“The emotional burden of trading is substantial.” – Bruce Kovner, Market Wizard
“The best traders have no ego” – Tom Baldwin, Market Wizard
Mastery requires a willingness to commit to changing yourself. It’s through self-work that you get from where you are to where you want to be.
When we approach the markets, we bring with us our personal problems and a number of biases that arise from the way our brain works (thanks evolution!) In many ways we are poorly wired to be good traders. Our natural inclination is to cut our profits short and to hold on to losses – the exact opposite of what works.
Over-time, if we can work though our issues, not only will we become much better traders, but it can have great benefit to our lives. Many traders report that the self-development that they have gone through to become a good trader has had a transformation impact on their personal life too.
Trading is 100% psychology
“Psychology motivates the quality of analysis and puts it to use. Psychology is the driver and analysis is the roadmap.” – Ed Seykota, Market Wizard
Market Wizard Van Tharp believes that trading is 100% psychology. When you are trading the market, you are trading not the market itself, but your beliefs about the market. Your beliefs are 100% psychological, thus trading is too.
He also believes that anyone can be taught to trade by modelling the mental states and strategies of top traders. If you know what they do, and you can copy them, then you will be successful.
Van is not referring to the trading strategy that a trader might use, rather he is talking about the way they conduct themselves in the market. This includes emotional control, discipline, viewing trading as a game, not caring about money, etc. I have covered many of these skills in this course.
Where people fall down is, even if they understand what it takes to win in the markets, they have “stuff” that comes up that stops them being successful. This “stuff” could be a fear of success, an aversion to risk taking, or a need for excitement, or any number of psychological impediments. Though you know what to do, you fail to execute.
Where does this “stuff” come from? According to Van, from the mess of conflicting parts inside each of us.
You are a mess of conflicting parts inside
“If trading is your life, it is a torturous kind of excitement. But if you are keeping your life in balance, then it is fun. All the successful traders I’ve seen that lasted in this business sooner or later got to that point. They have a balanced life; they have fun outside of trading” – Michael Marcus, Market Wizard
“I was able to separate my ego needs from making money.” – Marty Schwartz, Market Wizard
Van’s supposition is that each of us has a mess of conflicting parts inside. Each of us might have a trader part, an excitement part, a child part and a parental part (or 200 or more parts). These parts evolve out of experiences we have had in our life, and they generally have good intentions for us – but not always the best intention for trading.
For example, the excitement part wants to make sure we live life to the fullest, but this is very dangerous when it comes to trading. Trading out of excitement can lead to excessive risk taking and overtrading. You may have a part that was brought up believing rich people are bad, or that money is the root of all evil. This part could hinder your attempts to make money in the market, to help you avoid becoming “bad”. As you can see, these parts unwittingly engage in self-sabotage.
I would like to pause now, and let you read a two-part article that was published in the Van Tharp Newsletter entitled The Transformative Journey of a Super Trader. This offers a real life example of the power of self-work in your trading and your life.
Start with the foundations and the rest will change
“If instead of saying, “I’m going to do this trade,” you say, “I’m going to watch myself do this trade”, all of a sudden you find the process a lot easier.” – Tom Basso, Market Wizard
If you want to transform, surface level changes will have little lasting impact. If you focus on working on your trading system, you can spend years and get nowhere if the beliefs that you are operating from are ill-served. Instead, if you change the foundations, all the other elements to your trading will seamlessly click into place.
But how to change our foundations? It starts with becoming more aware of one of your parts – the “part” that is your true self or as Van terms it, your “Divine”.
Each of the multitude of parts inside you mask your true being. In a sense they are a construct of your ego’s desire for control. These parts are the chatter you hear in your mind, your true self is the quiet behind the voices.
For those of you who have practiced meditation, you will know what I mean. For others, this may sound alien, and probably like nonsense. To that second group – all I would say is notice what you reject, because often that is what you need most.
Once you strip away the chitter chatter, and get to the state of “quiet” you are in a very good place for trading. Free from constraints, you can see the market for what it is, and trade out of the now – not out of fear (which is rooted in thoughts about the past or future).
Zen and the Art of Trading
“Every market has a rhythm, and our job as traders is to get in sync with that rhythm. I’m not really trading when I’m doing those trades. There’s trading being done, but I’m not doing it” – Anonymous, Market Wizard
In The New Market Wizards, Jack Schwager interviews an unknown trader in the chapter “Zen and the Art of Trading”.
After conducting the interview, the trader decided he did not want his name published as he talked about subjects such as eastern mythology, dreams and intuition, and was worried about what his investors might think. In the brief version of the interview that was included, the trader talked about trading without ego.
“There is buying and selling going through me. It’s like my personality and ego are not there… It’s just an awareness of what will happen. The trick is to differentiate between what you want to happen, and what you know will happen. The intuition knows what will happen”.
In Trading Beyond the Matrix, Van talks about a super trader of his who trades in a similar state of consciousness. This trader is consistently able to pull large R-multiples from the market in an hour of trading a day.
To achieve deep transformation, focus on exercises that strip away the ego and quiet the chatter of the mind. Anxiety, anger and other negative emotions begin to disappear and you become more mindful of what’s going on. This serves to make you much better at trading.
Eventually like the trader in “Zen and the Art of Trading” and Trading Beyond the Matrix, you learn to form a connection with your Divine (or intuition – call it what works for you) and receive guidance from it (Her/Him/Yourself) in your trading.
Creating a self-development plan
“The best thing an investor can do, when things go wrong, is to determine how he or she produced those results… the trader that does not own his problems…can continue to repeat his problems because he never gets at the source.” – Van Tharp, valium buy online without rx Market Wizard
It’s beyond the scope of this course to cover the large range of psychological topics that may help you trade better (and there are far more qualified people in the field than me!), but what I do want to do is encourage you to create your own self-development plan.
