades. Trading provides the path you travel. The journey is yours. Rande Howell

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The Anatomy of an Emotional Hijacking “I don’t understand myself at all. I know what I am supposed to do. But that’s not what I do. Instead, at the moment I need to be disciplined, I get rattled and do exactly what I’m not supposed to do and that’s what I keep doing. During my review I see and realize what I should have done, but I seem to fall apart during the moments I need to be focused on executing my plan.”

Offensive Coordinator vs. Defensive Coordinator Psychologies This trader had done a good job up until the moment he entered the trade. The opportunity was there. The position size was prudent. He was ready to exploit the high probability, low risk trade that the market was presenting. All he had to do was execute his trade plan. But it is this transition from a psychology looking for opportunity (offensive coordinator) to a psychology of defending his position (defensive coordinator), and his ignorance of this difference, that kept leading him into emotional hijackings. If you follow American football, you will notice that there is a vast difference in the mindset of an offensive coordinator and a defensive coordinator looking to defend turf. It’s similar in trading. In the trader quoted in the opening paragraph, his lack of understanding and management of his emotional nature when exposed to uncertainty became his undoing. His ignorance, over time, had led him into numerous emotional ambushes while he was trying to manage the trade he was in. His ability to pick winners was high, as evidenced by his win percentage. The problem was that he did not do a good job of defending his trade once in the trade – evidenced by his weak ratio of winners to losers. The fear behind the emotional hijacking is common to traders attempting to manage a trade. It is a fear of missing out on profit. And it swept this trader into an emotional vortex that caused him to exit his trade long before it reached its target. First, he didn’t know that he needed to shift his mindset from offense to defense at this particular moment. It was not in his trade plan. So he entered the trade and all was well until that moment. Then he ran into the flux around the entry point that commonly happens. The trade bounced around. It would come close to his stop, then it would go up and then, back down. The 86

drama was killing him. A mix of frustration and dread took over his mind as he watched, waiting for the trade to take off. “How long is this going to last?” he asked himself. All he could think about was the money he could lose. He felt tense and was hardly breathing. His eyes were fixated on the screen. Then the trade went into positive ground. A flood of relief coursed through his body. After he had been bounced around by this trade, he saw an opportunity to get out of the trade at a small profit. Rattled by what he had gone through, he took the profit before something bad could happen.

Play by Play Analysis Let’s take a look at how this drama unfolded and see what can be learned from it. First, notice this trader did not have a problem with pulling the trigger. As an evaluator of opportunity to the point of entry, this trader had followed his trading plan. However, what he had not built into his trading plan was a psychological plan. The Offensive Coordinator mindset was natural to him, so a need for emotional and psychological management didn’t occur to him because of this bias. But when he was in the trade and the uncertainty of outcome was a real and present concern, he simply tried to push through the moment. He didn’t even acknowledge that the fear of uncertainty had triggered and was building up emotionally, physically, and psychologically in the mindset he was bringing to the trade. His historical way of dealing with this kind of circumstance was to hunker down and resist the feeling. By doing this, he accelerated the emotional build-up. Once the fear had become highly aroused, a trip-switch flipped. The emotional chemistry of fear coursed through his body and his thinking was contaminated. However, if he had been prepared for this transition between offense and defense, a very different outcome could have played out.

A Mindful Approach to the Management of Uncertainty Now imagine that a psychological trading coach is watching a film of where this trading play blew up. The major problem he would discover is that there was not an anticipation of the stress while moving from entry to trade management. Looking at the film, this coach would see the emotional arousal in the way the trade was handled (holding of breath, muscle tension, and fixation) that led to the blow up. In the aftermath, the concern for trade management was converted to a fear of loss that led him to get out of a trade early that had actually showed good promise. Both physical and mental preparation could have remedied the way the deal was handled. First the transition from watching for set-ups to dealing with the uncertainty of being in a trade could have been practiced. Breathing and relaxation skills could have been employed to calm the bio87

emotive system to prevent it from overwhelming his thinking. Then, intentional self-soothing could be developed, rather than resisting the stress. By anticipating the need for self-soothing and applying this skill as part of a trading plan he would have stayed calm and better able to manage the trade. Finally, intentionally taking on the mindset of a defensive coordinator would have set up a mind rooted in disciplined impartiality. This mindset, built into the methodology trading plan, would have been practiced so that it could be called forward as a skill. You may give up some ground – but you’re not going to give up the big one. Here a psychological trading plan is integrated into the process of the rules that govern your trading. Notice that the defensive coordinator brings a mindset to the performance of trading. It is in cultivating these emotional traits of discipline, courage, impartiality, and self-soothing that the mindset is developed. The energy of the defensive coordinator takes the field after the offensive coordinator provides the opportunity. Together, though very different, they produce a winning formula for a trader’s mind. Rande Howell

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The Blind Spot in a Trader's Rearview Mirror Why Your Mind Goes AWOL at the Very Time You Need it Most “You and your thoughts, you and your beliefs, are not the same.” Rande Howell The Bull in the China Shop “I don’t know why this keeps happening to me. Each morning I start my day with a plan. I know what to look for, I know what to do, and I am confident that I can manage trades effectively. And I have a positive state of mind. But somewhere along the line, I seem to get sucked down a vortex and I start doing things that I know I shouldn’t be doing. I often see this as I am making the mistake – but I do it anyway. Or sometimes I don’t even see the loss of rational thinking until it’s all over. That vortex feels like a black hole that is inescapable and there's nothing I can do about it. It’s crazy – I should be able to handle this. I mean, I know how to trade. I don’t understand it. But it keeps getting the best of me.” Can you identify with this trader’s recollection of a trading day gone bad? This is a story I hear countless times from countless traders. They don’t understand why this meltdown keeps happening, considering how much effort they put into building a strong knowledge base in their trading. With each blow up, they dissect the problem and learn more so that next time it will be different. Then it happens again. And again. It’s like they keep getting ambushed by an invisible enemy that appears, on the surface, to come out of nowhere. Perhaps though, they are blind to the circumstance behind their pattern of self-sabotage. And by looking outside of the self for answers, they remain ignorant of their participation in their own trading failures. They truly are like a bull in a china shop. They keep trying to bull their way through the delicate nature of the relationship between brain, emotion, adaptation, and mind. The problem is the very mind that traders bring to the trading arena – and particularly their lack of understanding of body, brain, emotion, and mind. They are inseparable; and for as long as the trader deceives him- or her-self into believing that the mind exists separately from the brain and emotion (i.e. that your thoughts and beliefs are not rooted into biology and emotion), then they remain a bull in the china shop of trading performance. 89

Living and Perceiving as a Captive to Belief, Rather than Having Beliefs that Represent “You” There is an unexamined assumption that you "have beliefs". If you’ve been trading awhile, you probably have written down your “beliefs” that guide your trading. You read a book and with excitement you exclaim, “Oh! These are the right beliefs to bring to the trading arena! I’ll practice them by affirmation and/or visualization (even in front of a mirror) until they become automatic.” You even work up some emotional energy in order to internalize them. Then, as you trade, you DECLARE your beliefs by writing them down and referring back to them. Next, the same old performance pattern crops up again…and again. This ever happen to you? Back to the bull in the china shop. According to neuro-biology, beliefs are rooted into our adaptive biology. They are constructed by the brain and embedded into the neuro-circuitry as a perceptual map. These are primitive circuits that are woven into your brain/mind’s circuitry for survival value at various stages in the brain’s maturation. Literally, your brain (the “You” you believe yourself to be) is born into historical circumstances where a soup of beliefs (your family system and culture) already exists long before you arrive. And your brain adapts “You” into an organization of self that can survive the environment into which it has been born. It is the circumstance of adaptation that forms the early and primitive belief system into which the brain molds the future you. You do not have beliefs; they have you. This is where your fundamental beliefs about your capacity to manage uncertainty are forged. Your beliefs are rooted into your brain and are biological in nature – they take over your mind. Since your brain is organized around the avoidance of threat (fear of uncertainty), it is no small wonder that you push these pesky beliefs out of the forefront of your awareness and into the shadows of your mind. (What you don’t see can’t hurt you.) Then you organize your life to avoid dealing with uncertainty and cover it up with a mind obsessed with controlling the outcome. And it works….until you start trading. Suddenly a mind constructed to avoid uncertainty and control outcome is thrust into an endeavor (trading) that demands the management of uncertainty and the acknowledgment that there is no certainty - just what your constructed mind has been avoiding since early development and what shaped its direction. And your beliefs about managing uncertainty, pushed into the shadows of your mind by a brain mandated to avoid the fear of uncertainty, is confronted with a reality for which it is not designed. Rebuilding Your Mind for Trading Because the brain evolved to link fear of biological threat with uncertainty (it’s a great survival trait burned into our DNA), a trader has to learn to de-tangle fear from uncertainty if they are to learn to trade effectively. Genetic evolution and adaptation to circumstance conspire against this endeavor. But it can be done, but it takes a powerful motivation to de-construct old patterns of reactivity to uncertainty and take responsibility for training the brain with new effective beliefs about your capacity to manage uncertainty. The place to start is the realization that your reactivity to fear and uncertainty in trading is, in fact, 90

revealing beliefs that are limiting you as a trader. Rather than hiding from these beliefs under the assumption that these beliefs represent you, you recognize that these beliefs are ones that you were born into and represent your history, not “You”. In fact, they represent only one possible organization of the self. And you have the power within you to free yourself from being prisoner to your adaptive historical beliefs and to then design beliefs that lead to good management of uncertainty. It will take some work, but it is certainly possible. You’re simply going to have to commit to self development of yourself as a trader. Fortunately, your brain (in the process of building hardwired programs from which your mind arises) also hardwired into your DNA particular traits needed for the management of uncertainty (I call these hardwired programs Archetypes). These programs are just as real as the self-limiting programs from which your mind has been operating. The problem is that in your mindlessness (the bull in the china shop), you have not developed these parts of the mind. But they are there, waiting to be brought into awareness and to contribute to the committee of the mind. In this scenario, the mind becomes a trading committee where various forces or programs are in competition with one another. Your job, as you awaken to mindfulness, is to become manager of which neural programs contribute to the thoughts and beliefs from which you act. To do this, you have to become mindful and intentional about your thought life. Where Do You Start? In the courses I teach, you start with emotional regulation of the arousal component of an emotion. If your emotions get out of control, you will never get to the door of the mind where beliefs reside. Learning diaphragmatic breathing and tension relaxation in the context of risking capital in trading are fundamental skills for emotional state management. This will not solve the problem, but you will never get to the core of the problem if you can’t manage the intensity of emotional reactivity. This process stops the “getting sucked into the vortex” problem discussed at the beginning of this article. Next, you have to learn how to step back from the chaos of emotional contagion (getting sucked into a vortex) and be able to observe the mind as a place where thoughts and beliefs are given voice. This is the skill of mindfulness and it is the essential tool used to transform the organization of the mind. It is from mindfulness that you come to realize that you and your thoughts are not the same and that you can have a major say-so in what kinds of thoughts occupy the awareness of the mind. It is the difference between looking in the rear view mirror and seeing what has already happened and living in the now with awareness of what forces in the mind are at play in the moment – essential for peak performance trading. Also in mindfulness, you develop the capacity of stepping back from the vortex attempting to suck you into mindless trading and to intentionally decide which programs, or forces, in the mind are going to be active in your thought life as you trade. This is the difference maker. This is emotional intelligence at work. Fortunately emotional intelligence can be developed (unlike IQ). As you learn to manage your 91

emotional reactiveness, you no longer fear learning about yourself. You realize that you are like the hands drawing themselves in M.C. Escher’s drawing. You are bringing yourself to life. Mistakes are neither bad nor good. They are simply disruptions to the continuity of flow and show you where you need to improve...and your trading account will give you the information you need to know so that you can improve. At the very bottom is the recognition that you and your resistance to change, in fact, are what stand in the way of your trading success. It is here that the battle lines are drawn. Are you willing to change to become the trader you could be? Much like Strider transforming into Aragon in "The Return of the King" (from the Lord of the Rings), it is time to act from courage in the face of your fears. Rande Howell

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The Brain on Trading: Emotional Intelligence and the Trader’s Mind An Emotional Braking System Failure “I left money on the table yesterday, and I’m going to take it all today!” Harry silently declared as he was watching the trade take shape on his screen, “I’ve missed out too many times – I’m going to ride this one and clean up.” Harry could feel the excitement pulsing in his veins – he could hardly contain himself. He decided to push aside his target, knowing that this one was going up. What a rush! Harry could feel the surge of energy. He almost became giddy as he saw the numbers climb even higher. That triggered even more excitement as he thought, “I’ve hooked a big one – I’ll show them who’s a trader!” In the blink of an eye, without explanation, the price began to drop. Harry kept waiting for the downward trend to right itself. It didn’t. Harry moved his stop because he knew in his gut that it would go back up again. It didn’t. Finally Harry pulled the trigger and accepted that he had another drawdown on his trading account. He felt frustrated. Instead of taking some of his profit while the trade was going his way and hitting his targets (as his trading plan called for), in his irrational exuberance (some would call it greed and impulsiveness), he held all his positions hoping for a big winning trade. When it turned against him, he had no exit strategy and watched as all his profit disappeared before getting out with a loss beyond his original stop. He had sabotaged himself yet again. Now Harry felt shame and wondered, “Maybe I don’t deserve to make a living at trading. It just doesn’t feel enough like work. Maybe that’s why I keep blowing myself up just when it’s beginning to look good.”

You Trade Your Psychology What happened to Harry? How did he get suckered into bad trading practices? From the sidelines, it is easy to say that Harry neglected to trade his plan. This assertion misses one big point about humans (and particularly the ones who trade) – your emotions rule your mind. Out of your emotional states, comes the kind and quality of thinking that is possible for you. In Harry’s case the state of mind that he needed to trade effectively was swept away by a fear of missing out (one of the fundamental forms of fear a trader has to learn to regulate in order to 93

become a peak performance trader). Once this fear triggered and accelerated and compromised his mind, his thinking became clouded and his rational evaluation process was blown out of the water. Like many traders, Harry did not have the skill sets to keep his emotions regulated as he entered the trade. Consequently, as a guy who had diligently done his charting and was ready for the trading day, he got ambushed by unseen forces. What he was blind to about the inner workings of his mind always came back to haunt him in his trading – this is what he did not see. His trading plan failed to include a psychological plan for managing his emotions. This was a big mistake for Harry, as it is for many traders. And until he learns how to make visible the unseen forces that hijacked his rational mind, his trading will suffer. The problem is age-old. Since the rise of Descartes’ rationalism, people (traders included) have attempted to separate body (emotions) and mind. Today even Western medical science is concluding that this separation is impossible. The mind and the body (emotions) are woven together in life like a garment. They are inseparable. Maintaining awareness of your emotional nature as a trader, in fact, is the first step to developing a peak performance state of mind specifically for trading. Before this is explored, let’s take a look at what happened to Harry.

The Anatomy of an Emotional Hijacking Harry experienced the trap of an undisciplined trader’s mind. As he moved into the trade, he was not attuned to what his hardwired and primitive emotional brain was biased to sense – nor did he know how to manage the impulse. He did not notice the excitement of the emotional arousal of the hunt that had been pre-programmed into him by evolution. The thrill of the hunt (and its companion – the fear of missing out) was mobilizing Harry to pursue the prey before it could get away. The way this primitive wiring of the brain translated itself in Harry’s modern trader psychology was that he was pursuing profits (prey) with an urgency rooted in his fear of missing out again. From a resting place where a calm observant state of mind prevailed, Harry began to pursue the “hunt”, not noticing that his thinking was being compromised. (Remember, thinking is emotional state dependent.) The arousal of conquest or greed came to dominate his mind. He could no longer think rationally. Then he pursued his “prey”, consumed by the passion of taking no prisoners. His trading became an adrenaline rush at this moment – a drug. In this emotional stupor, Harry revenge-traded and lost. This trait of Harry’s (a single minded pursuit of winning big and being the best) had served Harry well in many areas of his life. It had helped him achieve many goals in his life, particularly in his career before trading. What he was beginning to recognize was that it did not serve him well as a trader though. What is different about trading?

Peak Performance and States of Arousal In this discussion we are focusing on the component of an emotion called arousal. Arousal is the preparation for action that happens in your body as an emotion prepares you for 94

action. Powerful levels of adrenaline and cortisol are pumped into Harry’s body as he becomes excited by the trade. That excitement, as the arousal increases, becomes fixated on the object of pursuit – bringing down the home run trade. This is called a “high” arousal state and is a great component to some peak performance states of mind – particularly ones that require more physical exertion and less cognitive functioning. Football would be a good example of where peak performance demands high levels of arousal and reliance on instinct that has been trained into the athlete. A coach does not want his players “thinking” on the football field – he wants them reacting to habitual training. Trading is the exact opposite. A peak performance trading state of mind requires low arousal. Impartiality, discernment, dispassion, and calm states of mind are the emotional components sought after for trading success. This is because cognitive functioning is what is necessary for trading peak performance, rather than physical exertion and reaction. The moment that high arousal states become apparent in trading, the trader loses his capacity to take a step back emotionally and think impartially – he will then react to instinct (trouble). And this high level of emotional arousal will take the trader out of the peak performance state of mind required for trading – calm assertive impartiality. You can be passionate about trading, but you cannot be passionate while trading.

Managing Arousal Until a trader learns how to manage (not ignore) his emotional arousal levels, trying to use the mind to manage emotions often creates more (not less) stress and fixation. As an example, imagine a chocoholic attempting to talk himself out of wanting the warm brownies just coming out of the aromatic oven. The more he tries to talk himself out of the fixation, the more he wants the chocolate. The arousal has already kick-started the desire to acquire…your mind is already compromised. How can you intervene and interrupt this process? Fortunately your breathing is both automatic and volitional – this is key to emotional regulation. If left on automatic, your breathing style will accelerate the arousal of an emotion as it triggers. In Harry’s case, his fear of missing out led to the arousal of pursuit based on greed. He held his breath and then would breathe rapidly and shallowly. This excited breathing style accelerated his heart to beat faster, adding to the excitement. The emotion of greed and its motivation to grab all the profit possible for the trade (losing sight of the rational risk management called for by his trading plan), then took over Harry’s capacity to think impartially. And out of this emotional state his thinking became compromised which led to his revenge trading. (It did not have to be this way.) Rare in our biology’s hardwired adaptive responses, breathing can become volitional as a way to manage emotional states. With training, Harry learned how to stay in a calm, impartial state of mind; in part, by managing his breathing style throughout a trading day. Once he understood that peak performance trading requires a low arousal state of mind, he began using diaphragmatic breathing to manage his emotions while trading. Now he has much better control of his reactive trading. He does not wait to feel the arousal kick in. Instead Harry uses diaphragmatic breathing to help keep the arousal of his emotions in check.

