Publisher: Stocks, Futures and Options
Reprogram for Success
It was six weeks into the year, and I was already up $200,000. Another morning in February 1990, I had arrived on the options floor of the Pacific Exchange and tried to get a spot next to the high-volume brokers in the options pit where I could trade Micron, the memory chip manufacturer, and Microsoft at the same time. It looked like it was going to be a banner year.
Fast forward to May. The profits for the year were still at $200,000. I would make $6,000, lose $3,000, make $5,000, lose $15,000, back and forth. I was getting pretty frustrated with the markets and my performance. The previous Friday (expiration), I had lost $20,000 and just watched it happen. I had spent a restless Sunday night tossing and turning, anticipating the frustration of working hard only to regain lost ground. In my half-asleep, half-awake state, I heard a voice tell me quite clearly, "You are only a $200,000-a-year trader. That is all you are worth."
It was true. I held the belief that I wasn't as competent or as worthy as the other market makers against whom I was competing. Although I had honed a system of trading the implied volatility of stock options, I somehow didn't believe that what I was doing was as good as my competition. I believed my trading wasn't worth more than $200,000 a year. That realization in the middle of the night changed everything.
I couldn't sleep, and I didn't wait for the alarm to go off. I got up at 3:30 in the morning and drove across the Golden Gate Bridge to the Pacific Exchange. I arrived so early that I took the very best spot in the pit, one I had never before occupied. I had been trading long enough to know that I had just declared war on its prior occupant. When the markets finally opened, I was a screaming buzz saw, buying and selling anything and everything as each option series opened. The other traders in the pit must have thought I was mad, never having seen such aggressive trading from me before. That year, I went on to make many times my initial internal limitation.
There are three critical areas that must be mastered to become a consistently profitable trader: mind method and market. Think of a three-legged stool that is useless without all three legs. But not all the legs are equal. If the trader's mental state is at his or her prime, money can be made with a loosely developed trading method and elementary knowledge about a particular market. But no matter how well honed the trader's methodology, not matter how deep his domain expertise is in a particular market, unless the trader's behavioral responses are in their prime state, it is very difficult for him to make consistent profits.
After years of training floor traders to trade the firm's proprietary account, it became obvious that a trader's mental state was the "sine qua non," or essential element, of trading profits. Every trader in the firm would go through the same training process, whether experienced or novice. A particular methodology was taught to each trader, and depositions and trading activity were reviewed from this trading method. Granted, each trader was in a different option pit and traded different stocks, but it became apparent that no matter which pit a trader was in, a consistent behavior determined profitability, not the particular markets. During the 1990s, this methodology ground out exceptional returns year in and year out. Yet some traders were consistent losers.
Because the firm absorbed 100 percent of all the losses of the failed traders, it became apparent that solving this problem would add significantly to the bottom line of our trading firm. We hired a hypnotherapist to work with all of our traders. After several training cycles, three critical areas of trader behavior emerged that had to be fixed. These were labeled barrier busting, mind machines and loving life.
The first leg of the stool is barrier busting. The story that led off this article is an example of an internal barrier around the issue of self-worth. Through hypnotherapy, we found many other limitations shared by the traders. One trader's limit was his father's income. He was totally unaware that he felt distress when his own income exceeded his father's, and he would give back profits at that point. Another was afraid that his mother and dependent brother would come to him if they knew he was wealthy, so he kept his income below their radar screens. Many other traders felt guilty about money and wealth, especially about money that wasn't "earned" but made through trading. Of course, once each of these barriers was discovered, it was easy for the trader to dispatch them with the right tools.
The possible exception to the easy solutions was the guilt of wealth. We had to work harder on this one because wealth and guilt have become ingrained in our culture and a significant value taught in our educational institutions.
The most successful tool used to melt the internal barrier that stood in the way of success was the use of guided imagery. These guided imagery tours take traders into the future where they imagine life as successful traders. Each session gives the trader the time to attend to the details of what his or her life is like with all of the barriers removed. In order for each trader to be fully in the state of success, they must find all of the issues that prevent them from fully appreciating their power as traders.
Take a trader who creates each internal barrier as protection. Each barrier is created with the positive intent to protect its owner. And each barrier needs to be honored for its intention, and then put into perspective of what the trader wants now.
