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Trading Psychology and How The Mind Works (I)

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 George 
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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...

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 Peter 
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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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 George 
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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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 trade2win 
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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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 jstnbrg 
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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?" https://www.nytimes.com/2011/08/21/magazine/do-you-suffer-from-decision-fatigue.html?_r=1&pagewanted=all%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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permeant
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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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 kashbg 
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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?" https://www.nytimes.com/2011/08/21/magazine/do-you-suffer-from-decision-fatigue.html?_r=1&pagewanted=all%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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 TrendTraderBH 
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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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 kashbg 
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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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 TrendTraderBH 
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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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 George 
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Putting it very simple to you. You might not do very many things wrong. If you're able to trade consistently on a regular basis, then it means that you have a good method/system (trading tool). So stop looking for something else in that regard. If it works for you, then keep what you have.

Now to the other issue. Have you heard of the term "Know Thyself"? I am sure you have, but what does it really mean? Well it's about knowing who you are and in this case the very essential part is...in order to stop yourself from committing those errors, you'd have to stop yourself before YOU happen. In other words get to know yourself well enough in order to catch yourself before it happens. That way you don't have to trade those days, or commit those errors leading to those heartbreaking results.

Other practical things you can do is to take out money from your account, after a period of consistency. That way you force yourself to start all over again (but with an already, set aside achieved goal).

Or take the hard path and keep on looking for what's wrong with you. Eventually you'll get the why of it, and you'll find out that it is not going to help you in modifying your behavior. What you need to do is to find ways in order to modify it. You have to keep on doing the right thing til you've burned in new pathways into your brain. Which to me it seems like you've already done, meaning that it takes about 3 weeks of constant repetition in order to do that, and you're saying that you are consistent for a month or two.

Or it could be that you're reaching your subconscious block/limit after 2 months of trading, hence you're starting to give it back. By that I mean that when you reach a certain level of money or performance it gets to conflictive because of the information/program you have in your brain. An exampel of this might be; Your father told you when you were a kid that rich people are dirty. When ever you reach that threshold and you start feeling rich, your subconscious mind is starting to help you to adjust that behavior. It pretty much helps you to push the button when you shouldn't and so on.
It is very much about the self-image we carry inside of us. The outer world is mirroring back that to us. If you feel bad one day, your trades are going to be bad as well. Why? Simply because you're actually not trading the markets really, you are trading yourself. And I am not talking about you specially, I am talking about all of us!

You see it is a bit difficult to know what the problem is and to put the dot exactly over the i. Every experience is pretty much based on personal issues. And you're the one in charge of that.

I've just given you a couple of ideas to play with, but the main thing is to know yourself in order to know when to stop yourself before YOU happen!

Good Luck!

We all struggle to make tomorrow look like yesterday!
Get rid of your past and let the future unfold from the now.
Past performance is not indicative of future results.
/George
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 gold101 
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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.



to do effective trading one should remain detached from the market...

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JonathanLeon
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George View Post
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...

This is a great article and pairs nicely with Behavioral Finance. Lots of good information on the web regarding it. Thanks again.

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Syed Hassan
Ottawa, Ontario, Canada
 
 
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Well written and very useful. Kudos to you George.

Keep writing and sharing with us.

SYED



George View Post
Putting it very simple to you. You might not do very many things wrong. If you're able to trade consistently on a regular basis, then it means that you have a good method/system (trading tool). So stop looking for something else in that regard. If it works for you, then keep what you have.

Now to the other issue. Have you heard of the term "Know Thyself"? I am sure you have, but what does it really mean? Well it's about knowing who you are and in this case the very essential part is...in order to stop yourself from committing those errors, you'd have to stop yourself before YOU happen. In other words get to know yourself well enough in order to catch yourself before it happens. That way you don't have to trade those days, or commit those errors leading to those heartbreaking results.

Other practical things you can do is to take out money from your account, after a period of consistency. That way you force yourself to start all over again (but with an already, set aside achieved goal).

Or take the hard path and keep on looking for what's wrong with you. Eventually you'll get the why of it, and you'll find out that it is not going to help you in modifying your behavior. What you need to do is to find ways in order to modify it. You have to keep on doing the right thing til you've burned in new pathways into your brain. Which to me it seems like you've already done, meaning that it takes about 3 weeks of constant repetition in order to do that, and you're saying that you are consistent for a month or two.

Or it could be that you're reaching your subconscious block/limit after 2 months of trading, hence you're starting to give it back. By that I mean that when you reach a certain level of money or performance it gets to conflictive because of the information/program you have in your brain. An exampel of this might be; Your father told you when you were a kid that rich people are dirty. When ever you reach that threshold and you start feeling rich, your subconscious mind is starting to help you to adjust that behavior. It pretty much helps you to push the button when you shouldn't and so on.
It is very much about the self-image we carry inside of us. The outer world is mirroring back that to us. If you feel bad one day, your trades are going to be bad as well. Why? Simply because you're actually not trading the markets really, you are trading yourself. And I am not talking about you specially, I am talking about all of us!

You see it is a bit difficult to know what the problem is and to put the dot exactly over the i. Every experience is pretty much based on personal issues. And you're the one in charge of that.

I've just given you a couple of ideas to play with, but the main thing is to know yourself in order to know when to stop yourself before YOU happen!

Good Luck!


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 Sam21 
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Very useful and easy to understand information in this thread, thank you George.

Here's a movie recommendation that explains the inside of our minds pretty well (animated and fun to watch with or without kids)

"Inside Out"

I don't know if it's against the rules to recommend movies so please let me know and I'll edit this post.

-Sam

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 George 
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Hey Sam,

Thank you for your post. It's okay to recommend information/movies as long as you're not spamming or promoting things for your own benefit. Just think in honest terms of traders helping traders, and you'll be fine

We all struggle to make tomorrow look like yesterday!
Get rid of your past and let the future unfold from the now.
Past performance is not indicative of future results.
/George
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 Oiler 
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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?" https://www.nytimes.com/2011/08/21/magazine/do-you-suffer-from-decision-fatigue.html?_r=1&pagewanted=all%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.

I will start a plan similar to that as my past month has been full of getting smacked in the afternoon while giving away morning gains.

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denby
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@jstnbrg

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

Thank you for posting that, I have just started to restrict my trading hours but I think a tick or point goal would also be relevant for me.

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reallypo
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Has anyone here used the services of Steve Ira Present? Pricey but worth the cost if it helps.
Thanks

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 Hemmo 
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reallypo View Post
Has anyone here used the services of Steve Ira Present? Pricey but worth the cost if it helps.
Thanks

Reallypo,

After completing the intense upfront homework, I had the first session with Steve Present last week, which was great.

There is an existing futures.io thread in relation to Steve and his website ... Trading Psychology ...



That is where I am planning to provide some feedback on the experience for other futures.io members to consider approaching Steve Present for their trading psychology issues. It was these contributor's comments that made me feel comfortable in outlaying the money to work with Steve.

[Mike, I feel like I now have something to contribute to futures.io!]

Reallypo, have you worked with Steve? How many sessions? Do you feel that the impressive changes have remained permanent?

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reallypo
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No, I have not worked with him yet. The cost is very high so I am trying to find someone who has worked with him for a reference. I will hop over to the other thread to read your input.

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WmAFoster
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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?" https://www.nytimes.com/2011/08/21/magazine/do-you-suffer-from-decision-fatigue.html?_r=1&pagewanted=all%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.

This simple idea has made a huge difference to my trading.............
This video also brings this idea out and that you don't need to catch those big trends to make really good money also illustrated in the spreadsheet image.


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