Posted on: 15 May, 2019
In this article, you are going to learn how you can become more hack-resistant to all the tricks that your mind and the market is going to play against you, particularly as it relates to anticipation and preparation.
To our Market Insights
Today, we are going to be looking at how we can hack our own minds for the purpose of improving our trading. By the end of this article, you are going to learn how you can become more hack-resistant to all the tricks that your mind and the market is going to play against you, particularly as it relates to anticipation and preparation.
Just as in society in general, the likes of Facebook, Instagram, Youtube, and other social media platforms have perfected the psychological tricks to keep one addicted to consuming content, we could make the same analogy when it comes to financial markets. It acts as a constant landmine field of psychological traps.
Trading serves as a platform to manifest the best of us if we apply ourselves, or we can be easily conditioned by all the array of hacks it has in store, bringing out to the surface our deficiencies. Those breaking through with an annual consistent performance know how the markets as a system work and understand how to hack their own psychology.
In a nutshell, a market is a constant flux of buy and sell orders with an often erratic and seemingly random rhythm. As traders, we see the markets testing our nerves and patience to hold onto a winning trade, playing with our emotions as they relate to fear, confidence, self-worth, you name it, or by making us act conservatively to avoid losses for instance. No matter what it is, a trader often becomes the victim of his own inability to control the most primal part of his brain.
As an example, why do traders self-sabotage potential winning trades by staying out even if rules are met for fear of losing? As part of the evolutionary psychology, we as humans are built for survival, which essentially boils down to find the basic resources necessary to stay alive (find food, shelter, …) while avoiding risk/pain. This is our primal wiring as individuals growing up in a society that forces us to behave in a manner so that we can live a life in which we nurture habits that keep us with a sense of safety and protection. But that's just the tip of the iceberg, as there are hundreds of pitfalls caused by the inner works of our brain wiring as it relates to trading.
However, we can take control of our mindset in order to prevent these landmines. Either the ones internally caused by self-sabotaging through all types of mistakes or externally by the array of tricks the market sets up. Just remember, even if externally perceived such as the market running stop-loss orders as it seeks liquidity, at the end of the day, it all comes down to our own conscious ability to change what we can control, which is the internal part.
It’s all about preparing and acting about what we can control. I’ll give you another example. Yesterday, in our Discord room, Global Prime Head of FX Trading Jeremy asked the following question: What's a worse feeling for you? The FOMO (Fear Of Missing Out) feeling that comes with not being in a moving market OR the feeling you get while being in a trade where you know you shouldn't have jumped in on? Below is my response, again, it’s what we can control that count.
Back to the markets, as a typical example, it is human nature to be tempted to put on a trade on the basis of seeking instant gratification. Even worse, if that results in a random win that creates a (false) sense of increased confidence, you are well on your way into an endless rabbit hole of inconsistency. The market will get you to do things you don’t necessarily want to do if you don't learn to counter-hack your brain.
If that’s you, trust me, you are letting the market get away with what it wants, which is, acting as a hacking mechanism to your brain. From a neurological and psychological perspective, trading spikes your levels of serotonin or dopamine as the physical response of one’s primal mind as it seeks instant gratification vs long-term goal-attainment.
So, how can one take back control by circumventing these muddy terrains? How can we transition from being the victim to become the hacker of our own minds? It all starts by thinking like a computer hacker, which involves studying a particular system, in this case how your brain works, and figure out the way it operates. From there, you then need to understand the techniques necessary to hack your psychology so that you are the one taking control as opposed to being controlled by these cognitive biases and logical fallacies, which is what I refer to as the self-sabotage, the artillery the demons within your mind will use against you.
To get this point across, I will give you a historical example, one that relates to the philosophy of the Samurai warrior, where the adage it promotes is to “win beforehand”. A Samurai would learn to anticipate all possible outcomes by being 4 or 5 steps ahead by what’s called ‘pre-acting’ vs led by the heat of the moment.
By pre-acting, what the Samurai achieved was complete control of every area of the battle and the different scenarios that may unfold by conducting a constant and purposeful preparation ahead of the actual battle (trading). So, by the time the battle began, the odds to succeed were much greater as they had studied every situation that could happen, while the opponent was just one step ahead or just swinging the sword.
How can we prime our mind when trading to pre-acting as the Samurais would do? How can we stay multiple steps ahead when a particular scenario arises in terms of mental preparation? It all starts by learning how to use your conscious brain by setting up habits and behaviors that can front run the wrong thoughts from influencing the way you act. You must create a feedback loop by which the way you think affects the way you feel, which affects the way you behave. This cycle then repeats itself, reinforced each time.
One of the best techniques I’ve come across over the years is meditation, which promotes the ability to be present in the moment and become a more avid observer of your thoughts as they form in your own mind. The more you practice meditation as an exercise to quiet down your mind, the more you can become self-aware of what constitutes a primal response of your physiology as opposed to a genuine response to trust, which builds upon years of experience trading. If you for instance experience a loss, you try to breathe, let it go, and just see it as what it is, one trade out of a sample of thousands that you will trade, which just didn’t work out.
Specifically, the meditation technique that I’ve used over the years, which only requires 10m/day, is what’s called the Shamatha meditation practice, which aims to strengthen the mind's stability and to counterbalance the symptoms of an agitated mind. Chris Capre, Founder at 2ndSkies, as part of his Advanced Traders Mindset Course, has been my mentor when it comes to training my brain for trading.
Hand in hand with the art of taking control of your mind through meditation, another cardinal component you must nurture is the one that relates to actual trading as a skill that you cultivate through repetition. The process should be rich with intrinsic motivation to go through a lot of practice of a particular pattern.
One thing is for one to learn a particular pattern as part of general domain knowledge, a whole different ball game, one that you must be encouraged to take on if you are serious enough, is to repeat the process of trading it thousands of times, that’s when the real learning curve begins. This allows you to build critical feedback and intuition to help you stay prepared for every situation that may arise when you trade it live, just as the Samurai would do. Because you’ve done the drill/practice so many times, this is another massive step to gain confidence in your system, critically important to become manipulation-free from the hackings of your own mind
Trust me when I say that nothing beats going through this conscious practice of analyzing your setups. Sometimes, you cannot even verbalize why a particular setup will or will not work, you just go through the thousands of observations you’ve had of that same pattern. It’s a craft, your setups, that you must perfect.
Over time, as you work on these two areas such as “meditation” to enhance the awareness of your own thoughts and “trading skills” to prime your mind for the anticipation of all scenarios that may occur, as in the case of the Samurai, you are too pre-acting to own your mental process and take back control of your mind.
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