For those traders who haven't experienced the power of guided imagery, this may sound incredibly hokey. But we believe the stories we tell ourselves and the images we carry around in our minds: our habitual, behavioral reactions do indeed drive our lives. The good news is that they can be changed.
The adventurous trader can experiment with self-guided imagery as a way to start the process of discovering internal barriers. Although we all tend to avoid the really interesting blocks we have without coaching, sometimes even self-guided imagery can be instructive. This exercise is called "Future Self."
All of us have learned how to conform to be successful in our social settings. We have learned social graces that have helped us make it in the world. These social graces guide us to success in the world, but can become barrier to successful trading, stopping us from reaching our goals.
Perform an internal check so we can become aware of any barriers we may have.
Please read these instructions until you become familiar with the exercise. Then put this paper aside, and experience your journey.
Find a comfortable, quiet place. Take a few minutes to relax. Notice the noises and sounds around you. Notice your own body; feel how it is supported.
Close your eyes and take a few breaths. Notice the sounds you hear. Next, allow yourself to take an imaginary journey. Take yourself to a place in the future where you have reached your trading goals. Spend as time as needed, noticing the various facts of your life in as much detail as possible. Notice where you live, the car you drive and who your friends are. Notice how you spend your time and how much money you have in the bank. Notice all the details that are important to you. Stay with that picture for as long as you like.
Next, look back on your life and the path you took to get here. Notice what stopped you, what problems you had to solve. Notice any discomfort with your current situation. Again, spend as much time as needed, noticing everything that required changes in your life. Notice areas that give you any distress. Honor these areas as a protection that was once needed. Make a mental note of what stood out for you.
When you are ready, bring yourself back to the current time and write down the list of barriers that you needed to overcome, concerns you have about being a successful trader, changes you need to make to get where you want to be.
Don't judge yourself negatively; instead be thankful for the information you now have. It often is the case that awareness of barriers that have been protective in the past - but no longer are applicable - is enough to melt them.
First, we bust the barriers. However, this alone still leaves a big vacuum. Like the new age concept of "abundance" (just believing we re abundant leads to abundance), just believing that we are successful leads to a big scar when abundance doesn't materialize. And, of course, this can create a new barrier to further attempts at trading. Beyond melting barriers, we need to rewire our brain for trading responses.
The second leg of the stool is a mind machine. We still have the same basic brain that our ancestors from 50,000 years ago carried in their slightly thicker skulls. Our fastest response still comes from the amygdala (emotional reactions) milliseconds before the neocortex (rational thought) can even kick in. In order to prevent our responses from being hijacked by a survival reaction, reactions can be rewired. For example, those of us who remember learning to drive a standard transmission can recall how awkward it felt. It took all of our concentration to coordinate the shift, the clutch, the accelerator and the brake. However, with repetition, the brain automates these activities by creating a new set of neural connections. We can drive a standard transmission, obey traffic laws, look out for potential danger and have an argument with the passenger about whether gold is going up or down.
We need to review our brain for trading responses.
Traders can create machines that do much of the same thing. However, if you gave the keys to your new standard-transmission Corvette to a person who had never been in a car and asked him to rewire his brain - and make the car go - he would be clueless where to start. This is where a coach or focused self-awareness is critical.
For example, we have been rewarded over and over again when we excel in social situations. Our success as professionals, as business or community leaders depends on some basic beliefs and reactions that aren't successful in front of a trading screen. This lesson is the most difficult for successful people who have been rewarded big time for behavioral responses such as building consensus. We have cut ourselves off from our own creativity and intuition in order to fit in. Does this mean we need to become jerks in order to trade better? Perhaps. Rewiring our responses may require a break in our current patterns.
Here is one homework exercise that allows us to break away from a successful response in social situations, blaming others for our difficulties, and rewires our brain to reframe our situation. It is called "Authority."
For many of us, our families and our social structure have awarded us for blaming others. We live in a culture where the whine-and-blame game is generally approved.
Be aware of how much responsibility you take for your trades.
Please read these instructions until you become familiar with the exercise. Then put this paper aside, and experience you journey.
