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> Article 1 - The Emotional Dynamics of Trading

> Article 2 - Trading Psychology

> Article 3 - Trading and Ego

> Article 4 - Trading Changes


Article 1

The Emotional Dynamics of Trading
Published in "Traders Magazine" March 2005

The markets offer an endless stream of opportunities to trade. Each trade or series of trades provides the chance to wipe the financial slate of the past clean, find trading redemption and claim the lucrative future. Each trade has the potential to announce that your dues are paid, that you are maturing as a trader and that finally you are poised to enter the elusive circle of the consistent winner. The lure and promise of financial freedom through the clicks of a mouse offers a sense of adventure, challenge and stimulation rarely matched in other activities or professions.

Only a very select few are able to ascend and remain atop this Darwinistic ladder and garner consistent profits. The majority of traders find themselves nursing a depleted account balance and a sense of bewilderment. Statistics tell us the cold hard truth that many losers fill the pots of few winners. They don’t reveal the shattered emotional landscapes, and even financial ruin that take their toll on those at the bottom of the trading food chain.

It is sometimes stated that you need to remain detached from your emotions whilst trading. This represents a noble aspiration but, aside from the fantasy world of the paper trader, where real, hard earned money is on the line emotions will kick in strongly and therefore we have to know how to make them work to our advantage. Despite our best efforts to override or subdue them, emotions, enhanced and crystallised into sharper focus by the market environment, will gnaw at us and dictate actions which are often contrary to what we intended when getting into the trade. Some traders struggle to take the action they know is right because they pay more attention to their own process [in a negative way] than to the process of the trade itself. The challenge is to fully accept your emotions as they arise during trading and in so doing relate to them as reliable, trustworthy guides. The greater your emotional self knowledge the more clearly you will be able to gain transparency into the actions of the other market participants.

Understanding the market from such an emotional perspective brings many benefits. It means, for example, that you are able to fully embrace the risk inherent in trading. Knowing, from your experience, that anything can happen in the market, you will be prepared to catch and hold any emotional fallout that results from your trade. You feel secure within your overall expectation of profit and are thus able to give breathing space to individual trades. It means that you are more likely to take the hard decisions quickly because you possess an inner fluidity that allows you to respond with nimbleness and acuity.

The market maxim of following the line of least resistance probably equates to following the line of most resistance in yourself, something which becomes easier as you become accustomed to relating your nuances of feeling to the market action. Emotions can be good contrarian indicators. With practice you can begin to guess where others are ready to throw in the towel and be there to gladly relieve them of their position. The candles on the charts are graphic illustrations of hope, fear, greed and belief as well as the footprints of money.

It is crucial to appreciate the emotional dynamics that underlie this game of wealth redistribution. In the market context some emotions may have a different resonance and payoff than in everyday life. For example, if you are in a place of deep despair and hopelessness in your everyday life then perhaps this can be talked about, processed, worked through in therapy or offered to your particular God. Usually there is a way of finding some light at the end of that tunnel. Transferring the same emotional dynamic with its inbuilt hope to the market, based on some apparently abiding faith that things will be ok is tantamount to financial suicide, a margin call probably being the only salvation.

Filtering process
It is important to create for yourself an inner filtering process, perhaps a small simple ritual so that you do not find yourself bringing to the market arena emotions and qualities which serve you well in everyday life but which could prove detrimental to your trading. For example, determination is a great quality to possess when used for the right purpose. You need to retain a determination that you will triumph in your quest to achieve your trading goals. This does not mean that you have to express your determination on every single trade and try to force results where they aren’t going to happen. You also have to be on the lookout for when you are using a particular quality in the market that maybe belongs elsewhere in your life.

Similarly,suppose you have recently been successful in some other endeavour in your life. You assume that the same set of principles apply to becoming successful at trading. You follow your common sense and replicate your approach. It yields disappointing, confusing results. You may feel like quitting but if you can pause to reflect and consider, you may discover that it is in the ashes of this temporary distress that the phoenix of the winner is waiting for an invitation to emerge.

Spiritual parallels
The journey from loser to winner is, if you like, a trade in itself, the ultimate buy low sell high, exchanging ignorance, loss, and what you don’t yet know for self knowledge, consistency and a degree of mastery. It’s a tough deal and only those who are willing to undertake serious, searing self scrutiny and practice rigorous self discipline will make it. Many, as they say, are called. Few make money.

Indeed, there are many parallels and echoes, for those inclined to look, between what is required on a journey of spiritual unfoldment and that of becoming a sucessful trader. The Buddhist concept of ‘the narrow way’ certainly has resonance with the statistical certainty that many traders will fall by the wayside and only a small dedicated percentage will develop the requisite inner qualities and get through. Many spiritual paths demand of their adherents a degree of asceticism, forgoing something in the present and enjoying the virtuous action that will yield them future rewards.

Deferring the temptation to snatch a quick profit and practising the patience that may bring the greater reward if a winner is allowed to run is just one example where an attunement to a more rigorous ethic could be more profitable. Most spiritual traditions encourage an awareness of the present moment for it is in this ’eternal now’ that one becomes free from the veil that masks the true reality of being. I am not especially trying to reconcile God and mammon here, but I am acknowledging that if you could remain in present moment awareness whilst you are trading you are likely to be more effective than if you are caught up in the hopes and fears of the future and the regrets of the past. If you can trade from the place of ‘what is’ then you remain closer to the pulse of the action.

