Trading Psychology – 5 Steps To Profit Enhancing Trading Habits

Hi Folks, and in this training video let’s talk about something that affects every last one of us – you, me, and the person next door – and that is habits!
In particular for you, I want to discuss trading habits and how they are costing you lost profits.
So, may I suggest that as you watch and listen that you have a pen and writing pad handy so you can do some simple exercises I have lined up for you that can help your trading be more successful.

Your Trading Habits

We will discuss how habits are formed and how to identify and correct un-resourceful trading habits later; but first let me connect you to your own trading habits and explain why it is important to regularly pause to analyse and understand them.

Your habits are your regular or ‘ritual’ behaviours; and in your trading they form part of your total trading activities, and of course it is those activities that will ultimately make you profit or lose you money; or even cause you to ‘blow up your trading account’.

If you have developed unresourceful trading habits then you must do something to eliminate them as soon as possible so you can become a more efficient and effective trader.

Resourceful habits will also help you to have a more disciplined trading process so you can become the more profitable trader you want to be. Whereas any un-resourceful habits may be producing ineffective and less profitable trading.
As we will soon discover, the problem is you probably don’t even know which of your habits are the main ‘Profit Killers’ so stick with me as I walk you through all you need to know about habits and how to fix those that are hurting your trading profits…

Habitual Actions

Let’s dive in by first answering the question…

“What is a habitual action?”

…so I know we are all on the same page.

Habitual actions or habits are simply the individual activities you engage in regularly but that you do without conscious thought.

Habits are the things we do on autopilot and
that we don’t usually need to focus our
mind on too much.

In fact, when involved in a habitual activity your mind is quite likely to be focused on something else entirely.
You form a habit very simply by doing the same activity repeatedly over a period of time.
The activity could be simple like washing your face, or complex like driving a car, but with enough repetition any activity, simple or complex, can become a habitual action.
Interestingly, your mind doesn’t care whether a particular habit is good for you or not; which is why many traders develop unhelpful habits such as adding to a losing position, just as easily as more useful ones like allowing a profit to run.

Some activity based habits can be fairly random, that is you do them anytime and anywhere such as the habit of nail biting. These habits are usually about the activity itself and don’t necessarily rely on any external factors.

Other habits may have a definite ‘trigger’ that initiates the habit and this is very common in trading. Triggers come in different forms.
For example, a time based trigger would initiate a habit that you do at a specific time each day such as taking a coffee break at work and you will notice your mind alerts you to that time even without reference to a real clock.
Other habits may be triggered based on specific scenarios or sets of conditions such as the scenario of a trade moving into profit triggering your fear of losing and causing you to grab the profit too early.

Repeat this or any other behaviour often enough and it will become your habitual action in that scenario and this is the danger to your trading – you may have already unknowingly developed such ‘Profit Killer’ habits.

In fact, practically anything can be a trigger for a habit and an individual trigger will normally use one or more of your five basic senses of: sight, sound, touch, taste and smell.

Let’s remember though as we talk about habitual actions; we all have many useful habits that are essential to our daily life and traders should develop resourceful habits to deal with the various trading scenarios.
Without the resourceful habits we all engage in, like always putting the same leg in a pair of trousers first or always putting the same arm in a jacket sleeve first (by the way have you ever tried doing it with the other leg or arm first?), we would never get anything done in a day.
Imagine having to consciously go through the complex selection and decision making process for every single action, big or small, you wanted to do!
It would take you hours just to get up in the morning and go through your morning washing and dressing routine.
It is important to develop strong resourceful habits in your trading too so you can be a more efficient and effective (and profitable) trader.

Resourceful Habits – A Little Exercise…

Try this simple exercise to help you become aware of some of your own resourceful trading habitual actions.

  1. Write a list of three useful things that you do during each trading session but that you do without really thinking about it; three resourceful daily trading habits.
  2. Now think about each one of the items on your list and mentally run through the activity in your mind IN GREAT DETAIL to become aware of just how little you are consciously aware of what you are doing.

So, the right resourceful habits are good for your trading and help you to be efficient with your time and energy so you can concentrate on the trading activities that require your undivided attention.

Not So Useful Trading Habits

Of course, not only are there resourceful habits that can make it more likely your daily trading will be more successful but there are also have a host of un-resourceful ‘Profit Killer’ habits too and I have already mentioned a couple of those.
We might even have what many people would call really bad habits! (Although I prefer to refer to a habit as either resourceful or un-resourceful rather than inherently good or bad which are too emotive).

But what is an un-resourceful habit really?

One person’s un-resourceful habit might be another person’s resourceful habit.
For example, someone trying to lose weight might consider consuming 3000 calories a day to be an un-resourceful habit (because it doesn’t help them to lose weight); whereas someone trying to gain weight would see it as a resourceful habit because it would help them.

The key to whether something can be considered a resourceful or an un-resourceful habit is simply to ask yourself the question:

“How, specifically, is this habit helping me or hindering me?”

You will know the right answer intuitively because you will feel it in your body (usually in the abdomen or tummy area) using what I call your ITM or Inner Truth Mechanism.
Trust that ‘gut feeling’ of your Inner Truth Mechanism; it is usually right!

