The Inner Game of Trading

Mingary

You are right ...it is your reality you are creating.

But For those who believe in creating their own luck that will become their reality as well!

Its called cause and effect! Reap what you sow!

Basic principles of life.

We are free to choose.

wise words

and also "you perceive as you believe"

Just found you,this is gold,thank you,
GW

The Pro trader aim to be wrong small and win big.

That is the winning habit that requires discipline in order to put the odds in your favour. Real manual trading is a must. No Bot can do that.

While some bots can do a half decent job, they still need to be updated to deal with changing market environment.

IMHO how is this not plain and simple psychosis .. ?

You mean like telling the world that something's not possible even when you face evidence to contrary every single day?
Madness!

Life Teaches

When the student is ready the Teacher will appear. Not before.

Our subconscious or unconscious part is a way stronger influence on our actions.

So strong and quick that many don't even notice.

If or when it is noticed we will start the waking up process or state that many of the so called greats live in.

I completely agree. Wisdom in your body is deeper than your deepest philosophy ... Nietszche

The secret of success is learning how to use pain and pleasure instead of having pain and pleasure use you. If you do that, you're in control of your life. If you don't, life controls you. - Tony Robbins
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Our natural tendency to put more weight on the negative events creates all sorts of psychological problems. In psychology this phenomenon is called "Negativity bias".

"The negativity bias refers to the notion that, even when of equal intensity, things of a more negative nature (e.g. unpleasant thoughts, emotions, or social interactions; harmful/traumatic events) have a greater effect on one's psychological state and processes than do neutral or positive things. In other words, something very positive will generally have less of an impact on a person's behavior and cognition than something equally emotional but negative. The negativity bias has been investigated within many different domains, including the formation of impressions and general evaluations; attention, learning, and memory; and decision-making and risk considerations."

In behavioral economics this is the main concept behind "Prospect theory" and "Loss aversion"
This bias has some serious implications in trading. Not only it leads to irrational actions and systematic errors in decision making, but also affects the self confidence. Most studies suggest that losses are more than twice as powerful psychologically.





That's why even a small streak of losing trades can lead to low self confidence. It's very easy to make wrong assumptions about your own performance just because you lost a few times. And as I already mentioned there is a direct correlation between self confidence and profit.

The only real solution to this problem is to acquire higher level of mental toughness (as already explained in the beginning). Also constant skill improvement is a must in order to ensure that you have positive expectancy in the long run. When you know that you are going to generate profit in the long run (no matter what happens) then you will be more relaxed, and you worry less about the losses.
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Now, when you know about "negativity bias", something very important to consider is the exposure to news (especially if the news are coming from the mass media). Over half of the news contains some negative aspects in them and it's extremely easy to create dark negative background in your mind (negative framing). The negative framing is counterproductive and leads to some very bad consequences on a subconscious level. The news are also a big distraction because they create a lot of mental noise. The mental noise will destroy your ability to focus.......
Later I will write separate part about the exposure to news, how to analyze them and how to read "between the lines"......But in general, when you trade, or analyze price action it is best to avoid all news if they are unrelated to the market. (Articles, stories ....."Breaking news". ALL these are 99% BS).

Something else to keep in mind during trading is the way most market participants react to market related news. Because of Negativity bias, people tend to put stronger emphasis on negative news. As a result most traders will often overreact to bad news, and under react to good news. So make sure you protect yourself from this, and also try to anticipate the irrational actions of the other traders during news and economic announcements.

Thanks for another solid read AO

Clearly this kind of stuff needs to be emphasized more in helping traders understand where the mysterious hand that is taking away the account balance is really coming from. Many still blame the market and the dealer without much thought of looking a bit closer inward.

In fact most of the solutions to most of our problems starts there.

As many experienced pros attest to....our trading activities and the market is just a mirror of what is going on inside of the trader. In terms of trading as well as non-trading related issues which must be sorted out along the way to us becoming better traders.

Inner Game of Trading: Mind Management :nerd:



You know what's very interesting?
Research shows a lot of people don't even get to a month (with their new year's resolutions) and they have already quit or stopped and failed. A very small number make it at 2-3 months and few will only make it past the 6 months. And let's be honest... 6 months is a very long time, let alone a whole year.

What does this have to do with your trading? Well, it would take you more than 6 months to get decent profits from trading. 1year to 5years, or even 10 years to really rake in those $$$$, so that you can go and tell your boss to go F*** himself. So if you're one of those people who have not kept their new year's resolutions, it's time to sit down and rethink about your trading.