Discipline is freedom, they say, and apart from perhaps becoming enlightened nowhere does this ring more authentically than in the trading arena.

A trading apprenticeship involves becoming unhappily familiar with the trader’s lament, the phrase ‘if only’. Regret for trades not taken, not exited quickly enough or exited too soon must be dealt with in a way that doesn’t prejudice future trading. The winner changes if only to ‘only if’ - only if he is disciplined, focussed, alert and grounded will he succeed. He develops an inclusive relationship with the inevitability of loss in its many guises. He learns to gracefully receive the lessons in humility the market so unfailingly provides.

Actual and potential
Perhaps the most crucial factor in determining trading success is how you manage the relationship between the apparently limitless potential for profit and your actual results so far. Anything not resolved within the boundaries of this relationship will leak out and seek expression elsewhere in your trading. If potential constantly looms larger for you than actual then impatience, frustration and recklessness will likely ensue, with predictably damaging results to your account. Similarly if you dwell on the potential without undertaking the necessary psychological work to improve upon the actual then you are merely attaching yourself to hope which is projected on to your trades. Hope is a burden that refuses to be displaced until it is ousted by something of substance. This is why it is so vital to grow your trading size slowly and incrementally so that the energetic relationship remains proportionate and balanced. The journey, ideally, synergised by self discipline, moves from the actual to the actualisation, cumulatively incorporating potential on its way, yielding its secrets in response to the intensity of commitment and effort expressed.

We can regard the evolution of a trader as a Gestalt cycle moving through its respective stages, as illustrated below.

Gestalt Cycle

sensitisation - continuing sense of something not quite right. Vague sense of irritation, confusion, frustration.

awareness - acceptance of the above feelings. Willingness to take responsibility for and confront problem areas.

mobilisation - Commitment to change and learn. Firm resolve to take necessary action and persist until successful

action - Careful trade selection. Attention to detail. Managing risk tightly, pressing winners patiently, cutting losses quickly.

satisfaction - well executed, disciplined trading results in greater profit / smaller loss. Confidence, enjoyment, reward.

withdrawal - rest and recuperation. Taking a breather, time away from trading-a walk, a holiday, self reflection and integration.

This cycle relates to both micro and macro, anything from an individual trade to overall progress as a trader. Round and round we go, each time getting closer to what we know we are capable of. It is, of course, possible to interrupt the positive flow of the cycle and refuse to co-operate with the process. Going AWOL in response to your own idiosyncratic resistance to change. In my work as a trading coach I encourage people to always remain aware of their place and desired destination in terms of this model and to use the information it imparts to make wise trading decisions.

Group behaviour
The study of group dynamics tells us that when people engage or convene together for a particular purpose they usually assign themselves a place or position within the overall group that is familiar to them. Often unconsciously, they seek to adapt to the pre-existing group based on their emotional history and what they have come to believe about themselves. Without awareness of this process a karmic train of action is set in motion which somehow gives the market the responsibility of being the arbiter of what is that truly deserved or desired. Understanding your chosen place in this anonymous cast of thousands, the group that are your fellow market participants, can shed light on your trading behaviour. Given the high risk nature of the trading environment maybe it is inevitable that people seek out the safety in numbers of the losers rank.

Consistent success comes to those who grasp the essence of the oft repeated but rarely followed rules, an essence that remains forever opaque to those who resist the necessary self enquiry and self discipline. Consistency originates in will and is nurtured on the firm foundations of self esteem, self acceptance and self responsibility. It requires that you have tamed your inner demons or at least made a pact with them that they will strut their stuff on another stage well away from your trading.

A playwright creates a drama based on the enduring premise that character is destiny. You become what you think, you create situations for yourself, consciously or not, that lead you to where your greatest learning edges lie. Beware what you ask the mercilessly neutral market environment to resolve. It could cost you a fortune.

It’s unlikely you’ll become a truly great trader without a prolonged enrolment in the school of pain. Pain cuts sharply through our preconceptions and illusions and indicates to us that our market actions are inappropriate. There is chronic pain which probably reflects a deep stuckness, rigidity and perhaps obstinacy for which the market will prove a costly healer. A degree of acute pain is the inevitabile cost of being in the game. The language of pain is stark. It forces decisions, often in haste, upon us. Are we in or are we out, do we hold or do we fold? Pain can be a great teacher, alerting you of its imminent appearance as you consider potentially unsound trading actions. It can and does catch you offguard. It can creep upon you stealthily and ambush the best laid plans for profit, diverting you back to the drawing board. Unless your’e ready for it it will overwhelm you into decisions you will regret. You need to become the master of pain rather than its slave. Those who resist pain may find themselves setting wide stops so as to postpone its arrival. Those who accept it learn to be comfortable with the messages it brings, even if this does stop some way short of a fully fledged friendship !

Winners develop a good,ongoing relationship with their markets of choice Their expectations are realistic but always positive. Winners know the pitfalls well and are on respectful terms with them. They clearly understand the emotional potholes on the path to success and are able to see through their camouflage. They are not afraid of the markets because they trust themselves. They are brave enough to let go of accustomed assurances and allow themselves to enter the place of unknowing Winners rely on their finely honed, seasoned market instincts. They engage with the uniqueness of each moment. It is my belief that an experienced trader can achieve far better returns through the disciplined use of market instinct and some simple tools than through a purely mechanical system. Systems appeal because they offer the illusion of control. However, even great systems, if they exist, extensively backtested and individually tweaked to carry the expectation of profit, are likely to produce losses if traded by someone who lacks emotional stability and self discipline. Creating and developing a system is all very well but if one of the reasons you are drawn to trading is because it offers an environment that imposes little structure then what makes it likely that you will follow the indicated entry and exit points.