Another Little Trading Habits Exercise…

OK, time to do the second exercise.

  1. This time write a list of three trading habits you have that your intuition tells you aren’t really useful for you.
    Be very honest with your answers rather than brushing your reactions off with emotionally generated justifications i.e. “I always move my stop loss when a trade goes into profit (this is the identified habit part) because it locks in some profit (the justification part).”
  2. As before, think about each un-resourceful habit and bring the activity back into conscious thinking.
    From now on whenever you find yourself doing the habit, try to stop for a couple of seconds and ask yourself whether it is really useful for you.

How to Change Your Habits

As I said, habits are formed by repetition and practice and ALL habits are formed this way! It’s not surprising then that both resourceful and un-resourceful habits are formed in exactly the same way!

Your sub-conscious mind, which is where the habit gets stored and so ceases to be part of your ‘rational’ thinking, doesn’t have the ability to judge whether an action you are engaged in is resourceful or un-resourceful.
The judgement process is started in your emotional brain and passed to your conscious mind for a decision; unfortunately we don’t always listen to our own best advice.

This means it is just as easy (some might say easier) to develop an un-resourceful habit as it is to form a resourceful one.

Because your un-resourceful habits are controlled by the same mechanism as your resourceful ones i.e. your powerful subconscious, it is difficult to stop doing the un-resourceful habit simply by willpower alone (in fact, willpower is not the right tool for this job).

As far as your subconscious mind is concerned, drinking a bottle of whisky a day is the same as brushing your teeth in the morning.

It is just an activity that no longer needs to be thought about at the conscious level.
The fact that a bottle of whisky a day is not good for your health isn’t a consideration for your subconscious because the subconscious is non-judgemental (in fact it is totally neutral about good or bad, useful or not useful).

“The only way to change an un-resourceful habit is to completely replace it with a more desirable resourceful habit!”

However, and this is really important, a research team led by Phillipa Lally, a health psychology researcher at the University College London, found it takes an average of 66 days to create a new habitual action (actually the range was between 18 days and 254 days) so you can be totally free of that old habit.
Also, and this is essential too, if you happen to forget and do the old habit a time or two it doesn’t seem to have a massive impact on the number of days!
In other words, you can allow for a few ‘mistakes’ while changing a habit for a new one.

So, anyone who decides to quit smoking and a week later thinks they have ‘cracked it’ are likely to fail simply because 7 days is just not enough time.
In fact, the main reason why most people fail to change an un-resourceful habit is simply that they aren’t patient enough to keep going for long enough.
Also, the desire for ‘instant success’ or ‘instant gratification’ means that if they don’t see results after 5-7 days they think the process has failed and so give up.

You have to keep going!

Another reason people don’t succeed at changing un-resourceful habits is that they try to change more than one habit at a time. This can be just too much to do!
Aim to rid yourself of just one un-resourceful habit at a time by creating a new resourceful one to take its place in your life or trading.
Eliminate the least useful habit first, and in trading that will be your biggest ‘Profit Killer’ habit, and then go on to the next and then the next and so on.

The Last But Not Least Exercise…

How to change your un-resourceful trading habits (or any habit for that matter).

Let me teach you a simple 5-Step Change Habits process so grab your pen again…

Step 1 – Choose an un-resourceful trading habit from your previous list (assuming you have any of course) that you want to change.

Step 2 – Write the following sentence down on a new sheet of paper:
“From this moment I no longer do… (insert the old habit) and instead I do… [insert the new behaviour]” and place it somewhere you will see it several times during each day (the bathroom mirror is good or attached to a computer monitor).
This is called an affirmation and it helps to align your mind with what you want.
Write this in the present tense; this is very important!

Step 3 – Bring the unwanted habit to mind and make a detailed list of all of the actions, even the smallest, involved in the habit.
Make yourself aware of the process involved in the habit (there is usually a specific chain of events that are sequentially repeated in most habits).

Step 4– Write down exactly what happens just before this habit starts.
This is likely to be the ‘trigger’ for the entire action sequence of the habit. Is it a sight, a sound, a touch, a taste or a smell (or a combination) and in what circumstances does this occur.
Write this all down. It is important to understand when and how the trigger works so you can be ready to stop it firing off the habit and allow you to change your next actions for something more useful.

And lastly…

Step 5 – Really make this ‘trigger’ a part of your conscious mind by determining to recognise it when it occurs and decide what alternative actions you will take instead of the previous habitual ones.
Write the new behaviours down and study them regularly to instill them in your mind (this strengthens the new neural network in your brain).

Now, for a minimum of the next 66 days whenever you notice the trigger for the old habit, start the action sequence of the new habit to immediately stop yourself doing the old actions!
Break the chain of events by being conscious of the trigger happening and resolve to change it.
For example, don’t move your stop loss when the trade goes into profit (sit on your hands instead or leave the room); or don’t jump straight back into the market when you have taken a trading loss.

Change the sequence of events and you will
start to rid yourself of the old habit and
form a new and more useful one!

And Finally…

Remember that changing your trading habits has nothing to do with will-power but with the conscious creation of a new habit that replaces the old one.
IT IS about focused effort and above all PATIENCE! Remember 66 days or fail.

I know you can do it!

More soon…

“Working always toward your Success…”

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