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The moment he senses the triggering of arousal, he volitionally uses his breathing to cut off the gasoline supply to the fire of the aroused emotion. Rather than allowing his fear of missing out, greed, or the “desire to pursue” to hijack his mental faculties, he now is consciously able to calm the excitatory process of the emotional brain. Having learned how to manage the levels of adrenaline and cortisol in his body by managing his breathing style, he is much less reactive in his trading. Harry now maintains a calm, impartial, and disciplined state of mind from which to trade. In the process, Harry has learned how to change himself. His focus is on developing the skills and tools that allow him to trade at peak performance levels…..to let go of habitual historical practices that hinder his progress. His first step towards a solid psychological plan for trading was becoming aware of the power that breathing has over his emotional nature that influence his states of mind. The First Step in a Journey Harry learned an essential skill in regulating his emotional nature. It was the beginning of a journey into re-inventing himself as a peak performance trader. What he recognized was that it is essential to develop the psychological characteristics of a peak performance trader, which required that he reorganize his personal psychology. Working with his emotions was simply the first powerful step to creating peak performance trading – a trader’s state of mind. Rande Howell

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The Faces of the "Fear of Missing Out" The "Fear of Missing Out" drives many of the fear and impulse-based problems that traders experience in the performance of trading. But what does it look like? In what areas of trading performance does it manifest? Have you ever seen a set up that looked too good to pass up and you grabbed it impulsively before it could get away, even though it was not in your trading plan? Have you even been seized by hesitation, looking for more and more confirmation before entry and felt the pressure of opportunity building up to act until you jumped in the trade just to get out of the discomfort? Or, have you ever been in a trade, got unnerved by the initial flux, and gotten out of the trade with only a small profit before anything else could go wrong, and the trade went on to your target? Fear of Missing Out as Greed These are the primary faces of the "Fear of Missing Out". Notice that this particular fear can show up in the form of fear or greed or a combination of both. In the first scenario greed drives the "fear of missing out". The trader sees opportunity arise outside of the parameters allowed by his trade plan. The greed to seize opportunity (or the desire to acquire) hijacks the trader’s discipline and impartiality. This is seen in over-trading, impulse trading, and revenge trading. When discipline slips, the “desire to acquire” motivation trumps clear-headed thinking. Greed, as a driver of motivation, has its origins back in our evolutionary history. It is neither good nor bad. It is simply an emotion that evolved over the eons to help us survive, and then it became instinctual. In the times before agriculture, no one knew from where or when his next meal was coming. So when the opportunity arose, survival dictated that you take advantage of a situation – whether you were hungry or not. Taking more than you needed, even at the expense of others, helped ensure survival in leaner times. So it became wired into our biological repertoire. This survival strategy was embedded long before man had developed a psychology as we understand it today. Greed evolved into a survival strategy as an opportunistic way of taking advantage of circumstance. In a breakdown in the learned discipline required of trading, greed (in the form of the "fear of missing out") can trigger and take the trader out of the impartiality so necessary for consistently successful trading. Without emotional state management skills, a trader will continue to have his trading mind hijacked by primitive impulses rooted in survival. 97

Fear of Missing Out, a Mixture of Fear and Impulse In addition, a mix of fear and impulse produce tension and psychological discomfort to a point where a trader jumps out of his hesitation and into a trade late. The pressure to act builds as he watches the trade in order to get more and more confirmation, and he is held by his hesitation from entering the trade. Finally the emotional pressure compels him to act impulsively just to get out of the discomfort fostered by the opposing drives of desire of avoiding uncertainty and the desire to acquire. By the time he enters the trade, the real opportunity for this trade has passed and the trader is stuck with having bought high. This timing problem is as much a psychological management problem as a skill of timing of the trade itself. The fear of uncertainty or loss has kept the trader out of the trade even though it meets his criteria for a trade entry point. He keeps looking for more confirmation as tension to take advantage of opportunity builds. The need to take advantage of a set up is not being driven by disciplined impartiality; but, rather, the need is being driven by a going concern that he will miss out on the opportunity. The mix of the fear of uncertainty and the fear of missing out has collapsed the capacity of the trader to trade from disciplined impartiality. These are the trades that cause the trader to wonder when reviewing his trades “What on earth was I thinking?” The point is that he was not thinking. He was reacting and his thinking mind was clouded with opposing biologically-based motivations. In the resulting confusion, poor trading decisions arise from the lapse in internal discipline. The Fear of Missing Out as Fear of Losing Profit In the third example, the fear of missing out shows up purely as a fear of losing profit. This also represents one of the most common risk and trade management situations in trading. A trader enters a trade and experiences a period of flux as his trade bounces around. It’s below his entry point and then it spikes above his entry point. Then it takes a quick dive back into negative territory. An undisciplined trader is unnerved by this behavior and is triggered to fear. Now the trader is managing the trade from a position of "fear of loss". And when he sees the opportunity to take a small profit and exit the trade (remember he is thinking and acting from fear now), he pounces on the opportunity. Relieved of the psychological discomfort, he now watches the trade go to the target. But the fear of missing out (on a small profit) has done its damage. Notice in this form of the Fear of Missing Out that there are two “acts”. It is the emotional and psychological management of the trade entry and the resulting flux that unnerves the trader and he never recovers from this initial moment where his psychology is coming face to face with his beliefs about his ability to manage uncertainty. Once he is past the initial flux and the trade begins to trend, his trading mind is already hijacked by his fear of losing and he grabs at the first chance of taking profit. In the intensity of the moment, this seems like a victory. Later, when his brain and mind has calmed down and he is reviewing the trade, the trader realizes that fear 98

immobilized discipline, impartiality, and a planned trade. Beliefs and Emotional Regulation Hold the Key A trader’s beliefs about his capacity to manage uncertainty to his advantage is at the core of the "fear of missing out". If he holds a core belief that he is powerless in the face of uncertainty or inadequate to manage uncertainty, his trading account will bear this out. If this is the belief, the trader is driven to produce the feeling of certainty (which is impossible in the market) rather than to build a mindset designed to manage the probabilities in uncertainty. Trading becomes a mirror into the organization of the self that the trader brings to the management of uncertainty. It will show you whether you are creating your life out of the avoidance of fear or the management of uncertainty. Trading and performance in trading, with Mindfulness developed as a skill, becomes a mirror that reflects the beliefs that actually color the trader’s perception of the trade. As the trader journeys into trading, he learns that he has to face his fears and the self-limiting beliefs operating in the background of his awareness. The "fear of missing out" is exposed in the act of trading, but it will have been in operation in other domains of the trader’s life. Eventually, the trader embraces the assumption that all life is uncertain and that certainty is not possible long term. The threat is not external – there is no Holy Grail “out there”. You are the Holy Grail. It is the mindset (your beliefs about your capacity to manage uncertainties) that you bring to the uncertainty of trading (and life) that create the difference. With the "fear of missing out calmed" and a disciplined and impartial mindset established, you realize that it is not about winning or losing a single trade. It is about the mindset that you bring to the performance of the trade. Winning and losing disappear in the moment. Freed from fear, you trade what you see and not the crazy conversations going on in your mind. And your "fear of missing out" leads you to the very place in your psychology that you needed to re-organize. Rande Howell

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The Fear of Missing Out Whatever you fear, owns you. If you are acting from fear, you will always create self limiting behaviors in your trading. As long as you are mindless of your fears or believe that you can ignore your fears while trading, these very beliefs will betray while trading. In the example below, a trader has built a "large-and-in-charge" attitude to mask the face of his fear. He deceives himself (for a while), but not his trading account.

Getting Sucked Into a Vortex of Impulse “Just a little bit more, just a little bit more – I can milk this one!” whispered Mitchell under his breath. He could feel his excitement build as the trade kept trending upward. “Move your exit point higher – this one’s a homerun,” a thought inside his mind encouraged him. And why not, this one had all the signs of a big one. Mitchell did not like letting the big one, the ones with potential beyond what his trading plan called for, to get away. Instead of taking smaller profits on any of his positions after the first ping, he decided to move his exit and let this one ride. “Another one like this might not come along again in quite awhile,” Mitchell silently reminded himself. The trend continued and he was ready to grab all the profit that it seemed to be offering. He felt energized, his confidence grew – and that confidence began to blind him. Pushing aside his risk management rules because he did not want to miss out on this great opportunity, his trading plan parameters got pushed out of his awareness. The exhilaration of hooking and riding a big one blinded him to the down side of managing risk. In the clutches of greed, he did not notice the historical trend in this trade – it would drop like a brick suddenly. Having abandoned his stops to ride this trade, the deception in his mind caused him to fall hard. Another draw down. Later that day, as he was reviewing his trades, Mitchell was puzzled. Stroking his chin he was chagrined. He pondered, “What happened? I know better than this. I have no idea why I behaved this way. I started out with the intention of trading my plan, and, somewhere along the way, I got sidetracked and forgot about everything I know. It’s like I fell into a trance and my evil twin started trading.” He chuckled to himself because he had no other explanation. It was confounding to him. He was smart enough, skilled enough, and confident enough to trade well. But there he was, getting into trades that were not the right set ups and then his good sense disappeared like dust in the wind. What Happened to Reason? The fear of missing out urges you to push aside risk management tools that keep a trade within acceptable low risk parameters. The temptation is real. Instead of hitting a safe single or double on a trade, the allure of hitting a homerun or hitting the jack pot (with just a little luck) sweeps good sense off the psychological playing field and leaves the enticement of greed whispering in your ear. Real time temptation. Why not swing for the fences? It feels great when you take all the money on the table. And you get to feel powerful. You get to feel like the hero in a movie. Occasionally when you move your stops and exits, you do win. You also move your trading into the arena of gambling – not risk management. Actuarially a casino knows the odds much better than the gambler – and they are sticking to their trading plan for the gambler. On a few occasions

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the gambler does win and experiences the thrill of winning the jackpot like a drug. Then he is hooked, much like our friend Mitchell is in the vignette above. What the casino knows is that the gambler will ride his euphoria and never see that the odds are stacked against him. He, like the trader, becomes entranced by the chance of hitting it big. As the greed kicks in, it takes over reason. Once under the ether, the trader becomes mindless and sees only through the eyes of greed. This is what happened to Mitchell. And he wins some – at least on paper. He starts out with the intention of trading to plan. But he is seduced by the allure of greed. Soon, any semblance of an impartial, disciplined state of mind is eroded. Gambler and trader have already lost at this point. Psychological management is really this important. Ultimately he gives back his earnings (and then some) to the house. The casino is playing by the rules of risk management while the gambler sacrifices his sensibility to greed – the house wins consistently and the gambler, though he has a couple of great thrills, loses consistently. Trading in a market can be done from a position of impartial and disciplined risk management (which is what the house is doing) and a trader can win consistently. Or a trader can be sucked in by his fear of missing out of big money and get corrupted by his greed – which is what the gambler does. The only difference is that the casino wins consistently and predictably over time, while the gambler wins sometimes (in the short term). But he gives back his gains and losses capital over time. Greed and fear of missing out, from an evolutionary survival perspective, is a very useful emotion. It pushed our ancestors to consume more than they needed NOW so that they would have the resources to survive in leaner times. Acquiring food on a regular basis could not be depended on. Nor was there an assurance of other supplies needed to survive. So, over countless generations, the capacity for greed was bred into the human genome. At some moment in our biological history, humans developed a psychological self – and this is where greed and fear of missing out got disconnected from their biological roots. Suddenly humans were not only putting on fat for the winter and putting away supplies for leaner times (survival motivations), they were putting away money for a rainy day. Eventually the power to survive and prevail became associated with money. By accumulating money we find external validation for our sense of power, our mattering, our importance, and for our power In trading, if this fear is not recognized and managed, it will blow up your trades and trading account. You have to build the psychological strength and discipline to resist it. In the case presented above, Mitchell does go on to develop the internal strengths to resist the temptations of striking it rich quickly and the euphoric rush that takes over the mind of a trader sucked into a mindset controlled by greed. He had to work on it and re-organize the way he understood success to accomplish this victory. By doing so, he actually achieved the success in the longer term that his greed promised in the short term. This is a classic internal war where a biologically based emotion outlives its usefulness when it takes over psychologically the state of mind of the trader. Untethering Your Sense of Identity from Your Historical Dialog What you are afraid of, owns you. Your fears cloud your thinking and color your perception of circumstance. Nowhere is this more important than in trading. Your historical internal dialog (all those thoughts running around in your head) exposes these very fears – the fears that limit your capacity to trade at a higher level. Go back to the vignette with Mitchell and see if you can spot his internal dialog. It is easy to see how his thinking, so dominated by his greed, set him up for failure. This kind of thinking is not a given. It was his mindlessness of his internal dialog that blinded him to its impact on his trading. This was far more than idle chatter or internal noise in his mind – it was a set up for failure. Without

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discipline and knowledge of these unseen forces at work in his mind, he is led to slaughter. It is his lack of awareness of the power of the internal dialog that set him up. Unlike your capacity to hide from your insecurities in most of the other domains of your life, trading cuts to the very core of your being – there is no place to hide. Trading exposes the internal dialog that comes forth from your fears. Becoming Mindful of your internal dialog during trading will show you the very fears that you must conquer to become a consistently profitable trader. When you are able to separate your thoughts from your sense of identity, becoming an observer to your interior conversations takes on a different nature. You move from avoiding acknowledging the existence of hidden parts of yourself to becoming a detective solving the mystery of your capacity to trade. You become the author of the story of trading in which you are a participant. And you realize that the character who has been trading is flawed, and you (and only you) are going to have to redevelop the character as a peak performance trader. In developing the capacity to slow the body and mind down so that you can become mindful of the composition of your Internal Dialog, you learn to use the internal dialog to become aware of what you have been hiding from yourself. It is through this practice of mindful introspection that you develop yourself as a trader. You will discover that there is far more to develop within your mind that you ever expected. The tiny discomfort you experience when you begin to be honest with yourself and confronting self limiting beliefs gives way to something new. That something new is the re-invention of the self. There is so much empowerment to be discovered and developed. The historical dialog has blinded you to possibility. Now, with the blinders of fear removed, you are now going to explore how to bring forth the empowered self in your trading. In the next chapter you will be exploring instinctual potentials living within you that have been held hostage by your fears. Now you will learn how to name these elements of self that will empower you to zone into peak performance trading.

Rande Howell

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The Fear of Uncertainty Defining a New Normal Fear of Uncertainty -- Defining a New Normal This is the first of a series of articles that cover the 8 forms of fear that I define as the Roadblocks to Your Trading Success. Each form of trading fear is explained so you can see if they resonate with you and your challenges in trading. The object here is to define the fear that limits the possibility of your being a more successful trader. Many traders do not know how to diagnose the very problem that impedes their trading. Well, here you get that chance. What you need to grasp about fear is that it constricts possibility. Because undefined fear causes discomfort, you try to avoid it as a way of dealing with it....that is how your biology will always react. And traders, caught in their mindlessness, will attempt to manage the situation. This mindlessness keeps them stuck in their suffering. The fear points out where you need change, yet most traders avoid the fear that could help them redefine their trading. It is a tragedy. When you learn the skills of how to face your fears and grow from them, a whole new world opens up. The market neither wants to take from you nor wants to give to you. But if you trade from a state of mind rooted in fear, you will always see the threat of the market taking from you, rather than the opportunity to see what the market will offer you. Fear has to be managed to achieve this Trader's State of Mind. Let's take a look at this Fear of Uncertainty. Let's see if you can relate to Steve's dilemma. _________________________________________________________________

Steve explains, “I’m actually a very positive and out-going guy. The glass is always half full to my way of thinking – except when I’m trading. It’s the craziest thing! In trading, I question my decisions and end up hesitating too long. Today I was looking at a set up and it met the conditions of my trading plan. Logically I had enough confirmation to pull the trigger on the trade, but a little voice in my head kept asking, “Are you sure? You need more confirmation. You gotta be certain.” “Well, while I hesitated to clear up the uncertainty, the trade got away from me. It’s not the first time either. That voice of self doubt pops up in my trading all the time. And what’s weird is that it seems to come out of left field. I mean, I’m trading to plan – I’ve got the risk management down. I know in my head these are low risk trades, but I hesitate in uncertainty anyway.” _____________________________________ Steve is experiencing the fear of uncertainty. And it is a fear (a certain anxiousness) that he has lived with, but covered up outside of trading, for years. After trading for nine years, he knows how to technically trade his system. But until he learns how to regulate his deeply embedded beliefs about the need for certainty, his emotions will continue to sabotage his potential in trading. Not only is he coming up against the psychology of his beliefs, he is also getting hijacked by this biology’s mandate to minimize uncertainty.