For winners, the adventure of trading, ostensibly about the acquisition of money and its rewards is an inner journey of expansion. They enjoy the visceral sensation of unknowing and uncertainty. They welcome the uncomfortable feelings of running their winners and cutting their losses and allow the unfamiliar to burn open new pathways for them. They enjoy defying their intuition and the boldness of the counter intuitive approach. They are untroubled by the energetic polarities of right and wrong. They just do. They have released themselves from conflict so they can watch and act with equanimity upon the flashing numbers that populate their screens. Knowing that change is permanent,in the markets as in life, they live in the present. They get themselves out of the way. They know themselves so they know others.



Article 2

Trading Psychology
Published in "Shares Magazine" September 2006

‘Know thyself’ exhorted the ancient Greeks. Pursue intelligent, disciplined self enquiry and you will come to understand the treasures of the self. This timeless Delphic dictate could, I believe, serve well as a focus for effort for those who today would profit from trading the financial markets. Know your own strengths and weaknesses, physically, mentally, emotionally and spiritually. Accept and understand them and learn how they relate to and feature in the market environment and you give yourself some valuable edges.

You gain clarity of purpose. You have the conviction to stand behind your actions and the equanimity to ride out the vicissitudes of the market. You are also better equipped to structure for yourself a methodology that reflects your personality and risk profile. Also, and crucially, you begin to lift the veil on the intentions and actions of the other market participants. Their game plan becomes clearer the more you accept and reclaim the parts of yourself that have been split off, disowned or otherwise ignored. Self knowledge increases your predictive capacity.

The Roman poet Seneca, in a gesture of magnanimity was able to declare that ‘nothing human is alien to me’. If he was around today and he walked his talk then he’d probably make a great trader. Feeling comfortable with the far continuums of fear and greed allows for a measure of transparency into others actions. Expand your self awareness and the shenanigans of the market can be comfortably assimilated into your steadily increasing account balance. Know that anything can happen and accept this possibility at all times and no surprises can derail your journey to consistent profit.

The big players, the institutions, market makers, specialists and others who have many more noughts on their account balances than the rest of us ply their wares most successfully against those who lack the self knowledge to perceive ‘the tricks of the trade’. We’re not necessarily talking conspiracy here, just that there’s a bit more to it than having a grasp of fundamentals, technical analysis and level 2. I have heard market makers described as masters of emotional manipulation [in my own learning process I have been less flattering about them but they are just doing their job] and if you want to take part in their winner takes all game then you have to know the rules.

It is received trading wisdom to follow certain rules. Plan your trade and trade your plan, run your winners, cut your losses. These time tested, battle hardened nuggets beckon us all, from the novice to the pro, to follow them to the promised land of profit. Presumably, many of the majority who end up on the wrong side of the win / lose equation are familiar with these rules too. Knowing what you should do is the easy bit. Knowing how to do it is where the challenge lies, where the real work of trading occurs and where most fail. How, for example, do you run a winner when, perhaps unused to profit and grateful for what is on the table, you are greeted by an overwhelming inner chorus of 'take it'? How do you cut your losses when they may, as with other areas in your life away from trading where hope has often been rewarded, come good in the end?

Many would be trading hotshots, flush with the confident glow of achievement from other areas in their lives, bring what they believe to be tried and tested systematic approaches, with inbuilt assumptions of success, to the market only to become aghast at the regular, protracted but, of course, unforseen moves in the opposite directions of their positions. The market, we learn, is always right. It is no respecter of systems. It culls the naïve, the stubborn, the faint hearted and the complacent alike with ruthless precision. It takes no prisoners but can and does hold many hostage to fear and greed. Like Keynes said, the market can remain irrational longer than you can remain solvent.

For sure, those who opt for the implicit security of rationality and linear logic will find much to cause them upset and conflict in the market. They will be confounded by the painful realisation that qualities that serve them well elsewhere in their life cost them money in the market. They will face a stark choice - either to stay with their losing ways but retain an imagined integrity that comes from sticking to their principles or abandon their attachment to the’system’ they have been following , accept the pain and loss to self esteem this may incur and begin the task of finding a way that works.

Loss, financially, and in its gut wrenching, puke making physical manifestation is one of trading’s great probabilities. The stories of many successful traders are replete with colourful tales of early loss and subsequent recovery and thriving. Think of the initial losses sustained on the path to trading mastery as dues paid to illuminate the hidden, recessed aspects of self that otherwise remain as magnetic lurkers that threaten to sabotage your trading ambitions. As you become aware of these myriad expressions of shadow that have claimed safe harbour within your psyche so you can accept and embrace them and reconstitute them as tools in your trading armoury.

