Trading Psychology

Trading performance mindset, is the most important aspect of trading,It’s what drives the trading decisions and give the trader the confidence and clarity to execute his trading plan while managing risk and maintaining self awareness & self management.

What is trading psychology? and why it’s so important when it comes to trading and Performance ?

We don’t see things as they are we see things as we are. how we internalize the feelings, thoughts and sensations is what creates our reaction and behaviour.

our subconscious mind store beliefs & memories based on our past experiences and our emotional state of those experiences
our subconscious mind works below our awareness (Sub-consciousness) where we spend 90% of our life reacting to those feelings, habits & emotional patterns (on Auto pilot)without being aware of them instead of responding.
Since each moment is uniques, we need to be fully aware and respond to it rather than react based on past emotional behaviours, patterns and reactions.
our subconscious mind is a pattern recognition machine to detect threat and help us avoid danger for survival needs.
The mind doesn’t differential between psychological threat and physical threat, hence we tend to over react on certain past conditioned emotions and patterns that we develop or even inherit from our environment ( society, parents, caregivers, ..etc) and end up recycling those behaviours over many generation as they become past of our subconscious core beliefs, and auto response behaviours and habits. .
We become so conditioned & used to those feelings, emotions and sensations, that we end up becoming part of our behaviours and daily thinking and behavioural response.
Our Brain is very efficient, it filters information and patterns into our awareness that matches our core beliefs, and ignores information that doesn’t confirm those patterns and beliefs.
Thats why we get attached to our opinions and and often call them fact, and we start to fight anything that contradicts those beliefs in order to prove we are right in rader to protect our EGO (core subconscious beliefs) which is called in psychological terms confirmation bias
Out brain is adaptable throughout our life, and we can change those limit core beliefs through Neuro-plasticity by creating new neural connections that allows us to create a new belief system that replaces our core limited beliefs. which makes us respond to any situation in present moments mindfully and keep us living the present moment rather than reacting to our past conditioned limited behavioural patterns and beliefs.
if we do not challenge our beliefs, our brain will simply seek to confirm them, which creates a lot of suffering for those with trauma because our core beliefs are not the truth about who we are.
We end up getting stuck & fixated, in order to protect our Ego & defend our core limited beliefs which are not ours to begin with, as we developed them over the years from past experiences and environment.
The key is to practice breathing and mindfulness in order to activate our parasympathetic nervous system to calm the body mind, over come our discomfort (feeling, sensations thoughts) as we create new version of our core beliefs, and response system.
Every decision we make is based on a feeling associated based on past experiences which either makes us avoid discomfort or attracts us to pleasure.
if one can become the observer of self, to notice thoughts, feelings, sensations and inner chatter, we can mange our actions and respond rather than react to our past and stay stuck in our own old patterns or what they call Karma.

How does this translate into our trading ?

And how does that affect our trading decisions, how our core limited beliefs discomfort and emotional response affects our trading decisions and over all perception of the market and our response to uncertainty and discomfort.

“When we change the way we look at things, the things we look at changes ” Wayne Dyer

All of our experiences and perceptions in life are mental state dependent. so tend to project what we think and feel onto any situation, and come up with teh best short cut and solution to avoid pain.

This is how our mind are wired, our brain is wired to protect us from physical threat in order to keep up alive.

It is our survival limbic brain what kicks in during any dangerous situation, The amygdala which is part of the limbic system is responsible to trigger our fight or flight response to prepare our body for survival skills.

Having said that our mind doesn’t differentiate between physical threat and psychological threat, and hence how we think and feel in any particular situation could be a trigger to our survival brain, which hijacks our analytical brain, and makes us do things that we end up regretting later in the future.

In trading and life, how our brains are wired,

How we react to things is all depending on our feeling sensation and thoughts.

Being able to recognize our feels, thoughts and sensation during trading is where the power is.

Seeking pleasure or avoid fear is how we base our decisions.

We take action in life based on two emotional behaviours,

first is to avoid pain and emotional discomfort ,

second our minds are attracted to pleasure and what makes us feel good about our action.

The issue is how we were programmed and the definition of our fear and pleasure in our younger years is what controls us in our adult years. Our inner child and behaviour and reaction stay within us for the rest of our lives, unless we decide to break that behavioural patterns and change those definitions and emotional neuro connections within our subconscious mind which keeps us stuck in the same repetitive patterns all our life.

becoming aware and awakening the self observer of our mental and emotional conditioning , and inner adaptive voice and critics which have been with us since we are borns is the key to break any behavioural patter in our trading that is not surviving us well.

WE model our caregivers and parents, and even carry those patterns and behaviours and thinking patterns through generations, which creates social habits and behaviours.

SO recognizing our feelings about any situation is the first initial step .

being able to respond rather than react is where the power lies.

This takes a lot of practice to unlearn those behavioural condition pattern from with which don’t serve us well in our trading.

a lot of those pattern comes from our limbic system and survival brain which is there to protect us.

our brain doesn’t differentiate between psychological fear and physical threat, hence we get hijack and have the fight or flight kick in to hijack our logical brain and end up trading emotional our of fear.

This happens within milliseconds.

The only way to stop that patten is by awareness of the conditions that triggers that behaviours.

regulating our emotions to neutralize the reactivity of the conditions,

and taking action to to stop the pattern.

how we feel about any situation is

being able to recognize what mind are we bringing to teh trading day, and maintaining that mindset and awareness during the trading day is the key.

being able to recognize when we are out of our trading mindset, and trading from a compromised mindset, and having the discipline to stop trading once this is observed is what differentiate professional successful traders form others

Our default limbic system is not suitable for trading, cause it is based on outcome and survival, so we need to rewire and reprogram our mind to accept uncertainty and redefine failure and mistakes when it comes to trading.

As mentioned earlier, our mind sees things and patterns based on our default survival brain, and that programming goes back to our early stages of development , where we didn’t have the experience and coping skills, so we develop some reactive patterns within our subconscious mind that triggers some behavior based on our early stages development. those patterns do not serve us well in our trading or other areas in our life and can become limitation in our thinking and behaviour.

Those limited beliefs and pattern become our filters and we see, feel and react to things in life and trading.

We are so used to those feelings, and behaviours that they become part of us, and we cannot recognize them as we react to them unconsciously without being aware of it or the reason why we do it.

The only way to be able to change those patterns and behaviours that don’t serve us well in life and in trading, so to slow down our thinking, and become aware of our thoughts, feelings, and sensations and triggers, in order to enable us reprogram our reactive behaviours to any situation, habit or behaviour we need to change.

The only way to change change any habit or behaviour is by becomes aware of it, accepting it, and taking action to change it.

It takes a long time to rewire and reprogram our thinking, and it requires a lot of dedication, discipline and awareness to be able to sustain the change and start responding rather than reacting mindlessly.

This is where Mindfulness practice comes into play, as we practice to quiet our minds, as we become aware of our thoughts, feelings, sensation, and internal voice in our head, we can take control and catch ourselves before we gat hijacked by our old programming and behaviour that trigger old unwanted behaviours and patterns that don’t serve us well.