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Our human nature strives to make order out of chaos. Biological systems, such has human bodies, organize themselves to prevent the entry of chaos into the system. If the system is opened to the greater variability of the external environment, it is perceived as a threat to the survival of the system. Think of cutting your arm, and you will see this principle in action. The closed system of the body immediately starts patching up the wound to keep the unpredictability of the environment out. Closing the system (bandaging the wound and healing), returns the body to the state of preventing chaos from interfering with the body’s need for predictability (survival). The brain creates pattern to predict what will happen in the next moment, in the next trade, in the next economic cycle. This need to predict the future is deeply embedded into our emotional survival nature. We are wired to look for cause that creates a determined outcome – making order out of chaos. A great example of this comes from an experiment done with pigeons. Researchers threw a handful of grain into a flock of pigeons foraging on the ground. Then they repeated the exact behavior of raising their hand to throw the handful of grain into the midst of the birds. The pigeons, seeing the hand raised, took on the exact body positions they were in when the first “manna from heaven” was thrown. The pigeons were wired to find a causal relationship between their whereabouts and the arrival of food – certainty. This is how powerful the need to find predictability in the face of chaos is. Traders experience the fear of uncertainty in the form of hesitation. They are looking for the confirmation of the certainty that something is going to happen. In trading there is no certainty – in trading there is probability. In risk management the trader manages the uncertainty with the probability of success. The odds need to be in the trader’s favor. Unfortunately for traders, this is not the way our neuro-biology evolved. Your brain wants certainty even if there is little probability of something bad happening. This is called negative appraisal. What you can count on is that your brain is a negative assessment machine. Evolutionally speaking, this trait gave our species a real advantage for survival. It kept probabilities of survival in our favor. The problem for traders is that this very hardwired trait makes it difficult for the trader to distinguish between fear and risk management. To move from the biological mandate of deterministic certainty to the management of risk and probability requires emotional state management to overcome the body’s hardwired imperatives and the psychological mindset to manage risk. Our biological brain has to be calmed so that the fear associated with uncertainty does not overwhelm impartial thinking that is required for risk management. How Do You Manage the Fear of Uncertainty? There are 3 phases that you progress through as you learn to manage, then transform Fear of Uncertainty. First, you have to biologically manage the arousal of the emotion so it does not sweep the mind away into fearful thinking. It is all over then. This is down by diaphragmatic breathing as a way to disrupt the emotional state and to calm the arousal of the body. In the specialized from of diaphragmatic breathing I teach, the body and mind are calmed down so that thinking can come back on line -- rather than the reactiveness of fearful thinking. Then a specialized form of self soothing takes fear off line in the mind. This sets the stage for transforming the fear. The second phase is centered on locating the internal dialog of the fear. In a calm state of mind you can hear the thoughts running through your mind. It is important to manage these. If left to their own devices, these thoughts will spell destruction to your trading. There will be some psychological demons that will been to be found by becoming Mindful of them. This Mindfulness is taught as a way of observing inner thoughts and conflicts so we can start managing them. Until you do this, they will manage your trading with limiting results and, as a result, your continued suffering.

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Mindfulness is then used to discover very powerful internal champions that live within you. It is these that you seek to trade from. This is where the impartiality, the courage, the discipline, and the patience are found that create the Trader's State of Mind. This is possible for everyone. And it starts by becoming away of the fear, approaching the fear, defining it, then re-organizing the inner game so that you trade from strength rather than weakness. How does the fear of uncertainty apply to you in your trading? Find out more by taking the Trader's Questionnaire. It will show you.

Rande Howell

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The Final Frontier: Navigating the "Mind"field of Trading Without Blowing Up “Now that I have had struggle after struggle for months and have had many losing months, I no longer wish this to go on without some tools to deal with the patience required to wait for strong setups, the courage to make the entry, the discipline to set the stop and hold it, and the impartiality to sit and wait for the trade to develop to its target. The system is still solid gold but I am holding it back.” The only difference between this trader and many other traders is that he had been successful for a while before his trading took a nose dive. That very success gave him a false sense of confidence that later came back to bite him. His mood felt “so right” that he did not question whether he was in the right mindset to trade or not. He inexplicably sabotaged his trading. This is not a trader who set out to incrementally blow up his trading account. But that is what happened anyway. What is it about the mind that creates such problems in trading? On the surface, trading looks like any other skill that a person learns and becomes proficient in. All a trader has to do is to apply the methodology he or she has learned and risk is managed. But the actual performance of trading is different. There are many traders who know how to trade when risk of loss is not involved, but fall apart when their knowledge is put to the test when trading "live". The first blunder a trader makes (and our friend from above made) is to assume that the mind and emotion are separate from one another. Many traders are advised by well-meaning teachers to “leave their emotions at the door” when they trade. Just how do you do this? You don’t. But traders have a tendency to maintain a deception where they believe they are capable of this. The belief “feels” right and is not reality tested. The “feeling” right (more about this later) and a sense of certainty clouds the mind – no matter what evidence is presented to the contrary. This is called cognitive dissonance. Then comes the collision between these ungrounded beliefs (rooted in the feeling of certainty) and their performance in trading. Beliefs, no matter how much they “feel” right, are severely tested for effectiveness in trading. Many people act from beliefs that are never put to the test until they get into trading. And then they are confronted with the observation that the beliefs that they bring to trading do not allow 106

them to move from a certainty-based mindset to a probability-based mindset. And without a probability-based mindset, dealing with the uncertainty involved in trading will trigger fear as the emotional base for thinking while trading. The brain has deceived the trader’s mind. The brain was never designed to separate uncertainty from fear. But it is designed to produce a sense of certainty, even if the assumption is wrong, so that the brain does not have to experience the discomfort of uncertainty. To the brain, uncertainty is fused with the fear of death. This is where most traders stay stuck. Emotion and Cognition Are Linked What neuro-science has convincingly demonstrated is that emotion and thinking are embedded into one another. Your thinking (as well as your memory) is emotional- state-dependent. If you change the emotion, you also change the quality of both thinking and memory. Emotion encodes the way a memory (and your thinking) is filed. Ask a person to remember an event that was encoded while angry and they will have a difficult time even finding the memory to retrieve while in a calm state. And the person’s memory has been filed in the mind in such a way that it is accessed from that emotional state. Take an example of a couple having an argument. A woman, while angry, will have access to all the memories of everything her spouse has ever done wrong while in a state of anger. Years disappear and she can remember things that the man has long forgotten. And she piles on these memories. This is emotional-state-dependence showing up in memory retrieval and thinking. This same phenomenon occurs in a person’s mind while trading as well. When the anger subsides, a different picture emerges. No longer in anger, she does not biologically have easy access to those memories. The file of memories is encoded to be accessed while in the emotional state of anger. When not in anger, she no longer has direct access to those memories. They simply do not appear in the mind unless the emotional state that they were encoded in becomes the emotional state that determines her state of mind. This becomes a mine field, waiting to be tripped, when applied to trading. Few traders bring the understanding into their trading of how brain, emotion, mind, memory, and thinking interact with one another. And without this understanding, and new skills built upon this understanding, an important tool for building a mindset for trading is lost and they stay in a faulty belief that emotion and thinking are separate – because it “feels” right. The trader may believe that they are separate, but their trading account shows a different story. The Over Confident Trader Sabotaged Now let’s take a look at our trader friend and also take a deeper look at the mind driven by emotion. Initially the trader quoted in the vignette came to me because he was not making enough money. He was profitable, but he felt (notice the feeling state that distorts perception) that he should be doing much better. Once he had determined that he was already making 107

between 2-3% return per month on his trading account (and this was a standard level of return that most traders would aspire toward), he was no longer motivated to build a mindset. He “felt” certain that he could do much better. In his studies he had read about what typical returns are for traders, but his mind (under the influence of the feeling of certainty) discounted this information. His trading had produced a euphoria that, in his mindlessness, had seduced him into the feeling of certainty that he should be doing better. Cutting down to his core motivations, he wanted to prove himself by his performances in trading. He wanted to be wealthy and prove to the world (and his long-dead parents) his worth. In his mindlessness, he was confusing external validation of the self by performance with the internal validation of the self of his being. This was his second blunder. The moment that a trader uses his performances in trading as an indicator of his worth as a human being, he is in trouble. This is a faulty assumption to base your beliefs about self worth upon. Trading is a not a measuring stick of your worth. Trading is a performance. It is a performance that requires a stable and trained mindset to produce success, but it is only a performance – and not a measure of a person’s worth. In this trader’s case, his early success in trading actually generated a feeling of euphoria that he mistook for confidence and worth that was based upon performance. The early success filled up a hole in his internal sense of self worth that made him “feel” triumphant. As an emotional state that is short term in nature, the “feeling” of worth that came from his performances gave him a sense of certainty about his worth. The feeling component of an emotion will do that. Feeling is the subjective experience of the emotion and it creates a sense of certainty in whatever direction the emotion is wired to take you. Fear will create a feeling of certainty in the domain of doom. Greed will create a feeling of certainty in the domain of expansive possibility. That feeling for our friend in the vignette became exuberance and euphoria. Out of that exuberance came the certainty of the belief that he was going to win, and win more. It made him “feel” like he mattered in the short term as an emotion will do. It also short circuited his capacity to think in the long term and in terms of probability. That feeling of exuberance compromised the possibility of discipline, impartiality, and patience. Before he knew it, the need to prove himself to others through trading had taken its toll on his trading account over a period of months. Humbled, and no longer deceived by greed or exuberance, he became set to look at the self limiting beliefs that his desire to prove himself by performance were rooted in. Self Limiting Beliefs Become the Stumbling Block in Your Trading Our friend’s problems in trading are rooted in his need to prove himself externally to others. He does have passion for trading – he truly loves it. But his psychology has fused performance with his being. He, like many traders, is blind to what drives his motivations while trading. The four 108

self-limiting beliefs that need to be observed and transformed are: (1) A sense of inadequacy, (2) a sense of not mattering, (3) a sense of unworthiness, and (4) a sense of powerlessness. When you trade, what are you trying to prove? Many traders will say that they got into trading so that they could become rich. What will being rich prove? Notice that, for most, money becomes a short term fix to fix up a psychic hole rooted in “feelings” of inadequacy, not mattering, not being worthy, or powerlessness. If you trade to absolve these self limiting beliefs, the feelings will come back again to haunt you. As you learn to trade from a position of being alive in the performance and challenge of trading, a very different state of mind engages the uncertainty of trading - a state of mind that learns from mistakes and does not see losses as indicators of his or her worth...but only as indicators of his or her current level of competence to trade. And competence in trading, both psychological and methodological, can be learned. At this moment the trader is moving beyond trading from the “feeling” of self limiting beliefs and into a peak performance state of mind built for trading. Trading becomes an art and science to master – not a measure of a person’s worth or power. Rande Howell

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The Illusion of Control: The First Step to Emotional Sobriety in Trading The Allure of Magical Thinking It was the start of another trading day, and John was ready. “This day is going to be different. I am going to trade my plan – no matter what!” John said resolutely into his reflection in the mirror. He practiced visualizing and “feeling” the success that trading was going to bring him. He declared the affirmations that he learned from the success seminar he had just attended. He felt the high-energy state that he now believed would create the "success mindset" he had been missing in his trading. And after all that modeling of a super trader, he knew he was attracting success. If he could walk on live coals, he had no doubt that he could conquer the fear that had been blocking him from success in trading. “I’m a million-dollar trader. I am going to conquer my fear. I am a confident and disciplined trader. I am going to win,” John confidently declared in his mind. And sure enough, selfdoubt was nowhere to be seen. All went well as he began his trading day. He felt great. His confidence was high as he watched a particular set-up heat up. This was the one he was looking for. It met his trading plan conditions for entry. With his new-found confidence as his guide, he pulled the trigger. Initially the trade trended as he had predicted. Then, WHAM, the trade went sideways on him and it stayed in flux for what seemed like an eternity. It nearly hit his stop a couple of times as it bounced around and it just would not refresh and trend as he had anticipated. Suddenly, and without warning, he was not so sure. He was so sure just moments before. Now his confidence in the certainty of the trade evaporated like a mirage in a desert. Feeling knots in his stomach, all he could hear was the deafening roar of his thoughts, “You’re going to lose.” The self-doubt that moments before was "nowhere to be seen" was now front and center in his mind. What seemed so certain just moments before was thrown into chaos. And out of that uncertainty came a fear of losing. He thought for certain that he could predict where the market was going. And with that certainty gone, fear of loss sprang from the uncertainty and he was no longer trading his plan. Instead he was trading from his fear of uncertainty. What happened that rearranged his thinking so quickly, so thoroughly?

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The Trader’s Pursuit of the Myth of Certainty The biggest problem I see that keeps traders stuck in mediocrity is their blindness to the need to change from a mindset rooted in predicting certainty of outcome to a probability mindset where the trader learns to live with uncertainty – literally becoming comfortable with not knowing with certainty what is going to happen. It takes internal courage to shift this fundamental biological and psychological bias in perception. Rarely is the mind that brings a person to trading going to be the mind that produces success in trading. The mindset that produces success in other domains of performance based on forcing a will upon the world or having a positive winning attitude does not translate well into trading success. The evolutionary biological bias of your brain predisposes you to seek certainty and avoid uncertainty. (You can already see that this creates a problem in taking a brain designed for survival in an uncertain world and plopping it down into the world of trading without a significant reworking and override of primal directives of the survival brain.) This is your survival (emotional) brain at work. To your primitive brain, uncertainty, chaos, and the fear of death are linked (this is a serious glitch in the development of a trading mind). Add to this the fact that the untrained brain/mind cannot discern the difference between biological threat to the continuance of life and psychological discomfort. (This is a distinct problem in trading because there is always uncertainty and, therefore, psychological discomfort). At its core the brain is a pattern-recognition machine that organizes the developing “you” into a set of beliefs that govern how you interpret and respond to a circumstance that is ambiguous in nature (like trading). Once your brain finds a random solution to a challenge you face, it habituates the solution into an automatic response that no longer requires additional thinking or problem solving. This produces hardwired neural pathways that automatically trigger when the organism (the trader) is exposed to ambiguity, uncertainty, or risk (threat). This mechanism is out of your working awareness and is reactive in nature. (For the trader, this creates a real barrier that compromises the capacity to work with the uncertainty found in trading.) The particular solution is not necessarily the best solution, but it is a successful short-time response to the environmental uncertainty your brain faced. Then the brain takes another step – it generalizes the perception and response to a perceived threat (uncertainty) from one domain to similar ones. This is called response generalization. Suddenly the mind (and all its learned beliefs and behaviors) that the trader brought with him or her into trading becomes a liability to the development of a successful mind for trading. The mind that emerges from the biology of the brain does not separate uncertainty, ambiguity, confusion, and fear from one another. The emotional brain is biased to see the uncertainty found in trading as threatening. This brain and mind that you inherited was never built for the rigors of trading. It’s a liability that you, as a trader bring into trading as a biological bias – and you must retrain it to become a successful negotiator of uncertainty. 111

The brain, with its bias to create a sense of certainty (safe from threats to self), creates highly reactive patterns to keep the illusion of control of circumstance in place. There is even a name for this preponderance – cognitive dissonance. The brain you bring to trading will not accept facts or positions that do not support the current belief structure about its capacity to manage uncertainty (threat). The more facts to the contrary to which you expose the embedded belief, the more entrenched the belief becomes. This all exists so that the brain/mind can keep up its illusion of control. It is this illusion of control that the trader brings to trading that must be altered for him or her to make the transition from certainty-thinking to probability-thinking.

Letting Go of the Illusion of Control Trading effectively demands a probability mindset. There has to be a commitment to personal and professional development so that the trader can use the tools and skills of his trade, incorporating a set of beliefs that can manage probability and uncertainty. Otherwise, the trader stays stuck trying to produce certainty. This takes ontological change which most traders neglect, ignore, or avoid. (It represents change for which the outcome is uncertain.) Out of this resistance to challenge the myth of certainty, traders stay stuck in self-limiting beliefs that perpetuate the illusion of control. This is what has to change for a trader to make the jump from looking for certainty to managing uncertainty and risk. The very first step towards reconstructing the beliefs about the management of certainty (trading not to lose) that the trader naturally brings to trading is to wake up to them. Most traders have been mindlessly attempting to force both trading and the markets into patterns that can be predicted with certainty – more commonly known as "trading not to lose". This is the bias that has been embedded into our perception for countless generations. Most traders talk the talk of working with probability, but when their trading account’s health is used as the basis of assessment, a different story emerges. Fear of loss in the brain (and the confusion generated by uncertainty) is equated with the fear of death. This is what takes over the trading mind that is led by the prediction of certainty. When you look at serious hesitation problems in pulling the trigger or the hijacking of impartial thinking that happens while managing a trade after entry (like our friend in the vignette), this correlation becomes apparent. Probability-thinking and perception does not come naturally. Traders generally go through a long learning curve to move from the mind that they brought to trading (rooted in certainty-thinking) to the mind that trades successfully. The first step is to wake up from the blindness that keeps the trader from seeing the self-limiting beliefs that hold him in a pattern-recognition bias that force the mind to seek certainty rather than the management of uncertainty.

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It is this AHA! moment that opens the door to the possibility of change. What most traders discover is that the certainty bias is deeply entrenched and takes real work to change. They recognize that the comfort zone of the way they have been stands in the way of the mindset that is needed for success in trading. This is the first step in the new journey into the re-invention of the self. Only from there can the self be re-constructed from the inside out. In the opening vignette, this is the problem that the trader was experiencing. He was trying to change the self externally. By not grasping the power of biological pattern rooted in the need for certainty, he was never able to develop the skills and tools necessary to change the pattern-making machinery of his brain/mind. The pattern of belief was far more primitive and powerful than the puny tricks he used to try to change that pattern. In truth, he resisted changing into the person he needed to become. Instead, he confused shortterm “feel good” states with the mechanics of change. He remained "blind to what he was blind to". He missed the first step – recognizing the bias toward certainty. It "had" him and it was so familiar that he could not “see” it.