A self-development plan will aid you in trading without interference from negative emotions or non-useful (for trading) parts. Exactly how you structure your plan will depend on your personality, but it’s a good idea to think about what you need to do to have the right mental strategies to trade effectively.
#1 Conduct a review to identify problem areas
“I found it difficult to stay with the system while disregarding my own feelings. I keep jumping on and off – often just at the wrong time.” – Ed Seykota, Market Wizard
The first part of the plan identify any issues that arise in your trading. A self-review each day or week can give you the space to see what you have been doing right and wrong. If your performance has not been up to scratch, then you want to make sure you notice it. Self-awareness is one of the first things you need to trade well.
#2 Specific work around problems
“Upon analysis, a trader may find that if he only concentrates on the trades that do well and lets go of the other trades, he might actually be successful” – Randy McKay, Market Wizard
Generally, the most difficult part will be identifying any issues you may have. Once you know you have a problem, you can then go about seeking a solution. That is, except if you have what Van calls “emotional charge” attached to the issue.
For example, if you have an inability to cut your losses short, it may be due to interference from a part of you that is trying to protect you. If that part is interfering unconsciously, it might quite happily stop once it is made aware that it is not actually helping. But if that part was formed in a painful period of your life, it might the resist change and continue to hinder your performance.
If this is the case, you may need to do some clearing work. To learn more about this you can read Trading Beyond the Matrix, or complete Van’s Peak Performance Course, which also has a home study version.
(I include a summary description of some of the exercises below)
#3 Working on the foundation
“I spend my day trying to make myself as happy and relaxed as I can be.” – Paul Tudor Jones, Market Wizard
“Don’t be a hero. Don’t have an ego.” – Paul Tudor Jones, Market Wizard
You want to be consistently clearing the blockages to your true self and eliminating any negative emotions that arise. To do this, make a regular practice of some of the exercises such as meditation or the Course in Miracles. These practices will also serve to strengthen you connection with your Divine.
#4 Technical work and market knowledge
“It’s a matter of both having confidence and being comfortable in the approach you’re using.” – Tom Basso, Market Wizard
Part of your self-development plan should be to improve any technical aspects that need work. Perhaps you do not implement your ideas with the degree of accuracy you would like, or you don’t understand how to use risk/reward ratios or R-multiples. Maybe your system is not achieving the desired results and needs improving.
#5 The trading tribe process and coaching
Market Wizard Ed Seykota believes in the value of having a “support group” to help you with your trading. One such group is the trading tribe. In his words:
“The Trading Tribe is an association of people who commit to excellence, personal growth and supporting and receiving support from each other”.
In your development plan, include how you will network with traders that will help you with your trading. Market Wizard Ari Kiev also places a large store of value in having the support and accountability of a trading group.
You might also need coaching. Trading is a high performance endeavour, and just like in other similar high performance fields, coaching can be a big help.
High value activities for traders
“I think investment psychology is by far the most important element, followed by risk control, with the least important consideration being the question of where you can buy and sell.” – Tom Basso, Market Wizard
The following is a list of activities that are targeting change on a deep level, and come highly recommended to traders.
Important Note: Most of these are Van Tharp’s suggestions.
Interference – Parts integration
When you have parts that are causing you issues, you can engage with them, and look to integrate them into your “Divine”. Instead of being a mess of conflicting parts, you start to become a whole.
Emotions – Feeling release
If you have strong emotions, the temptation is either to resist them, or to distract yourself from them (by TV, eating, sex etc). Instead of resisting the emotion, one technique is to find a quiet space and really try your hardest to feel it. Once you stop resisting and really start to feel, it can cause the emotion to lose its charge and dissipate.
Gratitude – The magic
Gratitude is the secret ingredient to trading success that Van Tharp urges traders to practice. Rhonda Byrne’s book The Magic contains 28 days of exercises designed to apply gratitude to your everyday life.
Perceptions – Course in miracles
The course in miracles contains 365 daily lessons designed to create major transformation in your life. This course has a religious background, but don’t throw the baby out with the bathwater if this is not something you would normally do.
Wealth – The Abundance book
Many people have issues around lacking wealth, and the 40-day program in the Abundance book is designed to clear out any negativity towards wealth and help you to create abundance in your life.
Mentality – Read the market wizard books
Reading the four Market Wizard books will give you an insight into the minds of history’s greatest traders. You can read them several times, and you will learn new insights when you read them with fresh eyes.
Quieting the mind – Meditation
The daily practice of mediation is like exercise for the mind. The more you meditate, the more you will notice that your emotional capacity increases. Things that used to bother you start to seem trivial, and you become more happy and peaceful in general.
Thoughts that cause anger and fear – The work
The Work by Byron Katie, is a easy to use exercise that helps you deal with thoughts that cause blockages to your true self. It is a good exercise to do with other family members.
Change can happen overnight
“The key to trading success is emotional discipline. Making Money has nothing to do with intelligence.” – Victor Sperandeo, Market Wizard
Self-work is an on-going process. Once you get started, you will never stop!
But the good news is that change can happen overnight. If you have an issue that you are able to effectively identify and deal with, then your progress can be very quick.
In Market Wizards, Van Tharp gives several examples of exercises that cleared significant blockages in the course of a day, with a week or two of follow up integration.
This is particularly true if the changes happen at the foundations.
Get started writing a simple self-development plan and choose one or two exercises to begin with this week. Those few moments a day you take to work on yourself could not only change your trading but your life – so don’t wait!
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See you next week.
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