Let's be honest with yourself...
Have you stuck with discipline, executing your trading plan and not deviating and jumping from one strategy to another? for a month, for 3 months, for 6 months... have you stuck with your strategy for a whole year?

The answer will only be either a Yes or No:
YES >>> If you've stuck with your strategy for a whole year and you are profitable, then congratulations to you.
If you've stuck with your strategy for a whole year and you are not profitable, then at least you know it is a Technical issue and not a Psychological issue.
NO >>> Then at this point in time, there is no way of telling if the reason you are not profitable is due to Technical or Psychological.
If you're answer is no and you are profitable, the grim reaper will be visiting you sooner than you think.




Another interesting research was on the military and their level of discipline after leaving the force.
Despite each individual performed with the highest discipline in all aspect (instilled in their training), research shows that once they have left the force, a good 80% couldn't/didn't/unable to apply discipline in their own life. And they reverted back to their old self. 15% lived a typical family life and only 5% were able to continue to apply and excel in other endeavors.

What does this have to do with trading?
It takes discipline and mind management to achieve anything worthwhile. Mind management or discipline is not something you learn once. It is a continues process day in and day out. You don't exercise for a day and you stop and say that you are now fit for the rest of your life.

I've read many times on FF that you don't need discipline, or that psychological explanation is just another excuse, that all you need is a good working system. Well good luck to those traders who thinks so. I've discussed this issue on this post:
http://www.forexfactory.com/showthre...59#post6960159


Peace,
CrucialPoint

Thanks CP

You have made some crucial points!

Am sure many are beginning to get the point, that its way more important to conquer one's self than even to take a city or even the world let alone win some money....Afterall you cant consistently make any money in trading without doing this.

So this clearly points to an endeavour in Self Mastery.

Let's put things into perspective!
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What is The Inner Game?
There is always an inner game being played in your mind no matter what outer game you are playing. How you play this game usually makes the difference between success and failure. -Tim Gallwey

Inner Game at a Glance
In every human endeavor there are two arenas of engagement: the outer and the inner. The outer game is played on an external arena to overcome external obstacles to reach an external goal. The inner game takes place within the mind of the player and is played against such obstacles as fear, self-doubt, lapses in focus, and limiting concepts or assumptions. The inner game is played to overcome the self-imposed obstacles that prevent an individual or team from accessing their full potential.

In simple terms the game can be summarized in a formula: Performance = potential - interference, P = p - i. According to this formula, performance can be enhanced either by growing p potential or by decreasing i, interference.

It is impossible to achieve mastery or satisfaction in any endeavor without first developing some degree of mastery of the relatively neglected skills of the inner game. Most of us have experienced days when our self-interference was at a minimum. Whether on a sports field, at work, or in some creative effort, we have all had moments in which our actions flowed from us with a kind of effortless excellence. Athletes have called this state, playing in the zone. Generally at these times our mind is quiet and focused. But whatever its called, when were there, we excel, we learn, and we enjoy ourselves. Unfortunately most of us have also experienced times when everything we do seems difficult. With minds filled with self-criticism, hesitation, and over-analysis, our actions were awkward, mis-timed, and ineffective. Obviously we all would prefer to have more of the first and less of the second.

source: theinnergame.com/
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How all this fits in the context of trading?

Performance = potential - interference

potential = large knowledge base + experience + analytical skills + execution skills + solid methodology/strategy + proper tools and resources( software, platform, broker....) + capital

interference = cognitive biases + self-imposed limiting beliefs and concepts + all other possible internal obstacles.

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You have to increase the potential, and reduce the interference!

In order for a person to reduce the interference, the first step is to REALIZE that there IS such thing as interference!
The second step is to analyse the cause and the source. (don't fight with the symptoms, instead identify what is causing the problem and take measures against the source.)
Third step, Prevention. Constant work on the inner game. You have to make sure the source of the problem is isolated.(you can never eliminate it 100%, but you can reduce it to minimum)

Keep the potential high, keep the interference low, maintain constant momentum, and the money will flow like a river for you!