How Do I Use This Knowledge? I make the following assumptions when I evaluate whether a trader is ready for true psychological change. First, that he has been trading long enough to know HOW to technically trade. Second, that he can trade successfully in simulation where the risk of capital does not trigger the fear of uncertainty. So, look at your trading account. It will reflect the beliefs and biases that you bring to trading. If your trading account remains marginal or continues to need injections of capital, then you need to be asking yourself: What I am blind to that keeps me from achieving my potential in trading? Stay in that question. Then listen. What do you observe? Notice your resistance. Notice what happens to your comfort zone. Notice the tendency to pull back into your familiar pattern despite its lack of achieving success for you. What do you notice about your need to maintain a sense of certainty in the face of uncertainty? What beliefs (about the management of uncertainty or certainty) is this rooted in? Rande Howell

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The Inner Game of “Seeing” Your Screens through the Eyes of Your Beliefs

The World "Out There" versus the World "In There" Two partners in a small hedge fund trade, sitting side-by-side. They even trade the same methodology and use the same signals, indicators, and levels. They also trade using exactly the same rules, and they are trading the same symbols. Yet, one is much more successful than the other. What gives? During their debriefing after the trade day, they discover they have very different interpretations of the charts they are reading and acting upon. Their review helps them clarify their trading rules for the next day. Their review also affords them the opportunity to really examine their psychology that they brought to their trading day and to make any adjustments necessary to make them better traders. You would think that, over time, their trading would begin to look very similar. But, the next day the pattern of their trading continues. One continues to be the more successful trader while both are utilizing their mutually-derived trading plan. Both are smart, highly-motivated students of trading. Both study and both are committed to developing their skills to become expert traders. The difference between the two is that both interpret (during the heat of trading) the same information very differently and, therefore, each acts on it differently, even though they are following the same trade-plan rules. Even in their debriefings they cite “what they see in their charts” for their different trading actions based on the same plan. Both believe they are “seeing” the charts correctly for the actions they are taking. “Trade What You See, Not What You Feel” The above scenario actually occurred while I was working with both traders. And both traders honestly maintained that they were, in fact, trading what they saw – and that they were not experiencing any emotion as they traded (both were as cool as a cucumber by their report). Anyone who has been around trading for a while has heard the ‘Trade What You See, Not What You Feel” axiom. It is accepted as a truth, and it is widely accepted that if traders would follow it, a major obstacle to their trading success would be eliminated. It is believed that this trading rule gives the trader FREEDOM FROM EMOTION. But few have come to understand the flawed logic behind this saying. There is an implied 114

assumption that the charts represent undisputable facts that lead a logical mind to make the right decisions about where the future is heading. The problem is that there is no time that a trader is without emotion. Emotions are not optional. They are wired into the humanness of our perception of the “out there, by being burned into our DNA. For the only time that humans are not experiencing emotion is when they are dead. Emotions are biological and are ubiquitously present just like our breath. Whether we notice that they are influencing perception is another matter. Some become so common to our way of perceiving the world that they disappear into the background of our awareness, where we do not notice them. Yet, they are there, operating in the background. Only, in the background, we do not see them impacting the way we see and think. This is the exact case with our two traders in the vignette above. Each of their perceptions is being colored by the emotional cocktail operating in the background of their awareness without them noticing it. One trader's perception allows him to trade from an emotional state rooted in disciplined impartiality (this is an emotion – not the absence of emotion), while the other is perceiving from low-grade anxiety that is causing him to trade from a mindset rooted in “TRADING NOT TO LOSE”. And he has pushed this mindset out of his working awareness. The more successful trader is focusing his intent on bringing a mindset of disciplined impartiality to the performance of the trade. The less successful trading is trying not to lose the trade he is in and does not see the perceptual trap in which he is ensnared. This is a huge perceptual difference. It is also the difference between successful trading and traders who have a road block to their success. Emotion and Belief Become Fused Into the Observer of the Future Beliefs become wired into the emotions that run our lives. You are born into them. And they become the soup that shapes your destiny. They, too, become so familiar that most traders never notice them coloring their interpretation of the various critical moments in trading. But it is in these critical moments that we can become observers of what beliefs we are projecting on the markets. It is these beliefs that give us our sense of our capacity to manage the uncertainty found in trading and in life. And, though they are so familiar that they often are not visible to us, they leave their calling card in our trading accounts. If the beliefs you hold about your capacity to manage uncertainty are effective, these beliefs will provide the basis for a growing account balance. If the beliefs about your capacity to manage uncertainty that are being projected on the market are ineffective, then you will find draw-downs in your trading accounts. It is in this way that you, the trader, can begin to bring into clear focus the hidden beliefs that exist in the background of your mind. Your beliefs, through which you see the market and interpret the evidence, you then see in your charts. You see the charts and the future through the lens of your beliefs about your capacity to manage uncertainty. There is no “truth out there”; there is, however, your take on the truth that you project onto the markets. And it is through these hidden beliefs that your future possibilities are brought forth into your performances. Once you accept that your trading account is a near black-and-white truth meter about the beliefs you bring to the performance of trading, a shrinking trading account becomes 115

the window through which you can identify those self-limiting beliefs that hold you back from greater trading success. The problem is that most traders have avoided coming to terms with their self-limiting beliefs. In fact, they have pushed them out of their awareness where they do not have to be acknowledged. But in the process of creating short-term avoidance of discomfort, they also create a long-term block to success. Nowhere is this phenomenon more apparent than in trading, where your trading account forces you to acknowledge your shortcomings. What are the self-limiting beliefs that compromise your trading performances while you distance yourself from them? The first self-limiting belief is Inadequacy. Many traders, deep down, do not believe they are good enough to trade. They may cover this selflimiting belief up by positive self-talk. But underneath the positive self-talk is the little critical voice that keeps telling you that you are not smart enough, good enough, or perfect enough to really win at trading. Although this is not true, when you give it the power of belief, it becomes your unexamined truth that you project onto the market. And, therefore, that is what you find. Your beliefs have colored the world that you see, and then create. The second self-limiting belief is that of Not Mattering. Here the trader confuses performance with his value as a human being. He confuses self-worth with net worth. When in the grips of this self-limiting belief, you want to make money to prove to others that you matter. These are the traders who you find in trade rooms, always bragging about their big wins and boasting about their skill in trading. They talk the talk, but never produce the evidence of their performances that prove that they also walk the walk. The third self-limiting belief that colors the perception of the trader is a sense of Unworthiness. Many traders harbor a belief that they really do not deserve financial success or that they must work hard for their money. Then, no matter what they tell themselves in their affirmations, the unexamined belief of their sense of unworthiness is projected onto the markets and the market signals are read from this self-limiting belief. Suddenly their sense of scarcity takes over as the observer of the market data and they create an interpretation of the markets that brings forth scarcity. The fourth common self-limiting beliefs that colors traders' perception of the market data is a sense of their Powerlessness to make a difference in the world. They cite stories of the market makers controlling the movements of the market, and this “story” becomes the gospel through which they see the market. Something seems to always be going wrong “out there”, in this belief system that keeps them from experiencing success. They never see that it is they that project the "helplessness" and "powerlessness" beliefs upon the market. In truth, the market does not care and is incapable of caring. It just IS. But the trader brings his beliefs about his capacity to manage the uncertainty of life and trading to his trading room – and finds what he believes. Learning to SEE Your Self-Limiting Beliefs and Changing Them Human beings rarely question their assumptions that have taken on the power of belief. After all, it’s just you trading, right? No. It is not simply YOU trading. It is the unexamined and hidden beliefs that are embedded into perception that is doing YOUR trading. And you, as an evolving trader, are required to bring this basic, early programming (called beliefs) into awareness so that you can free yourself from its power 116

over your potential as a trader. Begin questioning yourself. When you hear yourself (in the secret garden of your trading room) produce negative assessments about your adequacy, mattering, worthiness, and power as a trader (and a human being), STOP that thought and examine it. Thoughts give voice to your beliefs. By examining your thoughts, you can drill down to the selflimiting beliefs through which you observe the market. It is these beliefs from which you take action, so getting at the beliefs is vital to reconstructing the trader that observes and acts in the market. Once you observe the thought, ask the next question. What judgment is being made about me and my capacity to manage uncertainty? Is this judgment or assessment intent on helping you or limiting you? Then ask for the proof from which the global assessment judges you. You will find there is very little evidence that supports the judgment. And even if the assessment is accurate, it is only about your performance and not about your value or worth as a human being. Now that character assassination is taken off the table, ask: “What can I learn about my performance so that it can be improved?" Suddenly, you are no longer trying to avoid the sting of shame and are using your performances as a way to improve the skills you bring to the interpretation of the market. Very different action can now occur. When performance is no longer an indicator of your worth, it can be used to learn how to learn. And in that learning, you can build a new mind from which to view and act in the markets. This is the self-development and self-care that has to become the intentional discipline that generates a self-fulfilling belief that supports the growth of the emerging trader. Rande Howell

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The Invisible Hand that Blows Up Your Trading: Breaking Free From Self-Limiting Beliefs By J. Rande Howell, MEd, LPC

"There seems to be an invisible hand that is guiding my trading, and I don't seem to have much say-so in the matter," a trader laments to me. She continues, “I do not understand why I keep on doing the things that I do, when I know what I am supposed to do. But it is not what I'm supposed to be doing that I do. Rather it is what I'm NOT supposed to be doing that I do. I know how to trade. I have a trading plan. There are rules that are proven effective. And if I consistently followed that trading plan, I’d be alright. I hold on to trades too long in both directions. I know what my rules say about my stops and my targets. But I'll be there one second, then my evil twin seems to take over my mind. It like this destructive gremlin pushes my discipline and impartiality aside and I make stupid impulsive decisions that I later regret. I do things that I know (when I’m in the right state of mind) are not good trading. It's almost like I get possessed, and when I wake up from the trance, all I can do is kick myself for not following my plan. What's going on? Don't lecture me about discipline and putting my emotions down at the door of my trading room. I've heard all that, but this invisible hand seems to creep in and all the discipline I have in other areas of my life seems to vanish in the mist." The Elephant in the Living Room Have you ever experienced what this trader is describing? She knows how to trade. She has a deep background in finance and accounting. She doesn't experience debilitating fear in her trading. And she is a moderately successful trader. She makes some money. But she recognizes that she is hitting an invisible glass ceiling that is stopping her from moving to the next level. And she can't see what she can't see. She suspects that there is an elephant in her living room, that if she only had the eyes to see, she would be able to see what is limiting her and her trading. What our friend has experienced is a self limiting pattern. Long before she developed the capacity for thinking, much less the highly sophisticated level of thinking required for trading, her 118

brain had already created patterns that allow her to negotiate her surroundings without having to think through the process. Once a short term successful solution to an encountered problem was created, it became familiar and automatic – and was pushed outside of her awareness. The pattern still operated from behind the scenes. Without notice or thought, it popped up and took care of situations as an automatically learned reaction to the circumstance of her life. This is what our friend referred to as the "invisible hand" that seemed to guide her trading. The problem is that the brain creates short term solutions for the mandate of surviving the moment. This pattern-creating machine, called the old survival brain, does not create solutions to problems for long term benefit – only for short term survival. And once the pattern becomes hardwired into the brain’s neural circuitry, it takes on the force of habit. And this is dangerous for trading.

Trading, History, Biology, Emotion, and Mind Taking a step beyond quick fix, short term solutions to self limiting patterns is the first step. Understanding emotion as far more than feelings is the head knowledge that you will need to cultivate. Fundamentally, emotion is about the way the organism you are builds predictable responses to the uncertainty of adapting to the circumstances of life. It is this very uncertainty that the trader’s brain is mandated to avoid that will get the trader in trouble. The brain cannot tell the difference between uncertainty and fear. Uncertainty generates confusion to the brain which generates distress. The brain’s solution to this distress is to jump to any explanation that relieves the uncertainty. The solution only has to be effective in the short term for the brain to accept it and wire it into the standard emotionally- driven behavioral repertoire called your perception. Notice that this is happening without your having to think. It is happening automatically and totally out of your awareness. The brain is what directs this process of adaptation and it is emotion-driven. Feeling is merely the subjective experience of an emotion. It is like seeing an iceberg -- the vast majority of it is below the surface. Feeling is the tip of the iceberg. If you remain ignorant of the power of emotion, then you put yourself in the same situation that the Titanic found itself. Far more important in understanding emotion is the motivation of the emotion (what it is telling you to do) and the meaning or belief that becomes embedded into the emotion ("the markets are a dangerous place – I must be careful"). Also, arousal is the “revving up” of the emotion’s chemistry in the body as it prepares the body for fight or flight. You would experience arousal as your heart beating rapidly, holding your breath or rapid shallow breathing, and tensing of your body. In particular, the motivation of the emotion of fear is avoidance. And avoidance is composed of four sub-categories - run, hide, freeze, or submit. If you begin reviewing your trading behaviors with these distinctions, you will be able to spot the emotion affecting your trading performance 119

even if you do not feel the emotion. Once the chemistry of the emotion has coursed through your body and brain, it will have hijacked your capacity to think impartially and with discipline – which is essential for effective trading. It is the genesis and stability of neurally- wired patterns of responding to environmental cues that is at the crux of understanding (and managing) emotion. In essence, your brain is a patternmaking machine that is mandated to avoid threat. And your brain cannot separate uncertainty, worry, and fear from one another. This is exactly what the trader quoted above is stuck in. Now, let's add one more element to our trader's dilemma of her invisible hand guiding her trading. She's right. She (actually, her brain) was born into a soup of beliefs, biases, and perceptions (called her family circumstance and culture) and her brain incorporated these "stories" into a narrative that became "her". This is the environment into which her brain adapted her. And it happened long before she could think or question the assumptions that organized the way she perceived her environment. This became her "invisible hand". In her world, she organized herself into a narrative that avoided uncertainty. It was what her family did and "what monkey see, monkey do". The assumptions became her beliefs. Until she got into trading, there was no reason to question these "assumptions turned beliefs" in her brain/mind. Life was pretty good. She had learned to avoid uncertainty successfully in the short term. The strategy had worked well until she began trading. Her brain was not built to manage uncertainty and risk. And her psychology had long ago developed a perceptual map that was focused on eliminating uncertainty rather than managing it. Her trading has forced her to bump up against her comfort zone (known as a perceptual map to the neuro-science minded). Now the internal guidance system that was so successful in producing adaptive survival is no longer functioning effectively in this new environment called trading where working with uncertainty is a required operational skill. This triggered distress (threat) and her emotional brain hijacked her thinking brain (the one trying to trade). Until she (and any trader) trains the brain and mind to separate uncertainty from fear, the invisible hand will always sweep away the mindset needed to trade effectively. Now her job is to de-construct the old money/risk narrative that she was born into and adapted to (her invisible hand). And she will need to construct a new narrative where the brain adapts to uncertainty as an element of her environment to be embraced. And mastered. Biology Meets Mind Our family histories get embedded into our belief systems in the organic substrate called your brain. Your job as a trader is to become the designer of the beliefs that drive your trading. Otherwise you will stay stuck in the self limiting beliefs that your brain adapted you to -- designed for a different environment and a different time. The Invisible Hand will remain a force that 120

drives your trading until you develop the mindfulness and the skills to "re-develop" the narrative that you confuse with "your thoughts". Those thoughts are not yours. They own you. They are the histories of family narratives getting wired into your brain. And what you will notice is that practically all these narratives are about avoiding uncertainty. We are taught to “not make mistakes”, to strive for perfection, rather than to acknowledge that we learn from mistakes – not from success. These stories become your blinders. You see only what they allow you to see. Breaking out of this invisible prison opens you to see a new kind of freedom. A freedom to " become". A freedom to become the beliefs that drive peak performance trading. As you learn to emotionally regulate the emotion of fear (fear of failure, fear of loss, fear of not being perfect, fear of being wrong, or fear of being inadequate), you can get at the self limiting belief that got embedded into the pattern-making machine called your brain. Changing the self limiting belief about your ability to manage the risk of uncertainty changes how you see the markets. It allows you to develop a mindset built upon new beliefs of self discipline, patience, courage, and impartiality. The emotionally laden beliefs change what you see as possible in trading and your performance. You move closer to the peak performance state of mind of which you are capable. Taking It a Step Further With this in mind, what were the stories and narratives about uncertainty, risk, worry, and fear that you were born into? How did they shape your world? And how are these long hidden narratives that are embedded in the neural pathways of your brain impacting your trading today? J. Rande Howell

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The Mind You Brought to Trading Is Not the Mind that Will Bring You Success in Trading After a career in sales and a downsizing, Jack decides to take control of his future by focusing his considerable energy on developing a new career in trading. He is highly disciplined, motivated, goal-oriented, and has a winning attitude – traits that served him well as a professional salesman. After studying trading and becoming proficient in his platform and methodology, he is still a break-even trader, at best. And he does not know why. What confounds him is that he is not consistently following his own trading rules regarding entry points (getting in late or too early) and exits (getting out early after small profits). In hindsight, while he is reviewing his trading day, Jack recognizes (after doing some research on trader psychology) that he is trading from a mindset rooted in fear. But it does not make sense to him and he cannot see why he keeps losing. In a consult with me he explains, “I know how to deal with the fear of rejection. To be successful, you get over that in sales. You know it’s a numbers game. When you lose one, you just get yourself cranked back up for the next one. You’ve got to get back to that winning attitude. That is what attracts success.” I ask Jack to explain how he produces a winning attitude in trading. He responds, “The same way I did in sales. I use a visualization technique where I see and feel what it would be like to make $1,000,000. It really pumps me up. I can taste the victory. I then take that energy and focus it on my next sales opportunity or my next trade. I have photographs of what that success would provide me. I’ve built a sales career out of being able to create these high-energy states and to attract success.” I ask Jack, “How is that skill translating to success in trading?” His answer, “Something’s not working. I’m sure it should be working. But it’s not working. And I don’t know what I’m missing.” Why Jack Can’t Trade On the surface Jack’s training in visualization and the law of attraction seems applicable to trading. This training has worked in other domains of experience, why not in trading? Jack's visualization creates a high energy and the chemistry of euphoria to build a desire for the goal. That is a problem in trading, where a very calm, assertive state of mind is needed to manage the 122

tasks of trading. This is a very different feeling state than high energy and euphoric states he called forward to conquer fear of rejection in sales. When in the grips of euphoria (you might call this state a highly positive energetic mood where you feel like you can do anything), you feel sure that the good times are going to roll and continue forever. The trader “feels” certain that he is going to win. You are positive that you are going to make the next sale by the sheer force of will. From that feeling, rooted in euphoria, the thinking, perceptual mind believes in the certainty of winning. This is a sought-after state of mind in high-energy sports such as American football (and in business) where dominating an opponent and winning is part of a peak performance state of mind. In that high-energy, euphoric state, the trader’s mind (deeply connected to his emotional state) is no longer in an impartial and clear mindset. It is highly biased to see only the good that is shaping up. This leads to over-trading and over-trading leads to losses. Those losses lead to pattern-recognition and reaction-formation by the emotional brain of the trader. No amount of willpower or having a positive attitude will force the emotional brain not to hijack the thinking brain once a reactive pattern has been formed. The brain associates these high-energy states with losses and, quite naturally, triggers to avoid them. By experience, the intentional generation of a euphoric emotional cocktail has now been associated with the fear of loss. Suddenly the euphoric feeling (not the performance) of being able to dominate the markets and create a positive future becomes counter-productive. It is now associated with the fear of loss. This is where Jack is stuck. The State of Mind That You Bring to Trading To become consistently successful in his new career, Jack is going to have to relearn how to create the mindset that he brings to trading. The old mindset, so successful in sales and business, became a liability in trading. Why? Highly cognitive endeavors such as chess, bridge, and trading require low levels of emotional arousal for peak performance. You are not trying to produce high-energy feeling states for trading. You are working to produce low levels of emotional arousal so that your trading mind does not get influenced by euphoria or fear (which require high energy states). Getting “cranked up” in a winning attitude produced disastrous trading results for Jack. Low arousal states are required for the methodical, impartial-thinking emotional states of a mindset built for trading. Self-described adrenaline junkie that Jack is, this was a difficult retraining exercise. What he had to do was develop a calm, assertive, impartial state of mind from which to trade. In this state of mind, while in the act of trading, he was not trying to win or lose the trade. Instead he was focused on playing the trade so that he performed it flawlessly according to his trading plan. At this moment probability was on his side. He now “felt” certain that when he traded his plan, 123

he had an edge in his trading. The difference is that he learned to become an emotional manager of what feeling-state was influencing the certainty of beliefs that he brought to trading. The "feeling" element of emotion will always do this. In fear, there is a feeling-state that creates a mindset that believes that it is certain that doom is coming if you do not escape. Hesitating to get in at your planned entry points without massive confirmation is the resulting behavior. In euphoric emotional states, the feeling contaminates your thinking with a certainty of belief that the good times are going to continue to roll. Calm, assertive and impartial emotional states produce a feeling of being certain that you can take advantage of whatever the market is willing to give you. Low arousal states help keep you in this feeling-state where clear, calm thinking occurs. Jack Learns to Trade Jack is still an adrenaline junkie – outside of trading. When he finishes trading for the day, he now rewards himself by directing his energy into other domains where high energy states are useful to performance (tennis in this case). When he is trading though, Jack now calls forward the state of mind rooted in calm, impartial, assertiveness. In this state of mind, he sees the information on his screens, unbiased by what he wants to see. Rande Howell

