What Belief About Trading is Holding You Back?

Beliefs trading
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In the past few days, something caught my attention. A couple of FXRenew members were lamenting a lack of progress in their own trading and were on the verge of looking towards greener pastures. So naturally I asked them why I had not seen them in our System Development Workshop.

This isn’t the first time our System Development Workshop has gone unnoticed. And I wonder why – because it’s in plain sight on our website and in the Member’s Area! I believe it is akin to “not wanting to ask for directions”. Sure it’s tough to admit needing help, but is it not even tougher seeing your trading account constantly in the red?

I think some people just don’t “see” the Workshop. They only see what they want to see: trading signals, tips, etc. What follows is a brief article about your beliefs: whether you like it or not, your beliefs shape your world and your life.

Trading is All Beliefs

“You do not trade the markets. You can only trade your beliefs about the markets.” — Van K. Tharp

In the markets, you have no teacher, parent or boss who controls what you do. You have the freedom to trade however you like. So if you are free and unencumbered, what is it that influences your trading decisions?

It is your beliefs.

You may think it’s a piece of news or the price action on a chart, but it’s not. It’s your belief about what the news or the chart means that is causing you to take action. Any decision you make is influenced by your beliefs and being aware of this (and accepting this truth) is a powerful thing.

As an example, I was conditioned by a belief which was not my own, which got implanted into my mind in the household (which is the place where we absorb subconsciously most of our beliefs from a very early age). The belief was simple: Trading is the only worthy job in the financial sector. This simple belief guided me through university and through the first years of my working life, and ultimately caused me more pain than pleasure because at a certain point this belief also made me resign from my day job to take up trading full time (which is not something I recommend).

So what are your beliefs about trading and the markets in general? Do you find any resemblance with these common (and limiting) beliefs?

  • Trading is the only way to be independent and wealthy. This is the #1 belief that makes brokers profitable. The idea that only through professional coin-flipping can you be independent and wealthy is truely insane. Yet it’s also very very common.
  • I need to have [insert your number here] trades per day/week/month in order to achieve my financial goals. This is overtrading in disguise. One trait that good traders have is patience. Patience means being able to wait for a trade, not just jumping the gun because you want to do something, or you just lost some money and want to make it right back, or you’re making money too slowly, or you’re bored, etc. Patience also means being able to sit on a winning trade for days and potentially weeks. When is the last time you did that?
  • Good news means EurUsd should go up, bad news means EurUsd should go down. This belief completely ignores the fact that market participants are forward looking and are continuously discounting events as they play out. How can this belief explain the extreme volatility on central bank decisions or speeches, when no concrete decision is made?
  • “I need a high win rate”.  Usually this is tied to the emotional necessity to win, and has no direct correlation with account growth or trader profitability. I have personally analyzed account statements of exceptional traders that have 40% win rates. Once again, recognize the limitations of this belief.
  • “I need to make money really fast”.  This is another very common issue with retail traders, and it ultimately forces them to trade too frequently and risk too much per trade. The end result is, without fail, intolerable drawdowns and even more psychological strain.
  • “Technical analysis levels the playing field because professionals and retail traders are watching the same charts”. This is a commonly utilized belief by all those traders that ignore fundamentals, sentiment, volatility, etc. Usually their charts are so dense with indicators that you can’t even see the actual market price. Whether there is any truth to the belief or not, is irrelevant. What is relevant is the action that this belief inspires you to take. And that is usually a dependence on technical indicators, looking for confidence in the indicators, etc. In reality the market doesn’t know or care what you have on your chart or what you are using in order to make decisions.
  • “The stochastics are overbought so the market is likely to go down”.  This is similar to many “counter-trend” trading beliefs which ultimately block traders from taking the easy road, i.e. following trends.
  • etc.

Where Beliefs are Made

“I would never die for my beliefs because I might be wrong” – Bertrand Russell

Van Tharp once wrote that beliefs are judgments, categorizations, meanings or comparisons. They determine how we perceive reality and relationships in reality. What you expect (i.e. your reality) depends upon your beliefs and they are largely unconscious.

The most common event that produces a belief is a traumatic experience. For example, if you encounter a golden retriever and get bit, you might form some beliefs like “I don’t trust dogs” or “dogs are dangerous”. In the same way, trading losses might translate into the belief that “trading is difficult”.

  • Some beliefs are a product of our environment. Think of the beliefs of Prince Harry, Duke of Sussex. How different could they be compared to a child born in Afghanistan? How would their world views differ? What meaning would money have to each of them?
  • Some beliefs we learn/study/read and take as truths. Our subconscious mind absorbs much more information than the conscious mind, and it is never questioned. The result is that some of our most influential beliefs are never challenged.

There are other beliefs too, such as spiritual beliefs formed out of your relationship with God, or identity beliefs such as “I am a trader”.

Are Your Beliefs Useful?

There are as many different approaches to the market as there are traders. That is because there are as many different beliefs about the markets as there are traders. We see what we want to see. Denise Shull did a good job of describing the mental process that traders go through in her book “Market Mind Games”.

One of the beliefs that is most productive for good trading is the belief that you are totally responsible for your own results as a trader. If you adopt this belief, then you will be able to admit mistakes, and be open to learn from your mistakes. However, if you tend to blame someone else (your broker, your spouse, the person giving you trading signals, etc.) or even the market for the outcome, then you will tend to repeat the same mistakes over and over again.

If you take responsibility for your problems and assume you are truely the only person resonsible for the outcome, you will probably discover that your results come from some sort of mental state you were in when you took the trade or made the decision. This mental state (which could be impatience, fear of loss, overconfidence, etc.) either allowed you to follow your rules or bend/avoid the rules alltogether. As a side note, the only actual “mistake” a trader can make is to not follow the rules!

In short, being aware of your beliefs and being aware of your mental state can dramatically improve your odds of success – in life as well as in the markets. You will become self-aware, and be able to discern between an external influence and an internal belief.

Over to You

I’d like to conclude this short piece with a reflection from “A Course In Miracles.”

“Projection makes perception. The world you see is what you give it, nothing more than that. But though it is no more than that, it is not less. Therefore, to you it is important. It is the witness to your state of mind, the outside picture of an inside condition. As a man thinketh, so does he perceive. Therefore, seek not to change the world, but choose to change your mind about the world. Perception is a result, not a cause.”

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