The fast, pacy action of the market gives the lie to the fact that trading is essentially a trip for those who are patient. Those who can endure will endure. Those who can’t will skulk off and console themselves with the war stories their diminished war chest has bought them. The patient can wait. They understand that the waiting is the work. Most lives are centred around waiting for something...health, relationships, money, fulfillment, Godot… The rapid growth of online daytrading is an act of vengeance on waiting. It releases us from the tyranny of postponement. It allows us to ‘just do’. Masters of the mouse, we channel the energies of that we have not yet achieved through our index finger to a screen of flashing numbers. For some, the ability to express themselves in such an unfettered way, free from the constraints ordinarily imposed on them by work, family and society the inevitable financial loss is a price willingly paid.

The market is a melting pot where ambition and expectation jostle with the statistical certainty that most will lose, a place where intensity of feeling is experienced [and sought]. The money on the line parameters of real time trading heighten the emotional charge in rough proportion to the time frames being traded. The active day trader roller coasts through more scenarios than a swing trader. Each to their own, be comfortable with your choice.

Psychology itself, like trading, is a speculative activity. It can only seek to persuade, to suggest. It is a commitment to understand things rather than an exact science. However, continued observation of our market behaviour can give us clues as to the repeating patterns of loss inducing behaviours that snare us. Given that the numbers on your screen become a significant part of the daily environment that you interact with it may be useful to be aware of the qualities and predispositions in yourself that you bring to this ‘relationship’. Perhaps a psychoanalyst would view market behaviour that proves unrewarding in a regressive context, pointing towards the unexpressed, hidden maelstrom of the unconscious as the money losing culprit. A more humanistically oriented psychologist would focus on what the market represents for you, what you need from it and what it offers you on a non financial level.

We are made of many parts, disparate energies that rub together all in search of recognition, approval, redemption. In my work as a trading coach I use several techniques to facilitate an understanding of the ways we can undermine our efforts to be successful. Sub personalities, from Psychosynthesis, develop and crystallise around particular traits or predispositions that we have within and can act as energetic diversions from the whole self. They clamour for expression, for the daylight of awarenesss.They are a model, a map, neither inherently good or bad, but in terms of the market we could define, for simplicity’s sake, the seven deadly sub personalities that will inhibit our chances of success.

Trigger Happy Terry loves the process of trading but only in as much as it distracts him from the work he needs to do on himself. He convinces himself that by sitting in front of the screen all day long he will become a great trader. He’s a scalper, frightened to run his winners, impatient, anxious and underconfident. He’s obsessive / compulsive, destined for a hard landing or at best a poor hourly rate of return for long, stress filled days.

Fatalistic Fred sometimes rationalises his poor trading results as being the will of God or a higher power that actually has a slightly more glorious destiny in wait for him. His fatalistic approach doesn’t permit him to ask any hard questions. He doesn’t take responsibilty for himself and he doesn’t want to. He deludes himself into thinking he has learned to follow the market. His pseudo humility masks a frightened ego afraid of hard work.

Thrill seeker Phil is an adrenaline junkie who looks to the action of the market to fill a void in his life he dare not look at. He will trade bigger size than his account warrants and relish the addictive rush that accompanies this. Perhaps the market is his Mistress who always gives him what he needs. He probably doesn’t have much of a life outside trading.

Get even Steven brings a crowd of unresolved grudges to the market. He gets hurt and seeks retribution, he believes in old testament justice. He can't / won’t admit defeat, he clings so tenaciously to his sense of personal woundedness. He makes a reasonably quick, undignified exit from the market and adds it to the long list of things that have betrayed him.

Kamikaze Kevin takes huge risks as a way of defining himself in the mould of the hero he considers himself to be. A double or quits swashbuckling romantic, he can’t be troubled to practice the pragmatism that may ensure his trading survival. The man / boy who refuses to be tamed, he is assisted by the market in his quest for a spectacular wipeout.

Paralysed Pete can’t get into good trades or out of bad ones. He sees plenty of good opportunities but can’t pull the trigger. Frozen, overwhelmed by doubt and a sense of his worthlessness he hasn’t made the big decisions about what he really wants from his life. Makes himself feel ok by rationalising that he has learned to be cautious .The market slowly grinds him down and spits him out in little pieces.

Histrionic Harry is the control freaks alter ego. When he is forced to relinquish his tight grip because’ trading his plan’ kickstarts a turbulence he is completely unprepared for he becomes bewildered and throws tantrums. Cursing his misfortune, he sulks off. He returns until his quest for vindication becomes too expensive.

Perhaps some of these sub personalities are recognisable to you. Perhaps not. I, myself, became unhappily familiar with most of the above on my own learning curve, gradually accepting the painful truth that their respective modus operandi did bring payoffs but not in the fianancial sense I had hoped for. I began to understand some of the errors of my trading friends in this light.

One guy, let’s call him Jeff, nurtured on the easy success of the runaway bull, became more and more of a Kamikaze Kevin as the bull withdrew its horns. He finally came to ground courtesy of some very stubbornly held, long positions in a couple of former tech darlings, Baltimore and Dialog. He’d borrowed to fund his margin and suddenly was looking at a 60k loss and a crushing, almost fatal blow to his self belief. In response to the imprecations and admonishments of his wife he finally gave up trading, remortgaged his house and retired to lick his wounds. You could almost hear the thud as he threw in the towel. He didn’t trade for two years, reflecting all the while on his previous [and apparently uncharacteristic] misdemeanours. He started again with a small pot, only 2k,and over two years earnt his spurs by garnering this into 20k and is now a consistently net profitable trader on the up. What he understood, amongst other things, is that trading is a game that is won or lost inside one’s own mind. Ultimately it is about studying oneself rather than the markets.