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The Money Narrative The Hidden Agenda that Rules Your Trading Performance Dale grew up in a hard working farm family in Arkansas. His parents, while growing up during the Great Depression, had nearly lost their farm. That experience really changed them. They hoarded what little money they had and came to believe bad things can happen if you can’t be certain about the future. And Dale was born into this legacy. Leaving the farm for greater opportunity, Dale became a banker in a trust department of a bank where he protected the value of assets placed under his care. He was a natural at his job of maintaining certainty in the face of threats to his clients' capital. As time went on, the bank was gobbled up and Dale was fed up. In a career change, he moved into day trading. He learned a proven methodology to control risk well and was prepared to trade. What he was not prepared for over the next several years was the hesitation and anxiety he experienced, and could not overcome, when he risked capital. ________________________________________ The brain, memory, pattern, and the unconscious mind make unlikely partners to your trading methodology. Like Dale in the case study above, after investing a number of years learning and tweaking a methodology that should provide an edge, traders often discover that something is still missing that limits their success. It’s not their methodology, they conclude – it’s them. Though they strive for success, they keep falling into the same self-limiting patterns over and over again. No matter what they try, who they train with, or who they listen to – they stay stuck and they do not know why. If they want to make money and are willing to invest the time and energy into learning, you would think that they would achieve their goal, even only by perseverance. It is as if something seizes control of their mind and their capacity to dispassionately trade their plan is hijacked. After the smoke clears, and they come to their right mind, most traders feel as if their bodies and minds were kidnapped by unseen forces. If you have ever thought this – you are not alone. What Really Drives Your Perception of Money In a capitalistic culture such as ours, our sense of personal worth, adequacy, meaning, and power get woven into our perception of money. As an example, a trader (who has not been successful for several years) is at a cocktail party. He strikes up a general conversation 125

with an unfamiliar man. And the man asks, “What do you do?” Right there, the trader’s identity is tied to trading. The next question is, “Can you really make money at trading?” Though the trader has yet to be able to support his family on his earnings from trading, he answers, “Yes.” Then the trader proceeds to create a fiction that paints a rosy picture of his life as a trader. Actually the trader feels shame erupt and he feels “less than”, so he lies to cover up his embarrassment. The trader’s notion of being a successful human being and his sense of mattering in the world is so tied up to how much money he should be making that he finds himself lying. His worth, his importance, and his social standing are tied up in his relationship to money. Money has become the yardstick by which he measures his value as a human being. And as long as his perception of money is the measuring unit by which he gauges his worth, he will continue to struggle with finding success in trading. External validation by performance in trading becomes the judge of his character. His ability to make money in trading moves from competency of performance in a certain domain (where mistakes point out where he needs to learn in order to become better) to judgment of his worth as a human being. Where does this come from? We Are Born Into a Money Script Go back to the case study of Dale. Dale is born into a certain history and his brain adapts him to the conditions of that environment. His parents had been devastated financially by the Great Depression. Life had become very uncertain for his family’s financial survival. They were scared that they would not have enough money to put food on the table and a roof over their heads. Money was scarce, and they could not afford to lose anymore. This was the mantra by which they lived. Like many of their generation, they became savers and avoided risk at almost all costs. They were risk-averse and had developed a way of seeing the world as a dangerous place where things that could go wrong - and did, in fact, go wrong. This became their mindset. And it governed the way they saw life. Their mindset for managing the uncertainty of life was that of a victim of circumstance beyond their control. And into this mindset their son Dale arrived. He was born into this perceptual amalgam of risk, money, inadequacy, powerlessness, and possibility. His brain adapted him to this circumstance. No one noticed that this way of seeing the world had taken over their perception. It was like water to a fish. It was a set of assumptions that had become so familiar, so true, that they were never questioned. And these assumptions of risk, capital, power, and worth became woven into the neuro-circuitry of Dale’s brain and mind – and became his beliefs. This is the money narrative. The Money Narrative All Grown Up Like many people who eventually become traders, Dale grew up and came to trading as a second career. He, like other traders, physically left home and never realized that he was 126

taking the money narrative rooted in this history with him into his adulthood (think about the first career he drifted into). And into his trading. Most traders, just like our friend Dale, have never questioned their beliefs about money – the money narrative. Understand, you do not have a money narrative – rather, a money narrative has you. It is not yours – you belong to it. In particular, traders rarely ask themselves, “What is money to me? What does money mean to me? And where do these beliefs about money come from?” Money will form a certain symbolic representation that connects your sense of power/powerlessness, your sense of adequacy/inadequacy, your sense of mattering/not mattering, and your sense of personal worth/worthlessness into your personal money narrative. And all at the pulling of the trigger where capital is put at risk. In Dale’s example money was connected to his sense of power/powerlessness and to his sense of adequacy/inadequacy. He had avoided confronting these carefully hidden self-limiting beliefs about himself until he started trading. He came face to face with this money narrative (what money and risk means) every time he attempted to pull the trigger on a trade. His money conversation of losing everything and being powerless (that he was born into and adapted to without his knowledge or consent) came rushing into the forefront of his awareness like a ton of bricks every time he attempted to pull the trigger. By becoming aware of this hidden money narrative, he began to alter it. The biggest problem with traders is when they resist acknowledging the presence of the power of their personal money narrative. Most traders are not so fortunate as to be born into a thriving money narrative that balances capital with risk management. Most grow up in families that attempt to avoid uncertainty and risk by not making mistakes. Yet, a money narrative that incorporates management of the risk of uncertainty is vital to successful trading. Finding the Hidden Money Narrative What’s your historical money narrative? One of the most effective ways of discovering the assumptions that have become self limiting beliefs that drive your trading is to ask two simple questions: First - what personal assessments, criticisms, and judgments do you have when you beat yourself up after a loss? This will tell you how your worth, mattering, power, and sense of adequacy is connected to money. Second - observe your personal assessments of yourself when you are on the winning end of a trade. Notice how your performance becomes a yardstick to measure your worth, your sense of value as a human being, or your personal sense of power. Money has become a symbolic representation of who you are. (Confusing net worth with self worth.) The problem is that this narrative has you, you belong to it – and you are its captive. Enormous freedom becomes possible as you learn to be mindful of your financial 127

narrative. It no longer has to control the way you connect money, performance, value, and adequacy as you begin to de-construct the narrative to which you were born. The most powerful part is that at this moment, you can begin constructing a much more empowering narrative about money, worth, meaning, power, and possibility. And your trading just becomes a performance to assess and improve, rather than a judgment of your being. Rande Howell

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The Saboteur in the Trader’s Mind “There is someone in my head, but it’s not me.” Pink Floyd

Have you ever noticed all that idle chatter going on in your mind while you trade? Have you ever taken the time to listen to it? I mean really listen to it. Have you ever connected the dots between it and the success or failure of your performance in trading? This running commentary in your mind is so ubiquitous, so commonly familiar, so ordinary – that most do not give it a second thought. In their blindness they think, “It’s just me and my thoughts.” Yet, when it comes to crunch time (like the mental and emotional readiness you need to pull the trigger, or maintaining emotional sobriety while in a trade), the seeming harmless self- talk that you simply pushed away or ignored moments ago roars like a lion in hot pursuit of its prey – you. Meanwhile, you keep believing that if only you could push those pesky thoughts out of your mind, you would be able to break through the barrier that separates you from consistent profitability. But at exactly the most critical moments in your trading, this background noise in your mind keeps suddenly erupting into a tirade of self-doubt or temptation, judgment, blame, or fear. How can something that is supposed to be so familiar and harmless rise up and become a tidal wave that sweeps your trading mind away? Well, just because it so common that it attracts no attention does not mean that it is harmless. What is important to realize here is that you, as a trader, do not understand the power of the internal dialog or what comprises this narrative in the mind. That lack of understanding shows up in your trading account in the form of losses or the loss of potential profits every day until you come to a very new understanding about what is actually going on underneath the hood of your mind. Thoughts Set the Stage of the Internal Struggle First let’s make sure you recognize an internal dialog that is, in fact, going on in the mind as you are attempting to follow your trading plan in the midst of a trading performance. When a trader commits to a trade and the order is filled, often a wild ride ensues – almost like a roller coaster ride with no safety equipment to keep you in your seat. Initially in the uncertainty of the trading environment, the trade is bouncing around in a flux that rattles you. You begin losing your composure. Thoughts of the trade going against you (and you losing, again) begin to overwhelm your untrained mind. By the time it begins to trend, you are so exacerbated that you jump out of the trade because now your fear of missing out of even a 129

little profit has so consumed you that you cannot think straight. You’re just happy to have grabbed a little profit, rather than another loss. Then, after you get out of the trade with only a skinny profit, you watch the trade trend and take off – just like your trade plan had indicated. All that planning, all that charting, all that knowledge of trading - down the drain again. If you have experienced this scenario, you have been on the losing end of the internal struggle that goes on in the mind when it is challenged by uncertainty. The dominant thought pattern that has taken over the mind is usually, “What if I lose?” or “I’m going to lose” or “I always mess up in the clutch” or “Who said that I could trade successfully?” Trying to force yourself to not hear these thoughts, or voices, in the mind by acting as if you are a tough, seasoned trader does not work. You can’t "fake it 'till you make it" in trading. You truly have to develop a mind that is built to embrace uncertainty – not fear it. Linking Brain, Emotion, and Thought Let’s take a look at what is really happening in the brain and mind as this cacophony takes over the thinking of the trader’s mind. The brain’s job is to adapt us to survive in whatever environment it finds itself. It does this by creating programs that keep the organism (that’s you) alive. Once the program produces success in dealing with the environment, it becomes embedded into the neural circuitry and begins to run automatically totally out of the awareness of the conscious mind. It then operates out of pattern recognition and simply “pops up” when circumstances trigger it. This is how the brain links emotion and thought. An emotion (defined as "any disruption to a standard sensory pattern that the brain has already created") erupts to control the kind of thinking needed to solve the problem. Initially these programs are simply wired into your perceptual repertoire. These guide your responses to environmental cues (think avoidance of danger). This is called adaptation. However, if the programs become successful over countless generations, they are burned into the DNA. This is called instinct. And how do you experience these programs? As voices, or narratives, in the mind. These programs show up as the seemingly idle chatter going on in the mind. Most of the time, they appear harmless enough. However, adaptation and instinct collide in trading because the brain does not distinguish between uncertainty and fear. All neural programs are wired to create patterns of avoidant response when stimulated by perceived threats in the environment. And the trading environment, due to its rooting in the management of uncertainty, is going to trigger to fearbased programs. Hence, both instinct and adaptation in the untrained mind create a perfect storm for losing your emotional sobriety while attempting to manage a trade. And how do these neural programs show up in your mind? They appear as the internal dialog or voices in the mind. Thought becomes the voice of your beliefs about your capacity to manage uncertainty. And remember, the brain does not distinguish between uncertainty and fear. This is something that has become instinctual, burned into our DNA, as a successful solution for a greater probability of survival of both the individual and the species. 130

So…this idle chatter that you may not even be aware of most of the time or that can become pesky at other times, is, in fact, the tip of an iceberg that lays out the blueprint of how you react to environmental stressors (like managing a trade).

How Does This Apply to Trading? In his book “Incognito” David Eagleman, the neuro-scientist, describes these programs established by the brain as a rivalry of equals. In the generation of thought from neural behavior that describes the relationship between brain and mind, these programs show up as thoughts, voices, or narratives in the mind. Most are developed through adaptation as a successful response towards survival and become residents of the unobserved mind. And these programs, working in the background of an untrained mind under the stress of trading, take over the rival of rational thought. Another way of describing this situation from a psychological perspective is that the current organization of the rivals of the mind is the baggage that you bring to trading. Fortunately, the adaptation to the avoidance of the fusion of uncertainty/fear can be re-developed through the application of emotional regulation, mindfulness, and the examined development of other internal resources that have been burned into our DNA. Until you learn to regulate the triggering of these emotionally-based programs that give rise to thought, you do not get to the door of the mind. You stay hijacked by programs the brain has already established when you perceive threat. Once emotional regulation is a working skill, mindfulness can be developed so that you become aware of all the rival programs showing up as thoughts or voices in the mind. And you discover that you and your thoughts are not the same. They are simply programs running you. In mindfulness, you develop the talent of choosing which rivals run the thinking of the mind. This is the personal development that all traders need to embrace. This is the internal discipline needed to organize the rivals in the mind into a state of mind that embraces uncertainty and probability. This is the journey that trading demands to become successful. Rande Howell

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The Stages of Trader Development Moving From Fear-Based Trading to Empowered Peak Performance Trading Moving Beyond Fear-Based Trading

If you accept the assumption that your trading performance is rooted in your deepest beliefs about the self, you then also accept full responsibility for the beliefs you hold that limit the success of your trading. This is where you recognize that you trade your beliefs. Most traders trade from self limiting beliefs that erode their trading account and their financial dreams. It is not your fault that you are born into and adapted to these beliefs, but it is your responsibility to change and develop core beliefs about the self that drive a higher level of trade performance. These self limiting beliefs cannot be changed by superficial means. Unfortunately, because survival is based on fear and avoidance, our biology, our histories, and the formation of our sense of self conspire against the accidental formation of belief systems that trade effectively. Fear has to be mastered. This is pivotal to the development of the potential trader in you. How do you actually master the fear and self doubt that are embedded into your deepest beliefs and, therefore, prevent effective trading? It starts with acknowledging that you have a problem with fear contaminating your trading mind. And you also must come to an understanding that, until you learn to manage your fear, your trading will not improve. It is at this moment that learning how to deal with fear and transcending it becomes possible. It also requires a holistic approach. There are a number of different aspects to affect a long term change of beliefs, but rarely do you see how all the pieces of the puzzle fit together. When coordinated in a systematic way, you can build a set of tools and skills that transcend each singular skill. Let’s look at them. Stage One – Breathing: Managing the Fear Response to Threat In trading, fear arises when you experience threat. And fear powerfully motivates you to avoid discomfort. You will be triggered to run, hide, freeze, or submit in response to the threat (your trading). As you can imagine, this presents a serious problem for the trader’s state of mind. Suddenly the trader is possessed by fear and everything is downhill after that. Without the development of specific skills to manage the triggering of fear, the impulse of fear often sweeps the mind away in a cloud of self doubt and reprisal. This is the first step that has to be 132

mastered – emotional regulation. Without this skill acquisition, getting to the deeper psychological re-organization of the core beliefs of your inner trader remains only a remote possibility. Understanding emotions, and how to manage them, becomes a foundational skill to the developing trader. All emotions, including fear, have a biological signature that includes the very breath you take. Fear, as an emotion, is not to be confused with a feeling. A feeling is the subjective experience of the emotion. An emotion is biological in nature – it overwhelms our psychology. Because it is biological, it requires a certain kind of breathing to support and maintain the emotional state. Check this out the next time you are trading, in particular the specific times in your trading day that you experience fear. For instance, this could be just turning your computer on, evaluating set –ups, entering and managing a trade, or exiting a trade. Without this breathing style, the fear cannot be maintained. This is the key to initial emotional state management. Learning to observe your breathing and to interrupt fear-based breathing and replacing it with diaphragmatic breathing is the first stage to emotional state management. Because your breathing has become a deeply embedded pattern, learning to breathe in such a way that produces a calm state of mind has to be re-learned specifically for the rigors of trading. It is the very first foundational skill that must be taught in preparation for emotional mastery. Breathing is a tool, a band aid; it is not the change agent. But it is an essential tool to be used to re-develop the trader. Stage Two – SafePlace: Taking Fear Off-line in the Mind Once you have learned to physically manage the arousal of fear in the body, fear as a state of mind can be addressed. Instead of a calm, relaxed mind, most traders experience highly agitated states of mind. These must be interrupted and changed before the mind can be worked with. Otherwise you will stay stuck with an unruly mind that cannot be managed. This is where visualization techniques can be of immense value (again, not solely). It is by linking calm, peaceful memories to emotion that the trader can train the mind to experience a sense of safety and calm – rather than the chaos of an untrained mind. This is a higher order of emotional state management. Now you have calmed the arousal of fear in the body so that you can manage the mental aspects of emotional states. In the Ignite Your Spark Training for Traders, this mind-calming skill is called SafePlace. A calm mind, like breathing to produce a relaxed body, is not "the answer". It is simply one piece of the puzzle that locks in another skill that will be necessary in order to get to the deeper psychology of your beliefs. Without self soothing, calming the mind down so that it can be worked with is difficult. With it, a new skill becomes possible. This skill is Mindfulness. Stage Three – Mindfulness: You and Your Thoughts Are Not the Same 133

