Dear Denise,

I hope you are well and that your book is coming along nicely. I haven’t written in awhile, but I’ve been having quite a time with the Access course. When I began, I made steady progress through the first four or five chapters, and my trading was improving as well, though I didn’t feel I had “turned the corner”.

The first surprising thing I learned was about ambiguity: all it took to “embrace” it was to physically write down or say out loud “Yea, ambiguity!” I would laugh and then not worry about it; because the benefit of embracing ambiguity was not some great insight into what the market was going to do, rather it was an increase in energy, which I had previously wasted in trying to fight ambiguity. Now I could put that same energy to better use in making judgements. So far, so good.

A few weeks later I had a losing spiral. Of course it began with a BIKB trade. The plus side was that this time I was able to stop myself from trading—not as soon as I would have liked, but quite a bit sooner than previously. Still, I was shocked that I had fallen into such an obvious pattern after all the PsychCap work I had been doing. So, I took a closer look at what happened that day and noticed two things. First, the BIKB trade didn’t just come out of nowhere; it was preceded by a series of trades which I planned but didn’t take (that would have won), and one winning trade which I exited early. I thought I was being cautious, but in fact my second-guessing of my planned trades was building up frustration and impatience. Without that, I don’t think the BIKB trade would have had such a powerful impact on my PsychCap. So the cost of those untaken or poorly executed trades was not just a reduced upside; they were “setting the stage” for a losing spiral.

I also noticed that I had (have?) a deeply ingrained belief that a losing trade has to be “made back”—and not just made back eventually, but right now (and preferably in the same futures contract!). Of course, that’s ridiculous, but it didn’t feel ridiculous at the time.

I’ve dubbed the rest of this year, “Fun with ANNA and ToM”. I’m now in the habit of checking my feelings context frequently (both in and out of trading), using WWW, and stating my confidence level in the “Story” out loud or in writing before I enter trades. It’s made a lot of difference. However, the anticipation part of ANNA, and considering the market action explicitly from the viewpoint of theory of mind, are not yet habitual; I’m building those up gradually.

 

… END OF PART ONE -The above has a few highlights and paragraph changes so that you, the trader-reader can more easily benefit from this trader’s experience. BIKB is the “but I know better trade”. The other strings of initials are strategies for managing to your psychological capital – the first and foremost edge you can create in trading. (Edit August 2015: ANNA stands for anticipate, notice, name, address and WWW stands for walk, wallow, words).

Your mental state is EVERYTHING – and it is more important than what the market is doing. Perception of uncertainty is a very tricky brain endeavor – you want to train – just like an athlete – to perceive as well as you can. ….

Part 2 of this note to be published soon.