Many trading errors are ascribed to that all purpose baddie’the ego’. I always chuckle when I read trading books that tell you to check your ego at the door. Oh yeah. If only it was that easy. Well it ain’t. The ego is a multifaceted entity that reserves its best performances for the times it can do the most damage. It can camouflage and subdue itself and maintain a low profile until it is provoked into action whereupon it will demand instant gratification and brook no arguments in its quest for pre-dominance. The ego cannot be crushed, dismissed or shut away. It needs to be acknowledged and befriended, brought into your toolkit as a valuable ally. Take charge of it, feed it elsewhere in your life and your trading will improve.

It seems that my ego is at its most insistent and niggling whenever I am sitting on a winner. It craves satisfaction via the premature snatching of profit. Ways I have found of dealing with it centre around bringing it into perspective and simultaneously seeking objectivity. I have two chairs in my office. One is permanently sited away from my desk so that should I feel the need I can go and sit in it and, if you like, tell the temporarily stuck trader what he must do from an objective place. Of course, this ability to be detached becomes internalised after a while and there is less need for the musical chairs routine but it is crucial to know that you have a voice of clear, sensible objectivity inside that you can trust to take the hard, but right, decisions. A friend of mine plays a tape that he himself has recorded that merely repeats either I, Doug, run my winners or I, Doug, cut my losses. Others I know try to reframe their actions so as to con the poor old ego as in for example pretending they are trading properly and responsibly with someone elses dosh or pretending they are holding a loser instead of a winner and then following the ego’s preferred strategy of holding that loser.

It is also probably the dastardly big E that makes us deny what we see on our screens in favour of what we think or expect. So much about trading involves self discipline and as you become more familiar with the inner urges that require that discipline so your trading improves.

Keeping a daily trading journal allows you to play ‘big brother’ with your ego. You can spot the areas of self sabotage as they jump off the page at you day by day.

Another useful procedure is to draw a chart of your own equity curve on a daily basis in your preferred visual format. This can illustrate the steadiness or otherwise of your hopefully upward momentum and alert you of potential trouble. If, for example, you like to trade a bit of spiky action then you must be on your guard in case you replicate this on your own equity chart. If you live by the spike then make sure you don’t die by it. Know when you are due for some consolidation or sideways movement!

In conclusion, you’ve got to know what you’re up against and realise and accept that much of this is inside your own head / heart / mind. The market, we come to learn, is always right. Understand yourself and gradually align your perspective with that of the market’s and the veils begin to fall away from your eyes.

What is vital to understand is that the market, by nature, is a self cleansing mechanism where few survive and prosper. Those that do need to be clear of the psychological baggage that requires resolution elsewhere in their lives. Bring your ‘issues’ to the market at your peril. It will cost you dearly. A key ingredient in the recipe of regular returns is knowing when not to trade, being able to identify in yourself when you are at less than optimum and at these times sit on the bench and enjoy the spectacle free. Standing aside is a valid position. Save your strength and fire for when you need it. We need as many edges as possible to achieve consistent success - rigorous discipline, technical understanding, adequate finance, time and space but it is probably through the development of self knowledge that the independent trader finds his best shot.



Article 3

Trading and Ego
Published in "The Trader's Journal"

Imagine a stage populated by the main characters that comprise your inner "trading decision making committee". It's a short odds bet that the loudest shout for leading man / woman will come from the ego. Brushing aside rationality and requests for inclusion alike, the ego will pronounce his / her pre-eminence and sieze control.

Trading is a magnet for ego. It is full of promise and challenge and all egos relish a good scrap, especially when the odds are stacked against them and they have a sniff of heroism in the sweetened air. Statistics that regularly confirm that only 10-20% of traders are consistent net winners are music to the ego's ears. No self respecting ego could countenance the prospect of being in the realm of the also ran, those poor, impoverished, less able 80-90%.

So, the battle commences and continues until the ego has been shown a yellow card and has to have some sobering time out. Receding into the unfamiliar shadows the ego usually brings with it an account balance fresh from a rendezvous with nemesis.

Learning to become a good, consistently successful trader requires what could be termed an "egodectemy". Clearly, the market, over time, has many opportunities to perform effective surgery. But, at first the patient is not usually receptive to his / her diagnosis. The market, as it does in its offhandedly impersonal way, steadily tosses out a few more slings and arrows and eventually the ego runs for cover, though still, naturally, on the defensive. A fugitive from self scrutiny, the ego, as befits the original usurper, skulks off in search of more accommodating terrain.

Paradoxically, the ego enjoys its separateness yet cleaves towards an unspoken desire for belonging that cannot be expressed. It refutes team games unless it can be Captain and hijacks any endeavour where it can walk its strident talk. The ego's myopic mini dramas condemn it to have, at best, peripheral vision of what may be happening elsewhere, particularly the market, with predictably dire consequences. With the ego in the head trader's seat the drive for action will be paramount , for the ego both needs and loves being in the thick of the action, whatever the merits marketwise. The ego has a voracious appetite and overtrading is its soulfood. Yum,Yum.

Let's be under no illusions. The ego is a destructive force in our trading. It manages to trip us up over and over again and is disposed to cause catastrophe given half a chance. The brothers and cousins of mistakes that Jesse Livermore talked about were mainly relatives in the ego family.