With a calm mind, you can begin to slow down your thoughts so that you can hear them. Instead of avoiding your discomforts (so common in trading), you can become witness to them. No longer are they representations of who you are – instead, they become an internal dialog to be observed. The internal dialog is not “you” – it is simply thoughts in your mind. You have given them power. Becoming witness to your thoughts is called mindfulness. As this skill is developed, there is a separation between the thought and the observer of the thought that is central to the development of mindfulness. You recognize that you and your thoughts are not the same. This is a critical moment in your development. Mindfulness is the door that opens to a whole new world of understanding your mind and your identity as one potential organization of the self Stage Four – The Internal Dialog: Your Mindless Identity Mindfulness is a powerful tool. It allows you to become the observer of your thoughts rather than to stay in the self limiting beliefs perpetuated by the historical internal dialog that masquerades as thoughts in the mind. This internal dialog is the voice of your self-limiting beliefs. It is the “You can’t win”, “You’ll never make it”, “You’re not good enough”, and the “You’re going to lose” that fills your self-doubt and fear-based trading. This aspect of the internal dialog in the Ignite Your Spark Training program for Traders is called the Inner Critic. It is not “you”; it is simply an element in your mind that has taken over your trading mind. The other component that you, as an evolving trader, need to become aware of is the voice of your fear. This scared, child-like part of the self reactively dances with your inner critic. This is experienced is hesitating to pull the trigger, fearfulness while in a trade, or feeling dejected after a bad trade. The development of mindfulness as a skill allows you to separate your sense of identity from the historical conversations that dominate the internal dialog. Once your identity is no longer fused with the internal dialog by fear, much more powerful elements of the self become available in your awareness. This is when the re-organization of the inner trader becomes possible. Stage Five – Freed From Fear, the Mind as a Committee is Re-organized Freed from fear, you are capable of developing your potential for peak performance trading. You are able to develop inner resources that have always been there, but are now available to your awareness. Now you are able to bring forth the inner resources of discipline, patience, courage, and impartiality. In Jungian archetypal language, the Ruler (discipline), the Caregiver (patience and compassion), the Warrior (courage), and the Sage (impartiality) can be brought into your awareness. They are brought out of your mindlessness into the light of your awakening awareness. By 134

developing these inherent potentialities within you, you change the composition of your internal dialog. It becomes richer, more nuanced. And your mind becomes like a committee – far more than the self limiting internal dialog. The committee now includes the discipline, patience, courage, and impartiality to trade from a peak performance state of mind. This is the transformation that the trader is seeking. There will always be an internal struggle going on within the trader’s mind. But you do not have to face it in fear. By developing the inner trader through these five stages, the trader can master his emotions and the inner game – particularly now that he knows one is going on in his mind. Equipping Yourself for the Internal Struggle in Your Mind Self limiting beliefs do not simply give up and go away. They are tenacious. As you develop your mind’s trading committee, there will be continuing conflict. The difference is that now you have the tools and skills to confront your self-doubt, fear, grandiosity, and impulsiveness and master it. It is the development of this awareness through mindfulness that opens the possibility of transformation. In much the same way that 95% of diets to lose weight do not work long term because they do not address the root causes of weight gain, so too most traders continue to lose money. It is in recognizing that a surface change in your trader’s psychology does not work long term that the door to deeper psychological change opens up. To change self limiting beliefs, a holistic, integrated approach is needed...one that integrates how body, mind, and spirit work cohesively together. Leaving one part out takes away a part of the puzzle that is required to build a unified method for developing a trader’s state of mind. Putting them together produces a methodology that gives you the edge in re-organizing your psychology into a peak performance state of mind.

J. Rande Howell

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Trader’s Mind: Mastering Personal Psychology for Trading Success “The order of thinking that got you into trouble is not the order of thinking required to get out of the problem. Instead, it requires a new order of thinking.” paraphrased from Albert Einstein

The Set-Up for Failure. Jack stared at the screen, knots in his stomach. The buy signals were just about lined up. Smiling with anticipation, he felt an urge to pull the trigger. But there was a certain hesitation. Inside, part of him inside was screaming, “Do it. Do it now! This is the one.” Another part of him, a little fearful, was cautioning, “Wait, you don’t know if this is the right one. You’re going to screw up. You always do. What are you going to tell your wife?” The battle raged back and forth in Jack’s mind. Trading seemed so simple when he applied his investment training to practice trading. Now that he had skin in the game, real money – and had lost yesterday – things were different. Now he had to deal with this nagging fear hiding in the shadows of his mind. Still confused, Jack forced his fear into a corner and then tried to ignore it. This was the way he had always dealt with fear for his entire life – pushing it away and pretending it was not there. “There, now you’ve got it under control,” muttered another stream of thoughts in Jack’s mind. It gave him a momentary sense of confidence – just like old times. Though he had a nagging doubt still trying to surface in his thoughts, Jack became entranced and lost sight of the rigorous trading process he had been taught. Unaware that he was fixated, Jack did not see the red flags. While Jack’s mind was hijacked by impulse, he pulled the trigger and made the trade. Relief immediately rushed through his body and he let out a sigh of relief. And after a hold period, he felt an ice dagger plunge into his gut – he had lost again. His lingering question, “What am I doing wrong?” When Trading, There is Nowhere to Hide Even though our friend Jack is well trained in the technical process of trading, his trading success is still inconsistent. And he is discovering why 90% of people who start trading do not become successful. The problem for Jack, and for many traders, is that when 136

money enters the process, the trader brings his psychology to the game. Decision making becomes different. When the fear of losing real money entered Jack’s mind, the confidence that he had built up (while paper trading) became dust in the wind. Gone. Like many people, Jack came to trading as a second career. In his fifties, downsized, with his retirement nest-egg in trouble, he realized he was essentially unemployable. He came to trading as a path to re-creating the lifestyle he and his family had once enjoyed. What he did not realize was how his psychology would play against him in his young trading career. Jack, like most men, had avoided understanding his emotional nature for nearly his entire life. In his life before trading, he could produce stories that covered up his fears. And to Jack, it seemed like everyone else was doing the same. Just like everybody else, he talked a game that allowed him to never face his own internal struggles. It was something that made him uncomfortable, so he cordoned off his fears so that no one would suspect that he was insecure. This strategy had worked for over 30 years. Now, making trading decisions and risking his own capital, his lack of emotional intelligence was a liability. He was discovering, as his investment account dwindled, that the vast majority of trading was psychological. If he could stay in the trading process he was trained in, he would not have a problem. But instead, impulsivity or fear would frequently sneak in and sabotage his efforts. Jack’s discovery was that he could not hide from his internal struggles as a trader. In trading you either won money or lost money. It was that black and white. Jack’s stories, designed to make him look good, (that had worked so well in his corporate life even when he was covering up his own incompetence) simply did not work in trading. Trading was forcing Jack to get to the heart of the matter – his personal psychology. The Internal Dialog: the Conversations in the Mind. Have you ever noticed that there is a conversation going on in your mind – almost at all times? And if you do not believe that there is a constant stream of thoughts in your mind, just try to still your mind and hear the silence. This seemingly ubiquitous internal dialog carries far more wallop than you would expect. It is the management of this very internal dialog that makes the difference between successful trading and failure. Most of us erroneously believe that we have thoughts that go on in our mind. Right? What if it were the other way around? What if our thoughts have us? This is true particularly when we are blind to their power. If you want to test this, go back and read our friend Jack’s vignette from the start of this article (it’s real – as experience by a client of mine). Jack is consumed by the fear from which his thoughts come…and not just any thoughts. There was a dance of thoughts that boomed in Jack’s head that swept him (a rational person) into self doubt and then failure. In particular, this “dance of thoughts” had two players. One was an inner critic – judging Jack’s every move. The second player was scared and decided to pull the trigger on the trade impulsively just to get out of the discomfort. No wonder he was losing money! He had spent most of his adult life pushing this internal dialog away from his awareness. And because he did not have the necessary skill sets to observe, disrupt, 137

and change the “players”, these “voices” dominated Jack’s thinking. It could be different. What Jack was experiencing is the historical internal dialog. These are the “voices” we hear as thoughts that automatically rise in our mind and become our self fulfilling prophesy. So invested in avoiding its critical nature, Jack had let this internal dialog go on for years without confronting it. Actually he was doing his best to ignore that it existed. And this old habitually-wired strategy was killing his trading success. That was about to change. What Jack was learning was that his brain had created a comfort zone to avoid the fear of losing out on opportunity. This was his impulsiveness – jumping to action. Unfortunately the very comfort zone (called a “perceptual map” in Psychology) that his brain had created to avoid anticipated loss also kept him from becoming successful! The problem was that Jack had to learn how to override his brain’s mandate to create familiar patterns (in which he was stuck) that ensured survival, but also denied long term success. Jack had to break through the prison of his comfort zone. To become a successful trader, the internal dialog has to be understood and managed. That is what Jack was about to learn. Managing the Voices on the Stage of the Mind Imagine your mind as a stage where thoughts take on the form of different voices. And on that stage are various actors that give voice to the drama called your life. Dramas are built around conflict and its resolution. The constant is that there is a struggle between the good guys and the bad guys. The one that wins is the one that takes over the stage of the mind and dominates thinking. This becomes the box of your comfort zone. And for Jack, it was about the avoidance of conflict. This was a workable organization of the self until he began futures trading – where risk (conflict) could not be avoided. Going back to Jack’s story, can you see the struggle he is enduring? The problem is not the struggle – conflict is inescapable. The problem is that, in his ignorance, the negative voices within the self are the ones that are creating his expectations of the future. No one taught him that he can awaken other, more powerful, voices within his mind that could become part of his internal dialog. And, as Jack learned how to do this, his trading improved dramatically. Identifying the Voices of the Mind. Jack, as he continued his internal analysis, discovered that he had a voice within his mind that was highly critical of anything he tried to do. And he was tuned into it. He came to call this Inner Critic in his mind the Shadow. It seemed to go in and out of the shadows of his awareness and could really sneak up on him like an attack submarine. It is not that Jack is different than you or me. Everyone has an Inner Critic as a voice on the stage of the mind. There are no exceptions. Most of us become so identified with the Inner Critic that it simply becomes part of the way a person perceives himself – or his trading future. And if we try to ignore its presence on the stage of the mind, it will consistently produce bad trading days – just when you can least afford it. Jack also discovered he had a Doom Kid and a Saboteur lurking around in his mind. The Doom Kid was scared of losing and predicted catastrophe no matter what the market 138

did. That is where his self doubt came from. The Saboteur was the impulsive part of himself. It was the part of the self that would abandon a trading process after he became fixated on a set up. The fixation over-rode adherence to the trading process. Before long, impulse directed action rather than process. Discovering the Internal Heroes. Focused on avoiding discomfort, Jack, like many of us, had become blind to powerful unseen voices in his mind. As he developed an inner discipline, Jack discovered that there was a courageous voice that lived within him. He was not as familiar with this part of himself as the self-limiting voices, but he learned to bring it into the forefront of his awareness during trading. As he developed a tiger-like Courageous Voice, he was able to confront the inner critic and force it out of his awareness. This moved his psychology out of fear, self doubt, grandiosity, and impulsivity. This new psychological space in his mind calmed him down and allowed him to make another discovery. In the calm state of mind that he had been able to create, Jack also discovered a wise part of himself that used dispassion to make decisions. The development of this voice in his mind allowed him to stand at a distance from the turmoil of the markets and make buying and selling decisions impartially. He was no longer being sucked into the trades by his self doubt or his impulsiveness. Now he could stand on the outside and make decisions from a dispassionate state of mind. His trading improved dramatically as he developed these discoveries into a repeatable process – Trader’s State of Mind. Developing the Trader’s State of Mind Developing a process for being in Trader’s State of Mind while trading moved Jack from trading ineffectively, questioning everything that he did, to trading with confidence. Now the trading process he used to trade analytically was matched by a psychological process that put him into Trader’s State of Mind. He now was able to analyze from a dispassionate state of mind and courageously pull the trigger on the trade. His trading turn around began when he developed the ability to observe the thoughts in the mind, not as who he was, but as voices that have taken over the thoughts of his mind. Gaining mastery over this skill opens up a whole new world in trading. Historically, people report that there is far less drama in their trading. In its place is a deeper sense of calm and confidence in their capacity to maintain an effective trader’s state of mind. Few people are born with a trader’s state of mind. Fortunately, it can be developed. Once a trader recognizes that building an effective trading psychology is essential to successful trading, the motivation and need to re-organize the conversations of the mind becomes apparent. And the essential elements of developing a trader’s state of mind are present within each of us. Our job is to awaken them. In awakening these heroic parts of the self, our interaction with the internal dialog that goes on in our mind changes dramatically. Like Jack, most of us are blind to the internal dialog and the influence it has over the invention of our lives. For example, Jack was not intentionally sabotaging his trading efforts, but his blindness to his internal dialog opened him to fear, self doubt, grandiosity, and impulsiveness. Waking up to this drama going on within him without his knowledge was 139

humbling. Yet, it was also the door that opened to his transformation as a trader. The Set Up for Peak Performance Recognizing that he could wake up and develop elements of his personal psychology – that substantially improved his capacity to train effectively – is changing Jack’s life. Not just his trading, but in his experience of joy and satisfaction with his life. His days are no longer stressful and he experiences much more calm and satisfaction with trading. He no longer wakes anticipating the trading day with knots in his stomach. Now he enjoys waking up and preparing to be an impartial observer of the markets. With keen interest, he develops a plan based on the market’s close. Then he goes through a psychological process that aligns his internal dialog to be focused on the Wise One making the trading decisions and the Tiger pulling the trigger on the trade. The Shadow, Doom Kid, and the Saboteur are all still there – but he is not blind to them anymore. Better yet, he knows how to call into awareness the parts of himself that produces trading, and life, success. Rande Howell

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Trading Not To Lose A Disguised Fear of Loss and the Future

Steve stared at the set-up. It was a close match for what he was seeking. He had seen this pattern emerge many times before and was comfortable that this was a high probability trade – right in line with his trading plan. Now all he had to do was get the right price. He put in his order at a rock bottom price figuring that he was managing any potential for loss. And then he waited for it to be filled. And he waited. As he waited, he watched as the trade kept climbing. Finally it had run its course and Steve, again, had been left on the sideline of the trade – his order was never filled. And this was not the first time. It was a persistent pattern that defied explanation. Frustrated, he looked at his charts and recognized for the umpteenth time he had let a high probability, low risk trade slip through his fingers because he had insisted on a rock bottom price when, in fact, if he had acted within the price range that his trading plan had called for, he would have been able to profitably enter the trade with plenty of room to spare. This was a persistent pattern in his trading, and he did not understand it. There was also a sense of relief that he had not lost capital. He really liked keeping his potential losses to a minimum. Ex-comptroller that he was, he took great pride in loss abatement. When he looked at his ratio of winners to losers, he smiled. It was good. It was very good. The problem was that he was not entering enough trades to make a comfortable living. The truly frustrating part for Steve was that he knew he knew how to trade. He was good enough at his methodology that he could teach it. The problem, as he saw it, was that he could not find the perfect blend of indicators and signals that would make his system work properly. As soon as he figured that out, he knew he would be able to make his financial dreams come true. ___________________________ Being Blind to a Self-Limiting Pattern If you look at Steve’s situation from a third party, emotionally detached, perspective, it is easy to superficially spot the problem. He simply needs to tweak his trading plan to allow more flexibility in what price he is willing to pay to enter a trade. After all, there was plenty of room for a profit. With his trading plan modified, he would have more flexibility on his entry points 141

and would confidently ride the high probability, low risk trade predicted by his charting. Following this line of thinking, the problem would then be solved. And if traders were, in fact, rational and emotionally detached human beings, this would be the case. However, because they are human, actually all their thinking is emotional state dependent. And what lurks in the shadows of the mind (pushed far away from conscious awareness), does create a persistent pattern of perception, emotion, thinking, and behavior that limits a trader’s potential for peak performance trading. The trader becomes blind to this pattern operating in the background of his awareness – he does not even see it influencing this perception. Off his radar screen, it keeps hijacking his capacity to successfully perform in his trading. Here is the way one trader described this form of blindness: __________________________________________ “Most traders don't believe one of the key variables to successful trading is themselves. Thus, they ignore or underestimate the importance of themselves as a key piece of the puzzle, which is why they get "tunnel vision" about their trade methods. I also see an escalating situation where traders realize that they have a discipline problem via publicly stating such as a fact...they believe their "self help" solution is too fine tuned for their trade method. Simply, once again, they fall back into the trap that it's about the trade method, only under the facade they are working on their discipline problems. Further, just as much of a problem, many of those that show up to give advice about the discipline problems...their recommendation involves changing, tweaking or fine tuning the trade method. This pattern (pun intended) helps instill the belief that if we fix the trade method...we'll become disciplined traders. It just doesn't work like that.” _________________________________________ Like many traders before him, initially Steve was resistant to exploring how he was part of the problem. He looked everywhere but failed to look at his psychological contribution to his trading problem. As a rationally trained man, he believed the problem was “out there”. And that he, of course, was rational. The problem, in his perception, was to be fixed by altering the variables of his trading plan. The trading plan was the problem. If the trading plan were fixed, his problem would go away. What he had to acknowledge, though, was that after five years of rationally “fixing” his trading plan (when it worked quite well in simulation) was that the trading plan was not the problem – he was. But how? Trading “Not to Lose”, Rather Than Trading With an Edge 142

When Steve began to examine beliefs that he brought into trading, he discovered he carried more emotional baggage than he initially thought. And, in his mindlessness, these deeply held beliefs directed what his rational mind saw. His hard-nosed approach to price and avoidance of loss, under close scrutiny, was not the product of rational, impartial problem solving. It was fear masquerading as reason. What Steve discovered was that he had been using “rationally thinking” as a way of avoiding his discomfort that trading forced into the conscious mind. Uncertainty and loss had become associated with one another in Steve’s brain/mind – his perceptual map. He carried this fear of loss in the face of uncertainty as self limiting belief now. But it was beneath the surface. It was like a submarine, beneath the surface, torpedoing a ship on the surface. Fear was the submarine. Rational was the ship on the surface. His trading was the casualty. When he traded, he triggered to this perceptual map that had become a self-fulfilling prophesy. The truth, beneath his rational exterior, was that he believed that the uncertainty of the markets would lead to loss if he were not very careful. Out of this deeply held and unconscious, fear-based belief, he created a rational cover up to avoid the potential for loss. By never getting the price he wanted, he avoided the fear of uncertainty that kept blowing up this trading plan. With his rational mind doing the bidding of his fear-based beliefs, he avoided the potential for loss in his trading. There was nothing wrong with his trading plan, he discovered. The limitation to his trading was based on the rules of uncertainty and loss he had learned as he grew up in a family that experienced terrible financial losses in his formative years. These years had been tough on the family. In the face of survival, they had learned the hard way to avoid uncertainty and to only risk when you could not lose. This way of seeing the world (that the world is a dangerous place and you’d better be careful) became the hidden assumption that guided Steve’s development of risk management. And in his profession prior to trading, as a corporate comptroller, this perceptual map worked well. Steve did not see his perspective as a personal bias though; he saw it “as the way it is”. This is because it had become a familiar pattern and was pushed into the background of his awareness. The very skill set that gave Steve an “edge” in corporate finance had become a liability in trading. He had developed a habit of trading “not to lose”, rather than a mindset of accepting and managing the risk of probabilities that trading demands Steve came to recognize that it was not his trading plan that needed to change – it was him. This is not to say that his trading plan does not need to evolve, along with him, as he moves deeper into his journey of trading. What Steve came to understand was that he is an inseparable element from his trading. Each element – from platform to methodology to personal psychology – has to be woven together with care to create successful trading.