Think back to a bad situation in which you were victimized. This can be a social situation where you were wronged or trading situation where you lost money in a trade and blamed your system, technology, broker, etc. If you can, find a time that is still emotionally charged for you. Now take out a piece of paper (or open a new text document on the computer), and write a page on who was at fault, how you got screwed, why you weren't to blame. Exaggerate your "victim-hood." Go into as much detail as you can. Remember, it's OK to let the feelings of being wronged override the narrative. Take a break, and come back to this exercise later.
Then take another sheet of paper, and on this one, write down the same incident. This time, take full responsibility for the same event: how you ignored some warning flags, how you took shortcuts, gave up trading control to someone else, cancelled your stop-loss, etc. Exaggerate the total responsibility viewpoint. Figure out a way to take responsibility for your computer failure or the phones going down! Everything. Let these two pages sit overnight.
The next morning re-read them both. Enter thoughts into your journal.
The final leg of the stool is loving life. I have never met a trader who is prepared for this final test. Like searching for the Holy Grail, the last few steps are the most challenging. They are challenging precisely because every trader who produces consistent profits never expects to be hit after success.
In addition to developing a trading methodology and gaining domain experience in a particular market, a winning trader overcomes, melts or sidesteps all of the barriers, scars and self-destructive behavior in order to excel. The trader re-programs his reactions, becomes aware of his emotions and finds trading a continual learning experience. Profits are consistent, and the trader discovers he or she is... well... (surprise)... unhappy or unfulfilled. I have seen traders overcome their trading challenges, produce profits and still find themselves in a strange world of success that their upbringing and modeling didn't accommodate. Along with money, alcohol and divorce, other events can cause a loss of community. This final peril can grab even the most successful trader.
If a professional trader wins at his work but doesn't enjoy life, often the latter can poison the former. Traders face an additional hurdle in professional satisfaction - they don't build buildings, invent new drugs, deliver packages or write software. Yes, they contribute to liquid capital markets, which reduce risk and support these productive activities, but sometimes it is a challenge to make a solid connection to products and services that contribute to the betterment of our world. Although the contribution isn't trivial, it isn't easy to explain at a party over drinks.
Joy in life is a decision that is made on a daily basis. Money gives every trader options to have more of what drives joy for him or her. The last exercise is about making choices to experience joy.
How does a trader gain personal life satisfaction? First, he bases satisfaction on building skills - not making money. This works for many professionals. The satisfaction of skill building avoids connecting our life satisfaction to the equity in the trading account. Second, create great stories to play in your mind's movies. Finally, the core of life's satisfactions is about relationships. Successful trading doesn't produce relationships as in other walks of life, so the trader has to get aggressive about creating nourishing relationships by being nourishing to others.
Now it is time to pull up the three-legged stool we mentioned at the start of the article. Go ahead; it is your stool, so have a seat. Imagine sitting down hard. How are the three legs holding up? Do you have internal barriers or destructive behavior? Do you react out of habits that served you earlier in life but don't serve your trading career? How is your joy of life and the state of your relationships?
If necessary, you can pick yourself up off of the floor as most of us did, and start building better legs.
As children, few of us were rewarded and loved for our joyful nature. For many, this joy can be reclaimed.
To give us the power to create stories that is the foundation for our feelings.
Please read these instructions until you become familiar with the exercise. Then put this paper aside, and experience your journey.
Go back to a time where you felt fully joyful. It may have been with a new love, a time with a child, or a satisfied feeling of accomplishment.
Re-live the situation. Imagine as many details as you can. Notice the sights, sounds, smells and textures. Take as much time to stay with this picture as you can. Notice the feelings of joy that you associate with this time. Let these feelings get as big as they want to. Notice how you feel. Stay with that feeling as long as you like. When you are ready, come back to the present.
Now we are gong to do the opposite. We are going to find a time of extreme distress. A time when we were extremely jealous, cheated or hurt by someone we love. Now, same thing. Imagine all the details. Notice the sights, sounds smells and textures. Take as much time to stay with this picture as you can. Let these feelings get as big as they want to. As soon as you have that feeling, you may leave it. When you are ready, come back to the present and take a big breath. Go hug someone you love.
Here is the critical point: You can create both the feeling of joy and the feeling of anguish by what you are thinking about and the, stories you tell yourself. It is in you control. You can decide what your feelings are by what you are thinking.