t2 university

Chapter 5 Neuro Associative Conditioning

The Science of Training Your Mind

What we do on some great occasions will probably depend upon what we already
are, and what we are will be the result of previous years of self-discipline. I believe
that with all of my heart.
-- H.P. Liddon

How do traders think their way to a successful trading career? Is it possible to re-
move emotion from your trading? One of the major differences in this discipline of
thinking is that people that think their way to the top have the ability to do what I
call sustained thinking. They have the ability to think on an issue for a long period
of time, until that issue becomes clear on the decision that should be made. People
who do not think their way to the top have the unwillingness of discipline to master
sustained thinking. They will think about something for a while, and then they will
get off it and go on to something else.

We break down the development of discipline into three areas:

1. Disciplined Thinking
2. Disciplined Emotions
3. Disciplined Actions

Few people think more than two or three times a year. I have made an international
reputation for myself by thinking once or twice a week.
-George Bernard Shaw-

Disciplined Thinking

The vast majority of unsuccessful trader have never learned how to discipline their
thoughts. Because their internal dialog is allowed to run free they are constantly
finding themselves on an emotional roller coaster. The worst part is that this is
entirely self-inflicted. A trader builds him/herself up into a frenzy because of the
things they tell themselves.

Amazingly, these thoughts, and the emotions they spawn have no basis in reality.
Our reality is built entirely on our perception of events and how we perceive events
determines how we will react to them. This process forms the foundation of the
stimulus/response process.

Between stimulus and response lies our freedom to choose.

-Stephen Covey-

As traders our stimulus is visual. We see the charts and watch prices change as the
market moves. The action we take is the response to that stimuli. What Stephen

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Covey meant by his statement is that WE control how we react to stimulus. YOU
have the ability to change how you react to the information youre receiving every
day. This starts with what you tell yourself. Lets create a scenario. Were going to
create some conditions and then see two different reactions. Here are the facts:

You are a middle-aged, mid-level manager at a company that sells paperclips. Yes-
terday you were passed over for promotion for the 3rd time and it will be another
year before youve got any chance of advancement.

You and the wife have been running through a rough patch and the atmosphere
around the house has been less than relaxing. The kids......well their into the teen-
age years and they dont talk to you much anymore. They used to be waiting by the
door for hugs when you got home from work. Now, they hardly engage with you at
all. The reality is, life has become a grind. You feel detached from those who love
you most and a failure at work.

For some of you this scenario might be all to familiar. Considering these facts imag-
ine if every day you woke up and the first thing you said to yourself was,

I dont know why I bother waking up. Im never going to make anything out of
myself. My life is pointless. Even my dog hates your. I shouldnt even be allowed to
breath air. Im such a waste.

How many mornings do you think you would be able to suffer such abuse and still
get out of bed? The answer is, not many. This is the kind of internal dialog that
people conduct right before the do a swan dive off the overpass into rush hour traf-
fic.

Now lets switch it around and see how someone who isnt their own worst enemy
might react. Imagine if the internal dialog went something like this,

Man am I lucky to have the opportunity to go to work this morning. There are a lot
of guys struggling to make ends met. I really am blessed. After yesterdays promo-
tion review Ive got to redouble my efforts if I every expect to advance. Ive go a
year to do everything in my power to improve my skills and make myself more valu-
able. Things may not be perfect at home right now but I have the power to change
that too. Im not wasting any more time. Im going to build the life I want and de-
serve.

Life happens. None of us get to choose what life throws at us. But we do get to
choose how we react to those events. Do you see the difference? Just look at the
reactions to the situation above. In one, you get to play the victim. Youve been
dealt a string of emotional and economic blows. But you are allowing those events
to dictate how you react and what your internal dialog is.

Your other option is to react in a positive way. Here, your internal dialog is empow-
ering. You take the sign of your missed promotion, not as a chance to blame others

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or yourself but as an indication that you must work harder and improve yourself if
you want to advance. There is also no self abuse. You recognize that your life is not
the way you want it to be but more importantly you acknowledge that YOU HAVE
THE POWER TO CHANGE IT! YOU are in charge of your destiny.

You control your life. Your life does not control you.

So lets apply what weve learned to trading. How many times have you caught
yourself in abusive self-talk. How many times have you blamed others (your broker,
wife, kids, trading software, mentor) for your trading shortcomings? Controling your
internal dialog is the first step in emotional healing. There are plenty of roadblocks
to your success in trading. Dont make YOU one of them.

Imagine if you applied this simple concept to trading? Ask yourself the
following questions:

What is it that you want to achieve?

How has your internal dialog helped/hurt you?

What specific action can you take to change your internal thoughts?

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 How will your trading change by implementing these new thoughts and
actions?

One of the best ways to work on your internal dialog is to write your thoughts down.
I always keep a pad with me of things that I am thinking. I write thoughts down so
that I can stay concentrated and disciplined in that area. Once youre self-aware
of what youre telling yourself youll be much better prepared to combat negative
thoughts and self-talk.

NEXT we need to find out what the dominant motivator is in your personality. Pain
or Pleasure. Once that is done we attach the consistent action of Trading Discipline
to create a POWERFUL ASSOCIATION.

By practicing sustained thinking, you can improve your ACTION taken at the KEY
levels. Creating a NEW set of TRADING DISCIPLINES WILL enhance your trading.

2. Disciplined Emotions

We have choices when it comes to our emotions:

We can master them

OR
They can master us

You can AGREE with the next statement or DISAGREE with it, and EITHER WAY
YOU ARE RIGHT!

You control HOW you REACT to ALL outside stimulus. Your reactions will mostly
be involuntary and thus based on the beliefs that you have established in life. CON-
TROLLING YOUR RESPONSE allows you to focus on the Disciplined Emotional
response that is supporting your desired outcome.

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 Lets look at some examples:

How do you react after missing a winning trade that was a qualified setup?

How do you react when you enter a trade that did NOT meet your
entry rules?

IF it is a winner?

IF it is a loser?

What is your mind set and STATE as you look for the next setup?

Negative internal dialog leads to negative emotions. This happens at a subcon-

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scious level and most traders are unaware of it. Remember YOU have the power to
control how you react to stimuli. YOU form the foundation of your emotional state.
Disciplined thought leads to disciplined emotion. Disciplined emotion leads to.......

3. Disciplined Actions

I call the two actions of ENTRY and EXIT the bookends of trading success because
I really think they are. You can use this model when Initiating a trade and then Clos-
ing out that same position.

We want to build a set of RULES for ENGAGEMENT and then, through the power of
repetitive suggestion, program you to TAKE ACTION consistently when your set of
RULES for entry and exit is met.

Values and beliefs are formed throughout our lives in all areas. Most of the time they
come from parents, teachers, friends and are built without our knowledge. We tend
to ACCEPT and ADOPT the values of those we spend time with.

In trading, you may have found yourself in a situation where you came into a trading
session with an ABSOLUTE CERTAINTY about your Disciplined Action for the day.

30 minutes into the session you hear news about the RUMOR of a possible easing of
interest rates by the FED. Even though this is a rumor and there is NOT A scheduled
FED meeting, you change your thought process and now start to factor the RUMOR
into the trading session and start asking:
If they do lower rates again that should cause the US based currencies to lose value,
shouldnt it?
Is the potential rate move is already factored into the market?

Should I even be trading now today?

Should I scalp for small profits just in case the news hits and causes a spike?

A disciplined and proactive trader will already have the answers to these questions
built into his/her trading plan BEFORE their first real dollar is in the market. They will
be well-equipped to trade and make disciplined decisions accordingly long before
these questions come to surface.

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