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And without a close examination of the beliefs in which his psychology is rooted, he was missing the access to a key element to successful trading. He fell into the deception that he was rational and that “rational” was normal – even superior. It felt emotionless, which he had been taught was how a trader needed to trade. This was also a stumbling block to his growth as a trader. What he discovered was that “rational” is an emotional state among other emotional states. And that he could hide his discomfort behind the façade of “being emotionless” that a rational emotional state provides. Rational became a defense that allowed him to avoid looking deeper into himself. After closer inspection he discovered that a deeply rooted fear of loss had caused him to stay out of trades. Demanding a price that the market was not willing to give became a way for him to avoid his fear that he might lose. And with his logic and rational thinking captured by this fear, he produced a trading plan of elaborate criterion that looked good and keep him out of trades. And because it was so familiar to him, he never saw the self limiting beliefs operating within him. Mindfulness as Part of a Psychological Trading Plan You have just read about a trader wakening up from his mindlessness. He was so absorbed by his logic that he could not see that it was blinding him to the core problem. It kept him focused on the surface of the problem. He saw symptoms of the deeper problem, but the symptoms so pre-occupied him that he thought the symptoms were the problem. He was lost in his direction, but making good time. Questions for Developing Your Mindfulness: (1) If you take a look at the symptoms of your trading, what do you discover? (2) What is the consistent behavioral performance that keeps repeating itself? Then let’s go a little deeper. (3) What kind of game plan seems to be in place?

For the trader in the example above, for instance, the game plan was “not to lose”. His game plan did not include managing the risk of uncertainty so that probability was on his side. He kept telling himself that in his self deception he was trading to win, but his behavioral performances over time told a different story. His logic actually covered up the deeper selflimiting belief that was at the core of his lackluster trading performance. The second part of his game plan was to hide from his fear, and he accomplished that by staying stuck in a kind of "logical thinking" that produces merely surface evaluation – projecting the problem outside of the self – rather than a mindful attitude that looks for the beliefs beneath the performance.

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(4) Based on your trading performances, not on your rhetoric, what beliefs actually drive your trading?

No one is going to be looking at your answers to these questions. The questions are designed to help you discover the current psychological organization of self that trades your platform and methodology. Becoming mindful of them is a major step in changing them into more effective beliefs that open up the possibility of peak performance trading. As long as hidden beliefs stay out of sight, they are out of mind. But, they still influence your trading performance. You are simply mindless of (i.e. blind to) their influence much like a horse with blinders on never sees the green grass on each side of the path. The blinders become the “tunnel vision” that limits what the horse (or the trader) sees and can act upon. Developing this kind of mindfulness is a major element in the evolution of a trader. Without its development, you stay stuck in the pattern of seeking answers “out there”. With it, the trader becomes aware of the tunnel vision that has blinded his development. Blinders off, a new vision of trading emerges where platform, methodology, and personal psychology coalesce into a dynamic new possibility of peak performance trading. Rande Howell, MEd, LPC

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Training Your Brain to Manage Fear Uncoupling Uncertainty From Fear The mindset that you brought into trading is rarely rooted in the psychology that will produce success in trading. If you hesitate in attempting to pull the trigger, or experience a fear and impulse roller coaster ride when you are in a trade attempting to manage it, you have experienced this first-hand. Many people come into trading with a psychology of self that produced success in other domains of their lives. By sheer drive or by patient accumulation of capital over time, people enter trading with preconceived notions of how to produce success. They believe, “My work ethic worked in the past, why not in trading?” The Journey of Understanding Fear After a number of years committed to learning how to trade, the vast majority of traders still perform inconsistently and have come nowhere close to managing the fears that manifest in trading. The old ways of managing fear, so useful in their former careers, simply do not work in the uncertainty of trading. Trading with an attitude of “you can conquer the world” is not going to help you win at trading. Developing an attitude of winning in trading is very different from winning in most other endeavors. It’s not external. Instead, you have to conquer yourself, and out of this comes the internal kind of confidence necessary for successful trading. This is a very different kind of confidence. Trading confidence is rooted in being comfortable in managing ambiguity rather than certainty. The psychology that most new traders bring into trading was built to create certainty and then act accordingly. In trading, the opposite is true. The trader is always in the midst of uncertainty and the ambiguity that springs from never working with a “sure thing”. This powerful bias toward certainty is wired into the very fiber of our biology. Humans evolved with an environmental pressure to survive in a dangerous and threatening world. And our success as a species is in part due to our capacity to spot danger at a distance and avoid it. Humans became wired to seek certainty and avoid uncertainty. And as humans became psychological, we developed beliefs that shaped our perception rooted in avoiding uncertainty and desiring certainty. A mindset focused on trading not-to-lose-money-again is the way this bias shows up in the ambiguity found in trading. Re-enforced by family and culture, our perception became shaped to avoid uncertainty (threat) or attack the object of danger. This trait of coupling uncertainty with fear is truly exposed in trading. In most of the areas of our lives, the relationship between uncertainty, ambiguity, worry, and fear are not so straightforward and immediate so we do not have to 146

adapt to this world view. This allows us to remain in an illusion of control. Occasionally something does crash into our carefully “certaintized” world (but they are rare if you live in a developed country). In trading the linkage between uncertainty, ambiguity, worry, and fear is ever present and is inescapable. This is the problem that has to be solved to become a consistent trader. Uncertainty and ambiguity have to be de-coupled from worry and fear. And a trader has to develop a mindset that allows him to work with the ambiguity of uncertainty. It will not be the mindset that you brought into trading. It is a mindset that has to be developed as the old mindset is deconstructed. Toward a Probability-Based State of Mind The state of mind that you bring to the rigors of trading is going to determine the probability of your success in trading. The standard, historical mindset that humans have developed over many years is that of fear and avoidance. And most traders, in their mindlessness, bring this historical fear-based mindset into their trading without ever having the skills to observe and change it. As long as this is not changed, fear will build and maintain a belief system that will avoid threat or psychological discomfort. With a fear based mindset, it does not matter that probability (your methodology) is on your side. Fear will never allow you to move out of reactive avoidance patterns without reconstructing the beliefs that lie behind the fear. This is why, by themselves, affirmations, visualizations, guided meditations, and NLP do not work to create long term change. Belief structures in the brain and the emergent mind are highly resistant to change. Failed diets and failed surfacechange solutions clutter a person’s library as a result. The bottom line is that the beliefs that we bring to trading are rarely the beliefs that can produce success in trading. Until uncertainty has been decoupled from fear and worry, a trader is not going to be able to produce a probability-based mindset that is needed in trading. Add to this the reality that the vast majority of traders lose money and transfer their capital to traders who have been able to build or inherit a disciplined and impartial mindset. By our nature, we evolve as we adapt our belief system to the challenges of the world or we resist evolving due to our nature to produce certainty. This is what biological systems, whether conscious or not, do in their dance with the world of uncertainty that we are immersed in. We develop "fears" that allow us to avoid the ambiguity of the uncertainty of change. These fears were in response to the threat that uncertainty held for survival. And at one time in our not-so-distant past, uncertainty and fear were glued together as part of our survival. It is the management of this ambiguity that must be faced head on in trading. The distant past must be brought into the here and now of trading. In un-tethering uncertainty from fear, you open the door to the reorganization of the self in a purposeful direction. In this sense, 147

trading becomes the laboratory of the design of self-fulfilling beliefs about the self and the world that we are part of. When we learn to face our fears from a position of calm assertiveness and can think in terms of probability, trading becomes much easier. We are no longer living in our histories, but are creating our futures. In mindfully developing a state of mind designed to deal effectively with probability, we become intentional about the mindset that we bring to the uncertainty and ambiguity of trading. There is no threat to biological life at stake – fear and worry are no longer necessary for processing information. With training, a probability mindset delivers the disciplined, impartial, patient, and courageous state of mind needed to engage the uncertainty of not knowing “for sure” and a trader’s methodology truly gives him the edge he needs in the management of risk – not threat. This is a state of mind that the trader builds – he does not find it. It is not “out there”. It exists as a possibility within each trader; but they have to become intentional in developing it. Rande Howell

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Understanding Emotions in Trading Developing Your Emotional Intelligence for the Next Level Working with emotions is not optional in the life of a trader. A trader’s lack of understanding of emotions and how they work is a major obstacle in trading performance, and it will stay that way until the trader learns to deal with emotions effectively. Most traders do not notice an emotion (fear, greed, or euphoria) until it has already corrupted their mindset and hijacked their capacity to think clearly. By the time the trader notices the "feeling" of an emotion, it is too late. When you (the trader) “feel” the emotion, it is already coursing as chemistry in your body and brain and your thinking is compromised in whatever direction the emotion is taking you. When this happens, there is no way to put the brakes on the emotion and return to clear thinking. The best solution at this moment is let the emotional chemistry “burn” itself out so you can come back to your senses. (You can accomplish this by getting away from trading i.e. take a walk, go exercise, go for a run – anything that accelerates the burn of the emotional chemistry in the body). But, it does not have to be this way. Let’s take a look at emotions in trading and discover how it is possible to build a path to emotional mastery. What is an Emotion? First, emotions are not feelings, although feeling is an element of an emotion. Emotions are not touchy-feely – they are biological. Emotions take over psychology and thinking. They are built to provoke the body and mind into specific forms of action based on the motivation of the emotion. This is why managing them is so important in trading. Fear, for instance, is built to avoid threat – both biological and psychological. The emotional brain, once provoked to fear, will manhandle the thinking mind to create explanations that support what the emotional brain believes. This is because all thinking is emotional-statedependent. The key to successful state of mind management, therefore, is emotional state management. Second, an emotion (being biological in its nature) is defined as any disruption to a standard sensorial pattern that the brain has already established. That standard sensorial pattern is often referred to as your "comfort zone". So, as you are trading, if any deviation occurs from a pre-existing homeostasis, an emotion pops up to deal with the disruption. Now what does that look like in trading? The movement from evaluating set-ups to 149

committing to an entry point is just such a disruption to standard sensorial pattern. Suddenly your cozy comfort zone is disrupted and you are committing capital to risk. For many traders, this represents threat. And, if you do not develop your EQ (emotional intelligence), it will not matter how much you KNOW about trading and risk management while in the safety of your comfort zone, your trader’s hand still freezes and you cannot pull the trigger because the emotional brain dictates how the thinking mind will think. Here, the emotional brain perceives the uncertainty of putting capital to risk as a threat and jumps to fear and hesitation. Becoming emotionally intelligent is essential to the development of successful traders. Learning how an emotion operates will give the trader an edge in managing his emotions and mastering the mind that he brings to trading. Elements of an Emotion Emotions are composed of a number of interlocking elements. The important thing to understand about emotions is that they are biological and they take over your psychology. Learning how emotions operate is the first step to mastering them. Here are the elements of an emotion: Arousal. First, there is a change in the status of a trade which triggers an emotion based on the trader’s perception of threat (fear) or opportunity (euphoria or greed). What happens next is that the body begins to ramp up for action. Breathing changes. It stops or begins to become shallow and rapid. Muscles tense, getting ready to spring into action. The heart begins to race or miss a beat. You are now experiencing the arousal of an emotion. It is building, readying the body for action. This is the place you want to catch the emotion – before it builds up a head of steam and becomes an out-of-control locomotive. As the emotion’s engine revs up, it reaches a critical mass. It flips an internal switch and it springs into action. It is no longer building up – the switch is flipped and the emotion activates the feeling component. Feeling. Feeling is the subjective experience of the emotion and is where most traders notice the emotion. However, the feeling element of the emotion is also the chemistry of the emotion coursing through your body. This chemistry is what you “feel”, and this is when the emotion contaminates thinking. In the life of emotional activation, the emotion can easily take 45 minutes to an hour for the chemistry to burn out if it is no longer being stimulated – not good for the trading mind. So you will no longer be in your “right” mind for trading if you are experiencing fear or euphoria. Both fear and euphoria set the trader up for skewed thinking. The feeling element of the emotion produces a belief in the certainty of whatever direction the emotion is provoking you to go. Motivation. Motivation is where the emotion is taking you. Remember, emotions are biological and are about producing action in a particular direction. Those directions 150

are called emotional motivation and are either avoid (run, hide, freeze, submit), attack, or approach. Feeling and motivation conspire to sweep the trader’s mind away. If you have ever been reviewing your trading day and wondered what happened to your right mind in the heat of trading – this is it. Motivation provided the direction of the e-motion and the feeling provided the certainty of the belief that hijacked your thinking mind. Meaning. Meaning is the self-belief concerning the trader’s adequacy, worth, mattering, or power to manage uncertainty that becomes attached to the emotion. You can declare that you believe something, but that is only cheerleading. The proof of what you really believe about your capacity to manage uncertainty will be found in your trading account. Most traders avoid looking into their self-limiting beliefs (no matter how boldly their trading account points to them) because it creates discomfort in their comfort zone or current organization of self. This lack of courage is what keeps the trader locked in his self-limiting beliefs, that negatively impact his trading account. Pre-disposition. Genetic pre-disposition is simply beyond the scope of this article. We are all wired with certain potentialities – it is what we do with our potential that matters, though. Freedom of Emotion, Not Freedom From Emotion Emotion is unavoidable in trading. The EQ skill is learning how to use emotions to produce effective states of mind for peak-performance trading. As a trader develops his EQ, he learns to regulate reactive emotionally-based pattern. The first step is to volitionally alter the arousal element of the problem emotion through breathing and tension release. By doing this, he is able to better manage the intensity of the emotion so that it does not activate the feeling state of a reactive emotion while trading. (If that occurs, the trader’s mind is compromised.) As he gains the emotional competence to regulate the emotion, he is able to get to the door of the trading mind. This is where he can use new-found courage to examine the beliefs that limits his capacity to manage the uncertainty of probability. Here is where meaning can be transformed - first, by discovering his inherent worth as a human being. This is really important. It is at this point that he can focus on his trading as a performance rather than a characterization of his being. At this point in the journey of a trader, he is re-organizing the meaning of self that is embedded into the emotional structure. Here, the trader can begin to use emotion as information or data because he is no longer afraid of what he might find out about himself. He begins to see what is manifesting in his trading with far less avoidance and denial and he uses this information to design the mind that trades. No longer does he try to avoid the discomfort of reactive emotions and the selflimiting beliefs that lurk behind them. Instead, he is able to use the emotion as information 151

that tells him where he needs to look for self-limiting patterns. He knows that emotions will lead him to what he needs to know about himself so he can grow as a trader. Fear has been transformed into reverence, vigilance, and concern. These emotional states that give rise to a peak performance state of mind are rooted in discipline, courage, patience, and impartiality. Rande Howell

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Unearthing the Hidden Beliefs that Keep Your Trading Prisoner Ken had come a long way. Emotional hijackings no longer ambushed him. He could catch them long before they would blow him up in the heat of the moment. At first, he thought he had finally discovered the secret that would take him to the next level in his trading. But there was something missing. He still experienced dread of a grandiosity that would creep into his trading and, like a slow fuse, blow-up his trading mind. Working with emotions effectively is not an option for successful trading. When developing your Emotional Intelligence for peak performance trading, Emotional Regulation is an inevitable by-product. But it, by itself, is never enough to change selfsabotaging behaviors into an empowered mindset for trading, just as our friend Ken is discovering. In the first 2 articles of this 3 part series, we explored how Ken developed the emotional intelligence to understand emotional arousal and learned to regulate it before the emotion consumed his trading mind. To do this, he learned what to look for BEFORE the emotion overwhelmed him. Then he learned how to disrupt the negative emotion before it did damage to his trading account. I encourage you to go back and read these prior articles so that you can transition to this article about the ultimate difference-maker in Ken’s trading. Peeling Back the Layers There are 3 levels of awareness that we are bringing to this study of Ken’s trading. The first layer is simply the physiology of the emotion as it ramped up for action. Ken became aware that an entire biological process was involved – it did not happen out of thin air. As he developed his capacity to be mindful of his body and its precursors of emotional arousal and feeling, he became much more attuned to the ebb and flow of emotion during his trading day. Out of this new found awareness, new skills arose that allowed him to interrupt and then regulate the intensity of the emotion – the second layer of his emerging emotional intelligence that became operational in the heat of his trading cycle. He developed observational skills which advanced him to a new level of management of his emotions. Note that the management of emotion does not mean the willful control of emotion. You must work with emotions like an electrician works with electricity – with an enormous level of respect. The electrician does not make the electricity do anything, but he does manage how the electricity is applied in a given circumstance. This Emotional Regulation process, and the skill with which he applies it, has given Ken considerable influence over the arousal, feeling, and motivation components of the emotional triggering. By managing these elements of the emotion, Ken is able to keep his composure. However there is another layer to the emotion that Emotional 153

Regulation does not touch – meaning.