No question that on our trading skills balance sheet the ego is a permanent tenant in the liability column, the asset column being considerably overshadowed until it reaches for the light. Where there's a will though, there's a way. The way of the consciously undertaken "egodectemy", self sought and administered. We call our asset column forward to shine the moment we call time on the ego's proclaimed predominance. Slowly, through the mist the vision gets clearer, there's more space and we can advertise our "under new management" sign above our trading station.

The receding noise of the ego facilitates the growing presence of quieter qualities such as intuition. Intuition is perhaps the yin to the ego's yang, the passive to the active. Unlike the ego which announces itself with such immediate urgency, intuition presents itself self effacingly. It doesn't require the ego's fanfare. It carries no agenda, grinds no axes and seeks no reward or acknowledgement. If we can learn to encourage and empower our intuition it can become our greatest trading tool [assuming it
is used in conjunction with self discipline]. As we learn to listen to ourselves our intuition " speaks " to us more. It brings a distilled experience to its open secrets. As we listen so our profitability increases. So how does the ego accept pretenders to its throne such as intuition? It will probably seek to spam intuition's inbox and scatter its speculative spores in order to wrest back its fading grasp . Intuition is not exempt from egos predatory pulse. To the ego, all is fair game. So, aswell as the necessity to be vigilant in monitoring our trades we need to be vigilant for contaminations by the ego. Being of passive nature, intuition requires some degree of protection from attempted "coups" .

Perhaps I stand accused of laying too many ills and grievances at the ego's door but I'd rather be "guilty" of this than of watching my account get mullered due to a lack of discriminatory self awarenesss. For trading mastery, read 24/7 ego monitor. There's no teabreaks ,quiet carefree moments of reverie, or laughter [apart from the gallows variety] as the ego's auditor. It's not a job for the faint of heart. The ego and its conspiratorial cohort, the saboteur, join forces as account assassins to best effect when concentration and discrimination are at a low ebb, like it or not.

The ego's toolkit, though insidious and pervasive, can be neutered and rendered ineffective with patience, practice and persistence. It becomes easier with practiced awareness to spot those trades that are initiated by the ego, its trading ASBO's become increasingly visible. For, the real deal is that the ego is not actually terribly bright. Confronting it and slowly stripping its stranglehold away can be a satisfying, enjoyable and increasingly profitable process.

Prioritising intuition allows for the gradual development of trust which in turn allows for intuitive insights to be made tangible as signals to act upon. Trusting ourselves and our signals and acting upon them with growing confidence supports the process of decision making. Perhaps some of these decisions may reflect a counter intuitive approach buy hey, let's not get too ahead of ourselves here. Running before you can walk is one of the ego's most cherished mantras. Going against the needy impulses of the ego is usually very beneficial, whatever the financial outcome because it affirms that we are in charge and responsible. Of course, intuition is only one of the skills available to counter the ego's threat and itself is not infallible, in trading or elsewhere. But it can be our alert, our standby and our alarm, always on call for us if we give it space. Trading intuitively doesn't preclude mistakes. Even in the heart of the zone the collective unconscious is probably not fully visible and if it was we'd probably be so blissed we'd close our trade. But intuition does give us an edge that is personal and can be developed further.

The art of the chart is in the heart aswell as the eye. Once we stop looking so hard we can start to see and then sometimes we can put a trade on and just close our eyes and trust. Working out an approach to the market from an intuitive perspective is not an exact science but if we can receive what the market gives us, process it and extract its kernels of wisdom then maybe we have a chance to thrive, a chance to meld our confections of desire into success.



Article 4

Published in "Traders Magazine" August 2007

As traders, we soon come to realise and appreciate how difficult it can be to take money consistently from the markets. We learn that to have a chance of doing so requires us to make a lot more effort than we may have imagined. We need to have extensive knowledge of the markets and instruments we intend to trade, a sound grasp of technical analysis, a thorough macro-economic overview and also to have secured for ourselves an appropriate amount of “risk” capital. However, most importantly, and the issue this article seeks to address, is the effort that is required to study ourselves when we trade and specifically to understand how the patterns of behaviour we come to observe in ourselves whilst trading, once identified, can be reframed so as to be appropriately aligned to the demands of the market.

It is the character of this effort that separates the winners from the losers. The market will always frustrate us until there is both clarity regarding, and application of, the necessary effort [which paradoxically, once accepted and integrated, becomes actually quite easy to implement].

Having ascertained the stringent demands of the market we must find a way to develop the qualities in ourselves that best model the requisite qualities for trading success then build and sustain the self discipline to practice these so as to tilt the unforgiving odds slightly more in our favour.

Patterns of behaviour

For most of us, especially the more independent, discretionary type trader, and best efforts notwithstanding, our rationality can easily be displaced and overwhelmed by the tug of underlying emotion. What we discover is that the very process of engaging our beliefs, hopes, expectations and money with the market leads to the emergence of inner drives, propensities and perhaps compulsions that do not easily dovetail with the requirements for trading success and often appear to sabotage our best intentions.

Becoming aware of these patterns requires a willingness to confront aspects of ourselves we may have chosen to suppress, [for probably perfectly sound reasons], and then uncovering the coded messages or scripts they carry. Being a successful trader presupposes a toughness and tenacity born from having grappled with and overcome the inner demons that plague our every step towards success and having integrated these appropriately so that we are in charge of them rather than vice versa.

