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Trading Psychology and How The Mind Works (I)
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Trading Psychology and How The Mind Works (I)

  #1 (permalink)
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Trading Psychology and How The Mind Works (I)

I'm going to write a series of articles that will treat how the mind works and it's connection to trading.

How does the mind work? We all have one, but how aware of it's functions are we? How come a desired change, only takes place when it's a matter of life and death. How come you always worship all those people that have the proper discipline, in order to succeed with all they put in their minds?
How come you're never nice to yourself, if you were to observe yourself and hear your own thoughts outside of yourself?

Big questions and the answers seems so far away! But it's actually quite easy to figure it out, when you understand how the mind works!

Let's start by dividing the mind into three sections. They are the inner subconscious mind, the subconscious mind and the conscious mind.
We're not going to treat the inner subconscious mind, because it's function is to run your organs automatically.

The conscious mind is divided into four sub sections. They are:
1. The Rational Mind
2. The Analytical Mind
3. Will Power
4. Temporary Memory

The Rational Mind's function is to give you reason. That's where all your reasons lie, in that mind. It's actually pretty simple to understand. Whatever you do in your life, you do it because of a reason. If we are to be lacking reason for the things we do, we end up in mental hospitals. Well, most of us don't get that far, we simply stop doing those things.

The Analytical Mind is the mind that's analyzing things for you. You think that a lot of the things you do in life, are done without thinking. But that's never true. Whenever you tie your shoes, or whenever you open a door. That's your analytical mind, analyzing things for you. Should I open it or not? And so on!

Will Power, is the big, big bad guy. You're probably thinking that's where all your investments should be. Stop blaming yourself. It's not helping you with whatever you want to change, improve or do what's so ever. Simply because it's temporary. How many of you guys have tried to stop smoking, and managed to do it for a couple of days, in order to throw in the towel later. It's not your fault. It's built that way. It's just temporary.

Temporary Memory, is the memory you're using on a daily basis, in order to remember things that's making your life easier. Like, where your address is and stuff like that. That memory is not big and it's not going far back. That's why, If I ask you if you remember what you did when your were three years old, you'll not be able to tell me about it.

That's how the conscious mind works. On a daily basis we spend about 1-5% in the conscious mind. The rest is spent in the subconscious mind.
The conscious mind perceives about 40 bits of information per second. The subconscious mind about 40 million.

In the next article I'll explain how the subconscious mind works.

Take care all you guys out there and may the Trend Gods be with you!

/George


To be continued...


Last edited by George; June 30th, 2009 at 03:34 PM.
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  #2 (permalink)
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Interesting George, never knew there was a factor million difference between conscious and subconscious.
This then probably ties in with being in the zone, and feeling/sensing the market, without really being able to tell objectively why you think the market will move up or down.

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  #3 (permalink)
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Peter View Post
Interesting George, never knew there was a factor million difference between conscious and subconscious.
This then probably ties in with being in the zone, and feeling/sensing the market, without really being able to tell objectively why you think the market will move up or down.

Yes Peter,
That's exactly it, you manage to tap into the collective mind of the markets.
The primary goal is to make it there by control of course!

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  #4 (permalink)
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The more I read forums with information like this, the longer I realize I will be able to extract money from the market.

Here is the bottom line folks, keep it simple.

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Decision fatigue

A friend just pointed me to an interesting and highly pertinent article in the New York Times Magazine online. The title is "Do You Suffer from Decision Fatigue?" http://www.nytimes.com/2011/08/21/magazine/do-you-suffer-from-decision-fatigue.h...3Fsrc%3Dtp&smid=fb-share

I traded in the pits at the CBOT for 16 years, but the first three years were difficult for me. I did make money in each of the first three years, but not enough to grow as a trader and barely enough to cover my living and trading expenses. One big problem that I had was that I would often do well in the morning, but give back most or all of my day later on. I eventually decided to trade for a set goal of 4 ticks/unit of size per day, and then leave even if I had only been on the floor for 10 minutes, on the theory that with such a modest goal I could take only the safest trades and still make enough money to grow, and that going home a winner every day was more important than catching all the action. After I made that decision, I didn't have a losing month for 6 1/2 years. Perhaps lack of decision fatigue is why.

"You don't need a weatherman to know which way the wind blows..."
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  #6 (permalink)
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Good article, thanks for the link! I myself am experimenting with various strategies to combat this problem (of giving up AM gains to the PM choppy action). In addition to the one you mentioned (calling it a day after targeted gain), another that seems to work is deciding ahead of time to not trade during certain periods (e.g. middle third of the day). Haven't resorted to drinking sugary soda every hour, though! :-)

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jstnbrg View Post
A friend just pointed me to an interesting and highly pertinent article in the New York Times Magazine online. The title is "Do You Suffer from Decision Fatigue?" http://www.nytimes.com/2011/08/21/magazine/do-you-suffer-from-decision-fatigue.h...3Fsrc%3Dtp&smid=fb-share

Thanks for the article.
I have just the oposite problem, am trades are useless and after a long day when I desperately need rest, my game picks up.

"The only thing to do when a man is wrong is to be right by ceasing to be wrong." - Edwin Lefevre -
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New Member - Psychology

I am a new member and have been reading a bit about psychology of trading lately on my own and now on this Board.

My main issue is working hard trading for a month or two and having great consistent trading results and then within a day or two giving all those results back. Usually it involves a new method with lots of discipline and risk control that gives way to a couple of trades that go against me. Or, just committing to day trading successfully which turns into some overnights...

It just happened again so trying to find how to stop repeating this.

Any help from some of the more experienced traders is appreciated.

Thanks!

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  #9 (permalink)
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TrendTraderBH;
I am a new member and have been reading a bit about psychology of trading lately on my own and now on this Board.

My main issue is working hard trading for a month or two and having great consistent trading results and then within a day or two giving all those results back. Usually it involves a new method with lots of discipline and risk control that gives way to a couple of trades that go against me. Or, just committing to day trading successfully which turns into some overnights...

It just happened again so trying to find how to stop repeating this.

Any help from some of the more experienced traders is appreciated.

Thanks!

Hi TrendTraderBH,

If you read carefully your post again, you would know the answer to your problem. If someone else spell it out for you I promise you it would not help as it needs to come from within you.
In my opinion, somehow, people have within themselves the predisposition to not do what others are telling them.

The best and the only person to find what you are doing wrong is you. If you are still stuck, then drop your size and continue your trading journey until you find your answers.

"The only thing to do when a man is wrong is to be right by ceasing to be wrong." - Edwin Lefevre -
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  #10 (permalink)
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Hi Kashbg,

Thank you for the response. I know the answer (staying disciplined, following my rules/plan, be patient) but can't seem to execute on those "answers" all the time. It only takes one lack of those after many successes for the "event" to occur.

I am learning though as the overall monetary consequences of these "events" are going down and down each time it happens. In 2008, I blew out my account (although it seems I suffered from other issues in addition to the above as my experience level was low), in Spring 2011 blew half my account out (although only 1/3 of the money of 2008). This time I only gave back 1.5 months of gains (a small victory actually).

You are right my journey continues....

futures.io (formerly BMT) will sure be a help....but an actual two-way direct mentor/coach would also help I'm sure.

Thanks again

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