Great post Skyway. Many successful smart people who excel in other areas of life fail miserably at trading. In most pursuits knowledge and the ability to control one's environment leads to success, in trading a different skill is needed - learning to manage uncertainty. In no other area of life do we expect to be 'wrong' and take it as a normal occurrence. In no other area of life do we do the identical thing twice and get opposite outcomes (apart from gambling, hence the problem)
In Life:
Right = Success
Wrong = failure
In trading:
Right = continue to execute trading plan, irrespective of trade success or failure
wrong = not excecuting trading plan, irrespective of trade success or failure

CrucialPoint's Simple Exit Method: The "GTFO exit method"


I'm sure you are aware by now of the emotional roller-coaster traders goes through.
Look at the above picture and think about how long have you known this diagram? (since you started trading? 1, 5, 10 or 15 years?)

A lot of people have seen this diagram.
And it's been staring at your face and you haven't solved it because of the following:

1. You didn't grasp and understood the principle
2. You haven't mastered the basic
3. Your cognitive biases blinded you

Let me take the blindfold off and now look at the diagram below.

It's called CrucialPoint's Simple Exit Method: The GTFO exit method (Get The Fuck Out)

The principle and philosophy of this method is simple and solid:
1. The moment you feel a certain level of anxiety >>> GTFO!!!
That's it.


Let's analyze this deeper:

1. The moment you reach a certain level of anxiety, most of your logical reasoning and critical thinking goes out the window. You're as good as someone they call "drunk trading"... so GTFO!!!
2. If you are going to stay in the trade while anxious, you might as well open and finish a bottle of wine while you're at it. At least you will feel deludedly happy due to the alcohol as it will ease up the burden and depression. You can worry about it later when the alcohol wares-out. At this point, you are not in shape to trade. You are not in the proper mindset to manage the trade... so GTFO!!!
3. When you're anxious, you will make stupid mistakes and stupid decisions, so you are best to GTFO!!!
4. Professional traders knows there will be another opportunity, so they GTFO!!!
5. When you're anxious, you have no reason to be in the market even if it goes to the moon. I don't care even if all the planets are aligned. You should be out of the market or GTFO!!!
6. The continued bout of psychological trauma 24/7/365 is very detrimental to your performance and personal well being... so GTFO!!!
7. If you continue to trade with uncontrolled mixed emotions, you teach your subconscious (learned behavior) that "it is OK to make stupid decisions and stupid actions... repeatedly... unconsciously." If you find yourself going through the first diagram of the emotional roller-coaster, more likely you've already learned the bad behavior and learned a bad trading habit... one of the most deadly trading sins.... Take a deep breathe and exhale slowly... And think about that it is time to correct this behavior.

... and GTFO!!!


Peace,
CrucialPoint

thank you very much for this thread, alpha!
psychology/ability to control your own emotions/ is the most important thing in trading...

Best piece of advice i've read on this forum!

Sometimes a change of perspective is all it takes to see the light - Dan Brown.

Thanks, AO and CP for your insightful posts. They are changing my perspective about how to approach trading. Great thread!!

"Take control of your consistent emotions and begin to consciously and deliberately reshape your daily experience of life." - Tony Robbins
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Being able to observe and read your own emotional state is really one of the keys to success. Not only in trading but in life as a whole. As soon as you start to develop this skill, you will begin to see the world differently. You will realize that your emotions control every aspect of your life.

So if you want to be a winner - learn how to take control of your emotional state.

Only when you are emotionally stable, you will be able to make rational decisions.

You see, the main thing about emotions, is that they create chain reactions. So when you are in a negative state, things tend to get worse and eventually the situation may get out of control. And when you are in positive state, things tend to improve and your performance will increase exponentially. Of course you should also be very careful not to get too positive (too pumped up) because this often leads to overconfidence and you already know that overconfidence is very dangerous thing in trading.

The optimal emotional state in trading (where the best results are produced) is to be somehow neutral, reasonably positive, and humble at the same time.
As soon as you start to deviate from this optimal balance, your performance will go down. The more you deviate, the worse it gets...

This balance is very delicate, and can be disturbed easily from many external factors. So it's your job to monitor this, and as soon as you see that something is out of line, you have to take immediate actions to return the balance. If that's not possible for some reason - GET OUT(as CrucialPoint said), and stay out until things go back to normal.

In psychology, these chain reaction processes are defined as upward and downward emotional spiral.
So if you find yourself in downward emotional spiral - take action and do not allow the negative emotions to ruin you.
BE SMART!

Knowledge does not equal understanding!

This principle is so important and so relevant in trading, that I just couldn't afford not to post this excellent example.
This special message is for all people who struggle and still fail to achieve the desired results. Watch the video!