As we find ourselves performing at well below our imagined par we acknowledge that certain aspects of our approach need something of a radical overhaul if we are to pursue the evidently elusive success we crave. Here is where we may initially deduce the solution be found in a myriad of externals such as a better charting package and a deeper knowledge of technical analysis, more screens, different markets, more capital etc. Of course, these may all be helpful and we need all the edges we can get. But to look for the keys to success through these avenues alone can encourage the erroneous belief that just doing more of what we already do will somehow engender a transformation of trading results.

Most trading journals carry seductive adverts for market beating software and systems and I’m sure many of these companies make a good living in the picks and shovels business. Perhaps there are actually people out there who truly believe that the path to riches is going to be sold in a magazine for five hundred pounds. Frankly, we have to ask ourselves to what extent, if any, this attraction to a ready made package is still some residual grail hunting that promises to relieve us of the need to actually think for ourselves. In my experience, what is actually needed is a thorough shift in approach that originates in how we structure our beliefs about the nature of trading. Clearly, this is something that cannot be bought over the counter and has to happen deep inside ourselves and is usually a long and onerous process.

Process of change

So, how might we begin the process of change that will equip us with the tools for eventual success? There is not necessarily a seamless, unbroken chronology here but we could reasonably suggest that the following steps are all essential -

• Awareness of repeating behavioural patterns that occur whilst trading, emotionally, mentally and somatically
• Identification, naming and crystallisation of these patterns
• Commitment to changing any behaviours and patterns that are incompatible with trading success
• Formulating and nurturing a vision of yourself as a successful trader
• Devising strategies and techniques that will support the realisation of this vision
• Practicing market actions that are in line with this commitment and vision
• Persisting with these actions until they have replaced the previously less productive actions and become automatic
• Continuing this process indefinitely from top to bottom

Say, for example, that you struggle to run your winners for as long or as profitably as your methodology / intuition suggests. Perhaps you are still encumbered and controlled by a set of fear based trading beliefs that reflect experiences from the past. On the surface, the reasons could be properly and justifiably ascribed to the fear of losing profit. But fear, of course, has many subtle nuances, idiosyncratically structured and expressed according to the early messages you received from your family and upbringing.

Many traders I have spoken to find leaving the lions share of the potential profit regularly on the table to be even more painful emotionally than actual losses. Continually closing winners early, irrespective of whether this is the right market action to take at the time, betrays a lack of understanding of and respect for the probabilistic parameters within which success happens.

Inner messages

Bringing your awareness and attention to these moments of “decision” can reveal some interesting and potentially beneficial insights about the storehouse of inner commands and injunctions that presently serve as a significant determinant of your trading behaviours. As you become increasingly familiar with these repetitive and very powerful patterns of belief, thought and behaviour you may want to begin to consider them as potential allies in disguise, if you like. For although you may not have approved of the actions they apparently compelled you to take, nevertheless they are acting purely as servants to some earlier, perhaps no longer appropriate, commands you gave them. They have been unfailingly doing as they were told / informed and usually represent key expressions of the ongoing narrative that you have created about yourself.

The more you gain clarity about these messages the better. Maybe you can come to find the inner voice that each of these messages communicates to you, usually to be found as a short, simple phrase. It can also be helpful to give an injunction or command a name so that you develop a relationship with it and gradually bring it into the realm of awareness that marks the beginning of its demise as a potent force in your life. So, for example, you might discover that you have acquired a “poverty consciousness” which may considerably limit your risk taking abilities and may manifest as an inner voice saying something like “ there’s never enough”. Or maybe as a child you picked up that “it’s all my fault” and how you have come to hold and express this in a trading context has been to feel guilty by saying to yourself “ I am a loser” , with predictable results.

Of course, there is the possibility that you inherited a primarily positive script, full of beneficial intention. However, even this does not necessarily mean that these qualities you have developed will cut much mustard in the market. It is a fact that attributes that shine elsewhere in our lives may prove detrimental in a market sense. Even if you are pretty sussed out and together you’re probably going to have a degree of unlearning to do before you can get it as a trader. And, if like most of us, you bring the odd bit of emotional baggage to your work then it truly can be a formidable task to get yourself out of the way enough to see what needs to be done and then do it.

For sure, it may be relatively straightforward for you to sell yourself the idea of change on an intellectual level but the emotional and visceral responses it will generate are far more challenging to deal with. Changing past patterns involves going through the very real fear of letting go. You don’t know what will happen. As a trader you need to ask yourself, at a deep level, if it’s a trade you want to take.

Commitment to change

Assuming it is, the next, crucial step is to commit to change these patterns and bring your will, conscious intent and energy to this task. How quickly and convincingly you are able to do this is a reflection of both the depth to which your patterns are ingrained and the levels of frustration you have had to bear aswell as the extent of your desire and passion for success. Commitment is a moment to moment journey, not some whimsical ideal that evaporates at the first sign of difficulty and as such you need to be clear what it is you are about to undertake. The existing, entrenched patterns are unlikely to give up their apparently presumed and rightful place in your unconscious without a murmur of dissent and so finding ways of gradually reducing their impact becomes important.