Meaning, Belief, and the Eye of the Beholder During the formative growth of your brain, a process of imprinting lays down neural circuits that constitute the basic beliefs you have about life. These basic beliefs structure the meaning that you bring to the circumstance of life. The most basic ones are about mattering, worth, adequacy, and your sense of power in the world. Most of these beliefs come from the culture, community, family, and circumstance of your life. Your notions of adequacy and power become rooted into the enormously complex way you learned to respond to the challenges of life. The way you respond to the challenges of life are grounded into your emotional nature as the meaning component of an emotion. Most of us, through cultural, social, and family learning, come to hold certain beliefs about our capacity to manage the uncertain challenges of life (i.e. whether or not we will be able to prevail ). It is these beliefs that show up in trading when you are attempting to manage the uncertainty, the ambiguity, and confusion found in trading. Unfortunately for the trader in you, the brain was wired for seeking certainty and avoiding uncertainty (fear-based thinking) because our biology is biased toward that end. And our socialization adapts us to avoid risk because we might make a mistake and fail in a particular attempt. And in trading, this is certainly going to happen. Because trading is a probabilitybased venture where large numbers have to be put up to see a true trend and your brain/mind is biased to not lose even a single time, your beliefs (both from biological bias and adaptive social pressures) are usually not suited for trading. In your family, in your culture, in your schools, and in your careers – you are told to “not make mistakes”. And if you come out of (in particular) an engineering, medical, accounting, or airline employment background, the pressure to not make a mistake is compounded. The hidden beliefs that you are looking for are the ones that you hold about your capacity to manage uncertainty and what making mistakes means to you (really). It is these beliefs that bedevil traders as they attempt to become successful traders. Let’s take a look at Ken as an example. The Dilemma: You Cannot Learn if You Do Not Make Mistakes, But Are Shamed if You Do. Ken grew up in a military family where making a mistakes meant that you were about to be yelled at, shamed, and emotionally isolated. Ken’s developing brain, in adapting to this environment, did everything possible to avoid making mistakes. And even when he was an adult, making mistakes produced a visceral sense of dread and shame. And Ken learned to “not make mistakes” in everything that he did. This strategy worked well in his career until started trading. And then the mind that he brought to trading that was scared of making mistakes began showing up in his trading 154

performances – where losing is simply part of the game. This belief that he must never make a mistake, so forcefully embedded into his habitual nature, became his undoing. An avoidant/adaptive response to circumstance became a belief about his adequacy, his worth, and his power and this was compounded by his biologically inherited bias to avoid the risk of making a mistake. A perfect storm was the result. His belief about his capacity to manage uncertainty became woven into the emotion of fear. Uncertainty and fear were fused together. So now, when Ken encountered uncertainty (at entry points and managing the trade), fear (with its arousal, feeling, and motivation) exploded because the belief he held from his formative period was that he could not make a mistake – or he would be shown to be inadequate. The feelings associated with inadequacy were to be avoided at all costs. So, no matter how much Ken knew, he still did not believe that he could master uncertainty because he made mistakes. Until this problem was solved, Ken (like many other traders) would never become a successful trader. Beyond Attachment Disruptions: Imprinting a Self-Limiting History Ken, like many traders, experienced significant attachment disruptions that his brain organized him to avoid during his formative period. The sting of making mistakes (inadequacy) and the sense of being overwhelmed by an overly critical parent colored the lens of perception that Ken brought to trading. And in trading, he could no longer avoid dealing with this once-successful strategy that no longer served him. For Ken, learning to forgive and let go of the past was the major piece of work that stood between his current performance and the later performance he achieved. He had to come to recognize that his father did love him, though he did not know HOW TO LOVE Ken effectively. The sins of Ken’s and his father’s forefathers came to bear fruit in Ken’s trading mind. As a result of his trader psychology training, his hyper-vigilance about making mistakes was transformed into an acceptance of learning through mistakes. This is a common psychological reorganization that many traders need to master as they evolve as traders. But how about other traders who do not have such strained attachment relationships like Ken? How is it that they also have problems in their trading? One of the biggest problems found in trading is scarcity thinking. And it particularly shows up as a trader takes profits too early or engages in self-sabotage. In these cases the brain has developed in a family or community history of powerlessness. Each individual’s history is unique, but an example will point out the power of a history upon the efficacy that a trader brings to the table. Roger grew up on a farm in Western Australia. At best the land was marginal for farming. The family persists for generations, barely eking out a subsistence living. Everything has to be nearly perfect for them to make a profit. But the weather often does not cooperate. They experience droughts regularly and their crops fail. There is barely enough money to pay their loans and they are often at the edge of foreclosure. And there is never enough for them to buy anything for themselves. They live in circumstances where they come to believe that bad things are going to 155

happen right around the corner. They have seen it happen so many times that they “know” it is inevitable. No matter how good things may look right now, they “know” that it is only a matter of time before it is taken away from them. This is a loving family. And it is also a breeding ground for scarcity thinking. When you are raised in circumstance and histories like these, it is only natural that you will fall into the perceptual map of seeing the dark side of probability. Often this mindset is brought into your trading and, as long as this acquired historical mindset is not recalibrated into a more empowered understanding of probability, bad things are going to continue to happen. Changing the Beliefs Embedded in Emotions In both the scenarios described above (both from my clients), what I hope you have seen is that the process of reorganizing the Self into a higher functioning trader begins with applied Emotional Intelligence. Understanding how emotions operate is crucial. As the trader begins to regulate them, they begin to drill down deeper into their beliefs about their capacity to manage uncertainty. It is this that has to be transformed for the trader to move from struggling to competence in his/her execution of trading. Beliefs are the lens through which the trader sees the markets. And the hardest part about change is your resistance to change. The skills outlined here show you how to stay the course as you approach the self-limiting beliefs that require change. Then the powerful question arises: Who do I need to become so that the trader I envision can become real? The traders who become successful recognize that they have to stop fighting change. Instead they become the change. Rande Howell

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Why Self-Destructive Behaviors Persist A Positive Attitude is No Match for Reactive Patterns A Common Scenario for Self-Sabotage This time it was going to be different for John. He was ready. His trading rules were etched on the back of his eye lids – burned into his memory. He knew the set-ups he was looking for, backwards and forwards, and he was only going to trade those set-ups. John knew how he was going to execute his trade. He knew how he was going to manage risk once he was in the trade. All he had to do was follow his rules and he was going to win his share of trades. He affirmed that he was a patient and disciplined trader. John saw success and could feel it. Prepared for battle, John turned on his computer, watched his screens light up, and saw the charts appear. He was ready to trade – to win. What happened after that is still a mystery to John. Somehow, despite his best intentions, he ended up taking a loss on a trade that was questionable at best. It certainly was not an “A” trade based on his trade criterion – which he swore was the only ones he would take. But there he was anyway. Then he took a loss. Everything after that is a blur to John. All he knows is that he somehow fell into self-destructive behaviors that led him into revengetrading. Before the trading session ended, John (once again), had a losing day. And he really did not understand what had happened or how to stop it from happening again. He was rattled and was no longer the confident trader he had talked himself into being before he started trading earlier in the day. This scenario had been going on for way too long. He was so close (but so far away) from the success he wanted. He could smell it, taste it; but somehow he kept falling into a selfdestructive spell and instead he kept pulling defeat out of the jaws of victory. A Closer Examination of Self-Sabotage Through Another Perspective What appears as a perplexing behavioral performance that is negative can, in fact, have positive intent when we examine how our biology, our DNA, and our mind weave reactive patterns together for survival in the short-term, which is exactly what our emotional brain has evolved to do. This short-term orientation toward survival problems, burned into our DNA, was never designed for the probability kind of thinking required of trading. Rather, it is designed to produce a belief in the certainty of survival in the short-term. It is this built-in bias that traders have to learn to work with and change if they are to tap into the potential that trading can offer. Self-destructive behavior in a particular domain (like trading) can be an initially positive behavior learned in another domain and time. This is called secondary gain. Avoidance of uncertainty (avoidance of threat) is a mandate for our brain's survival biases. Even attacking the "cause" of the uncertainty and threat is deeply burned into DNA because of its success over countless generations. When the attack or avoid motivations of an emotion create success (removal of threat) the behavior is considered a success to the prime directive of survival. And being successful in the short-term for survival, this confluence of emotion, cognition, and behavior becomes burned into neural memory and becomes habituated – just waiting to be triggered in the event of perceived threat.

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Here the plot against the maintenance of an effective trading mind thickens. After many reps of avoiding or attacking perceived threats in one domain (saying believing a saber tooth tiger is behind the bush) and wiring that learning into a highly charged circuit in the brain, the trader takes that learning into trading where uncertainty has to be managed by a higher order of thinking. Without training, the brain is going to reactively perceive the uncertainty of outcomes found in trading as a threat to be avoided or attacked. This is simply the biology of emotion overwhelming the capacity to maintain a probability-based mindset. Not being able to pull the trigger when all conditions are met is a form of learned avoidance. Revenge-trading, in particular, is a form of attack motivation the brain has learned where it is attempting to attack the perceived threat. Meanwhile, the mind of the trader has been hijacked by survival-based emotions. The trader takes a loss (a consequence of threat) and now (in this emotionalhijacking situation) reactively attacks the threat to get back what has been lost. And when this reaction is in full impulse, it is highly self-destructive within the context of trading. But when seen from the perspective of the survival-oriented emotional brain, what we call revenge trading is simply the emotional brain doing its best to help us fight for our survival. The emotional brain was developed to deal with circumstances from another time and place. It simply is incapable of understanding that there are no saber-toothed tigers threatening our survival anymore. It cannot “see” the probability of risk/reward from which the trading mind needs to act. After a trader has been burned a few times by emotional hijackings like these, a new condition arises where the amygdala (the seat of fear-based reactive thinking, or what I call "Orphan" in my work) does not trust the thinking brain to manage the situation and - BOOM -- the learned self-destructive circuits trigger and take over again...and again... and again. Learning to Deal with the Emotional Brain so the Trader Can Think Some traders learn to de-sensitize themselves over time and develop a mind that can think dispassionately as they trade. This is rare, but it is the lore of old-school trader trainers. Others continue to engage in self-destructive behaviors while steadfastly holding on to a belief that the answer can be found outside the self. Still others get out of trading because they don’t know how to change and they cannot take further losses. And, finally, others choose to retrain the brain for better performance. In the latter case, the trader has accepted that the brain he/she brought to trading (and the mind that emerges from it) is rarely the brain/mind that can manage the uncertainty and probability for successful trading. The first step along this path is an appreciation and understanding of how the brain, based on its primitive mandates discussed earlier, is emotional in nature and organizes the psychology of self, based on emotion and the perception of threat and short-term survival. Developing our Emotional Intelligence (EQ) becomes far more important than our knowledgebased thinking, our IQ. Knowledge and smartness are easily overwhelmed by emotion when in the heat of the moment – unless you have a well-trained mind. In the methods I teach, emotional regulation (learning how to manage the intensity of an emotion) is essential. Without learning how to regulate emotion, you can never get to the self-limiting beliefs held in your mind. The Structure of Mind So, from emotional regulation, knowledge of the mind (what makes you tick) becomes possible. And what you discover is that the mind is far more intricate than you first conceived.

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If the brain is a community of rival emotional programs that, over time, only a few programs dominate; then the mind is the space where these programs are given voice. The internal struggle you experience while trying to make sound trading decisions while in the heat of the moment is actually the rival programs "duking it out" for control of the mind. This is what you perceive as your "thoughts". And without a structure that allows you to understand the different players (all those emotional programs given voice in the mind) and their intentions, the trader is essentially blind to the forces that drive his or her perception. And out of that perception comes your trading performances. But understand, these thoughts that you believe represent “you” are not you. They are simply the voice of the emotional programs, burned into DNA, of the brain you brought into trading and that currently have control over your thinking. The composition of this mind is simply the organization of the self that your brain organized you into, to adapt you to the circumstance of your environment during your formative period. It is this organization that needs to be changed so that an effective trading mind can be developed. Essentially, you will need to re-organize the historical programs that became dominate before you began to wake up and realize that you can become captain of the forces at play in your mind. And when you do this, you begin to take responsibility for the mind that you bring to trading. There is no flawed self that you need to hide from others or from yourself. The “self”simply becomes the historical organization of self that you brought to trading. And, of course, it needs to be re-developed. To be released from the comfort zone that the brain has created, but that now has become a prison to your growth as a trader (and as a human being), you courageously embrace your history (simply accepting it as one possible organization of the self) and begin taking responsibility for the organization of the self that you can be. This is where the Trading Mind begins. Rande Howell

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Why Traders Continue to Fail When They Are Trying Hard Not to Lose The Confessions of a Hard Working Trader I’m about to pull out what little hair I have left. I keep running into the same brick wall over and again. I’ve been trading 5 years and I win consistently when "play money" is on the table. But the moment I move from paper money to real money and really risk my capital, things just go haywire. And I don’t know why. I’m well trained. I know how to trade my plan, but I don’t do it. I know that I should be patient, but still, five years later, I jump into trades I know I shouldn’t get in. I know risk management so I try to keep my losses small, because that is how you manage risk in trading, but instead I add to my losses – and hope things will turn around – but they don’t. And I even catch myself as I make stupid decisions (in the moment) – but I do it anyway. I’m like one of those characters in your book. It’s like you wrote about me. I've "been there and done that" with trader psychology. I’ve spent good money on programs that promised that I’d become a disciplined trader – but I haven’t. I’ve been promised that I would learn techniques that would keep my emotions from railroading my perfectly good rational mind into becoming a runaway freight train. But here I am 5 years later still sabotaging my trading. It’s almost like I don’t really want to win, deep down. I can go from one to three weeks without losing and then get mad and give it all back plus a lot more. This is the sabotaging pattern that I keep repeating. How do you figure that out and can you overcome it? I love trading, but I need to come to overcome these destructive patterns. I don’t have an unlimited source of capital. So if I can’t get past this hump, I need to face the music and move on. John Doe

Waking Up in Free Fall Have you ever felt this way? I get numerous emails all the time, just like this one. So if you have ever felt at the end of your rope in trading, don’t feel alone. (Not that this is a consolation to your situation.) This guy is trying hard. (And, I imagine, so are you.) He is smart and working hard. He knows HOW to trade. No doubt he has experienced a pretty reasonable degree of success in his career or business before he came to trading. But, like many drawn to trading, he was not satisfied with running a business 160

or dealing with the corporate world anymore and wanted more personal and financial freedom. Then he discovered trading as a means to his dreams of independent living. After being shown the blue-sky side of trading and being sucked into its enchantment, he is convinced he could learn how to trade successfully and make those dreams come true. No one tells him about the psychological side of trading - or that he is going to come face to face with sides of himself of which he was blissfully unaware. (And if he had been warned, he would not have listened anyway.) Now he has chosen trading as a career, while thinking that trading is simply a way to make money so he can enjoy life. He invests money in methodology training and learns how to trade in simulation. As proof of his increasing skills, he is able to take his sim account to impressive paper profits. And now he is ready for live trading. He is confident in his methodology and knows that he is capable of making money in the markets. His past skills that brought him success are ready to be employed in his new career. He is ready and begins trading. For the vast majority of traders this moment (moving from simulated trading to live trading) is like falling off a cliff. It is a long way down and the landing is brutal. Suddenly undiscovered emotions become involved in his decision-making that whipsaw his "mind that knows HOW to trade" into a mind that cannot seem to make a rational decision in the newly pressurized environment of risking his own capital. Often, traders who have experienced confidence and discipline in past careers find themselves suddenly over-trading and impulse-trading. Once confident people, who were accustomed to making things happen by being “large and in-charge”, they are now paralyzed with fear – both at entry points and at exit points. And the more they try to “man up” to the problem and push through it, the bigger the problem gets. How can a guy with proven confident and disciplined personality traits (that brought success in a past profession), use those very same traits in trading - with such poor results? Career Development and the Notion of Work: Urgency to Act vs. Patient Observation A set of attitudes has to be developed for a successful career in trading that is different from a career in a profession or business. No one comes to a career in trading with the traits necessary for instant success in trading, although they are certainly led to believe this by their trading trainers. These attitudes and assumptions have to be developed right alongside the knowledge of how to trade. But this is not taught. The left brain of the trader, where logic is king, is taught. But the right brain, where emotion is king, is ignored. The flawed assumption that many people bring to trading is that the traits that brought them success in their careers and business will also generalize into developing a successful performance in trading. And they assume that the very confidence and discipline that drove them to prior successes will work in trading also. But they will not. In fact, far from it. These past traits, so essential to their prior success, will become

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the primary obstacle to the very success that they seek. The kind of confident discipline necessary for trading success is very different from the confident discipline found in business. In business success there is an urgent discipline that is ready to take action and conquer goals by sheer will power. When this attitude is brought into trading and applied to the mind that actually trades, disaster is not far behind – or at least slow descent into pain. There is a bias toward urgency to act, to get into trades, because this is the work of trading. (You’ve got to be in trades to make money, right?) The moment that urgency enters the trading mind, the trader is no longer in the state of mind necessary for successful trading. Read that last sentence again. This is very counter-intuitive to the experience of a trader's past successes, so he will continue with even more urgency because he now must make trading "happen" as a career (and make up for prior losses). The formula of a focused work ethic bringing career success worked in the past, so the trader simply tries harder to make success happen in trading. And the pattern continues until the trader stops to re-evaluate what mental and emotional traits are really needed for success in trading. When traders are successful, they practice a patient discipline where they calmly lie in wait (ambush really) until the market comes to them – and then they strike. How different this is from our vignette at the beginning of this article! His trading is based on urgency while successful trading is based on patience. The notion of work is different between the two. Rather than work with urgency to action to achieve a goal, work takes on new meaning to the evolving trader. The new paradigm becomes patient observation, allowing the conditions to come to you. The trader is no longer chasing the trade (an urgency mentality), but is waiting for the trade to come to him so he can strike. This is the successful mind built for trading. Less becomes more. Now, the career development of the trader has taken a quantum leap. Freed from a historical notion of action that brought success in another time and place, the trader now has the newer organization of mind that allows him to manage his emotions, his mind, and his methodology for a successful career in trading. Neither one is better or worse than the other – only different. It simply means that success in business and success in trading require different forms of discipline for success. Without the development of patient discipline, a trader will continue to crash and burn. And it all has to do with the way the trader perceives work.

Work as the Coordination of Effective Action I invite you to examine the assumptions of work habits you bring to trading. Really start noticing whether you drift mindlessly into an “urgency to trade” mentality – because that mindset produced success in another time before trading. Does working mean doing and pushing forward to you? Or is there room for a deconstruction of the beliefs you have about work? If you can accept that work is really about the coordination of effective action, then you can examine the effectiveness of your beliefs by examining your trading account. The effectiveness of your beliefs about work being 162

projected onto the markets is demonstrated in black and white right there, in your trading account. It is the final judge about the effectiveness of the mind you bring to the performance of your trading. Then, as you become more mindful of whether your notions of work are effective for trading, start to recognize patient observation as the key to effective work in trading. And realize that success in one domain does not generalize mindlessly into another domain, such as trading. If this is your career, you are going to need to develop the mind that trades right alongside the knowledge base of knowing how to trade. It takes both. Developing the mind you bring to the performance of trading is not an option to a successful career in trading – it is a necessity. And it is going to have to be re-invented for you to be effective in trading. Rande Howell

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