I not going to wheel out the old ‘Trading is 80% psychology, 20% analysis’ trope. Whilst this may ring true for someone with a few years and 10’000+ hours screen time behind them, for someone just starting out, it simply isn’t true.
In the early days, a trader needs to busy himself with technicals, trying out different things, finding out how things should work, and learning empirically how things actually work in the market place, and of course eventually fine tuning a small set of tools that works for them. The side effect of all this messing around with the technicals is of course that the trader’s sub-conscious or ‘intuitive’ mind is building up a picture of how the market most likely behaves across a multitude of different scenarios, far too vast to be fully considered by our rational process, or covered by some dumb setup checklist or flowchart.
When a trader reaches a state of ‘intuitive’ ability, that in my experience is where mindset or psychology starts to become much decisive in a trader’s performance.
Most of us think of ourselves as one ‘entity’. But actually our mental life consist of various component parts and drives. An example of this was demonstrated in an experiment where the test subjects had (for some reason) the connection between their left and right brain hemisphere’s severed. When a signal was sent to the test subjects’ right hemisphere, telling them to wave, the test subject did so. When a signal was sent to the test subjects’, asking them to explain why they had just waved, The test subjects came up with a number of bizarre and wild explanations as to why they had decided to wave, none of which were "because you just instructed me to wave’, as the instruction to wave received by the ‘intuitive/emotional’ right hemisphere was not transmitted to the ‘rational/egoistic’ left hemisphere. With the lack of knowing the real reason why they had waved, the test subjects ‘rationalised’ with their egos inventing a narrative, that the test subjects fully believed in. Thus it could be said that the human psyche consists of various component parts, which our ego fuses into a single entity and not having complete or accurate information as to why something is so, will not prevent the ego from creating ‘The Reasons’ in which it will believe. It is the ego’s job to make solid concrete structures out of phenomena that aren’t all solid or concrete, but actually rather fluid and dynamic, thus giving the individual the confidence (or lack of) to act.
And of course, every trader can relate to having had many misgiven ‘rationalisations’, in the market place that may be fuelled by emotional or egoistic needs rather than fuelled by an intuitively lead rational analysis of what is actually happening. It is what makes trading so difficult. With no definite right or wrong answers, with literally any market configuration likely to be rewarded at least some of the time; whilst we do possess the mental capacities to ‘get it right’ more often than we get it wrong, our natural wiring (at least for most of us) is more geared up towards ‘getting it wrong’ more often than not, and it takes quite a bit of work to recognise the natural patterns at play, and alter them.
The way I look at it, is that our Mindset is broadly split into two halves, left and right.
Left:
Egoistic + Rational
Right:
Emotional + Intuitive
The most common balance of power on a scale of 10 between these drives is probably:
Left: Egoistic 8 - Rational 2
Right: Emotional 8 - Intuitive 2
Whilst there may be long standing axiomatic reasons for this sort of configuration being the most common, and whilst in many endeavours in life where Force of Will is a critical factor between success and failure, such a configuration may be key to success and/or survival; in any endeavour where Good Judgement is key, such as in Forex trading where also ‘Force of Will’ plays no part, such a configuration will get you wrecked. This is the Mindset configuration, that will have a novice driven by his emotional impulse for acquisition chase the market adding to positions as the market goes up, perhaps with his ego rationalising his great decisions based on some arbitrary trendline break, candle pattern, or fundamental storyline, only for the same novice to sell everything at a loss on the first pull back, driven by his emotional impulse for loss aversion, perhaps with his ego-rationalising his great decisions, based on some key TL break, or reversal candle patterns meaning that his losses will surely be magnified had he held his position…only for the market to jack knife back up in his direction, wash, rinse, repeat, etc… All along however, there was something in the trader, that intuitively ‘knew’ what the right decisions were and a capability to apply fitting logic to those decisions, but unfortunately for most of us, that silent little intuitive voice of ‘knowing’ gets drowned out by all the other emotional and egoistic b.s. that our minds are drowning in most of the time.
Good judgement does not come from egoistic posturing, whether it be the ‘Big I Am’ or it’s inverse, the ‘Big I Am Not’, nor from emotional states, whether they be Euphoria or Despondency. Good judgement in any complex field (not just trading) is necessarily intuition lead, with rational reasoning applied.
Thus the trader’s mindset configuration should be more:
Left: Egoistic 2 - Rational 8
Right: Emotional 2 - Intuitive 8
Whilst some people’s natural configuration may be much more naturally aligned than others, for myself, the only way to work towards achieving this has been extensive checking and re-checking of myself and my actions. Any activities that place focus on the intuitive mind will be helpful. For some this might be meditation or yoga. For me, I like to mini-dose with psilocybin (I have been into hallucinogens my whole adult life). As for the biggest self-saboteur, the ego. Next time you are telling yourself how great you are and how sharp your market acumen is after you had a decent run of trades, remind that part of yourself, pumping yourself up making you feel all inflated and hyper confident, that it had ZERO role in these successes, because it really didn’t, and let the ego deflate itself back to equilibrium, where it belongs.
It’s a long process, but overtime you will notice the necessary (for trading) change in yourself. Go back a few year, I used to be rather opinionated, prone to falling in love with my own theories (and perhaps I still am), with a strong tendency for confirmation bias in the information I consumed about any given matter. These days I can’t stand taking in any information from sources with a clear entrenched emotional bias this way or that and am always seeking out angles on matters that I feel pertain to the reality of a matter as much as possible. This is in stark contrast to the emotional sway of a certain line of reasoning that I used to succumb to and the outright denial/refutal of anything that may come along and threaten my paradigms. And of course, the way I was is the way that most people are. Most people do not have good judgement on complex matters, whether it be in trading or in politics, or even (especially) in health decisions, such as whether to subject oneself to the experimental mRNA injections or not. Lack of good judgement due to emotional and egoistic dominated mindsets, is the reason why the masses can be so easily played and manipulated. It is also the reason why the majority of market participants, lose.