One way of facilitating this is by understanding that the inherent purpose of these patterns is not in question and is being neither compromised nor changed. The innate quality of reliable, dependable resourcefulness is being retained. All that changes is the message/injunction that you request your unconscious to communicate. It is likely that the original task entrusted to the unconscious, amongst other things, was to ensure survival, safety and behaviour appropriate to the needs identified at that [earlier] time. If you can find the belief in yourself that your unconscious can become your trading friend then it makes the task of committing to change much easier and provides a ready made motivation to get you going.


One way of further facilitating these changes is to formulate a vision of yourself as a successful trader. Imagination, as Einstein remarked, is more important than knowledge and when combined with and directed by the purposeful intent of your conscious mind it becomes a potent force working for your benefit. Flesh out your vision, the more rounded and 3D the better. See yourself in front of your screens executing profitably and become aware of as many aspects of yourself and your surroundings in this vision as you can.

What is your posture like? And your breathing? What are the physical sensations that you are aware of as you trade successfully? What thoughts pass through your mind? What are you feeling as you take consistent profits from the market? What is the ambience of your trading room ? What music, if any, are you listening to?

You might also want to experiment with images within the vision that speak to you. For example, you could picture two pots on your desk, one almost full, containing slips of paper on which are written your winning trades and the other almost empty containing your losing trades. You can have fun designing something that works for you and as long as you believe what you are visualizing is possible then the only limit is your own imagination. The key thing is to find images that connect you to the process of success and make these as clear as you can. Try varying the intensity of colour you see in your visualization and play around with the fine tuning until you have something which feels right and fitting and is tangible, real and achievable.The more you can get an experiential sense of what your vision of yourself as a successful trader looks and feels like the better.

The unconscious mind receives this experience as if it is already in the present and so the greater your intensity of focus and purpose and the more you commit to it the deeper root it can take.

Visualisation is most effectively undertaken when you can get your mind to a place of quiet and stillness. Ideally you want to be able to bring your brainwave activity to the alpha level of 8-12 waves per second. This is associated with introspection and relaxation, superlearning and the production of calming neurochemicals. Change needs to happen at the deeper levels of the mind in order to take root and become lasting. What you are attempting to do is to plant a root in fertile soil and so, if you like, you need to get as many weeds out of the way before you start. You become what you think about and focus on with intensity and purpose so once you are
clear what you want and you know what you need to do to get there then you can trust your unconscious to find ways of delivering the results you request from it.

Transition through conflict

In the process of allowing these changes to gradually unfold there is inevitably conflict. You are asking your unconscious to accept something different than is already there and the transition between the inherited and
established old and the consciously self determined new creates a tension and varying levels of resistance. It is important to understand that this is the key that underscores the process of change and how you deal with this is what determines your eventual results. As you build and strengthen your self discipline this adds to the developing momentum. The trend is your friend. And this is one you want to ride forever.

Having created and developed your vision it becomes important to find a way of grounding this with actions that will support it and further the process of change. Such actions have many functions. Firstly, they serve to reinforce what you have committed to and visualized. You trade in accordance with your new vision of yourself as a success and practice the methods and actions you deem appropriate to this, moment to moment through the trading day. Trading from this new perspective encourages you to align the conscious mind and will with the seeds of change already planted in your unconscious mind. Secondly, it becomes increasingly difficult for you to trade in the old [losing] ways you had previously followed and do so with the awareness of the new methods you have designed. Thirdly, having specific criteria to follow and trade by lessens the potential for emotional disruption and sabotage.

Also you need to be clear in yourself that you believe you are worthy of the success you seek and that you are capable of achieving it. The more you choose to take actions that are different from what you have traditionally done the more you help yourself to reinforce the power of your new vision of yourself. You can also help yourself by determining a clear set of strategies that will focus and strengthen your resolve you to run your winners, get into and out of trades or whatever particular problem you are struggling with. Once you have identified the trading behaviours that are not serving you in these respects then you can break these down so as to understand their constituent parts and watch for them to arise and then go against them and trade completely from the perspective of your vision. Of course, all the above assumes that you are cognisant with strategies that reflect the hard and fast rules that will lead to success. There will obviously be a personal slant to what you request your unconscious to develop and deliver but the “programme” needs to be built around the time tested market truths, which though evident to all, lose nothing in repetition. Any vision of yourself must therefore be tailored around the following :-

• Judicious trade selection
• Clear criteria for entries and exits
• Capital preservation
• Acceptable risk parameters
• Running winners patiently
• Cutting losses quickly

Additionally you must find a style of trading that suits your personality. It is no use trying to be something that you are not and fighting your own tape. You have to fit to find success. If you are by nature aggressive and risk hungry and you like fast action then it is more likely you will find your thing as a daytrader rather than as a swing trader. As you feel comfortable with and established in your new vision of yourself and it begins to yield the desired results in terms of consistent profits then you can perhaps broaden your approach and take these new found skills into different trading avenues but initially choose one approach and stick to it.

In the end, you just have to keep on keeping on, do the right things over and over again and persist until you reach the stage referred to as unconscious competence. The successful trader is the one who is able to bear the uncertainties involved in such a transition and walk the line with confidence and unshakeable self belief.

In a sense it’s about finding and following “the way”. You may have impulses, historic dispositions and a strong desire to do things your way in anticipation of a particular reward [money] but the only way to play the ultimate numbers game is by making your way and the market’s one and, as we all know, the market is always right.



All images and text Copyright © Martin Kemp 2006. All rights reserved worldwide.