Losing unconsciously

The more trading I do, the more I appreciate the advice about having a system, framework or set of trading rules to stick to. Successful trading is more than just being clever and knowing how to use your trading software, it is mainly psychology. By psychology, I mean it is about knowing your mind and taking control/managing your in-built natural reactions that, if followed, spell trading disaster. What in-built reactions?

We are wired to respond to the fear of loss and the threat of pain in a much more profound way than the potential for gain.

The mind is like an ice berg. Above the surface is the conscious mind. It’s the conscious mind we use every day for planning, analysis and making logical choices. The unconscious mind is like the larger part of the ice berg that lurks below the surface. Some people use the term subconscious mind or autonomic nervous system to refer to the unconscious mind. The unconscious handles a multitude of jobs which keep us alive and generally out of danger.

Have you ever been driving along at night? You’re zooming along, your mind mulling over the thoughts of the day, when WHOAH! Another car has pulled out in front of you. You don’t think, plan or analyse, you just turn the wheel and swerve. You come to a stop, safe, your heart is beating like a drum in your chest and your breathing is short and sharp. All those reactions were handled by your unconscious mind. If you had to think about it consciously, you’d be busy flying through the windscreen before you had decided to turn the wheel. The conscious mind is slow and deals with only one thing at a time, taking up to a half second to react. The unconscious mind handles a plethora of information simultaneously and instantaneously. The only problem is that this rapid response comes at a price.

Sometimes the automatic unconscious response is the wrong one in certain situations. In days gone by, feeling under threat and having adrenaline kick into your system and your body prepare for flight or fight would have saved your life. Nowadays, having to make a presentation in front of people can trigger the same response, leaving you feeling on edge, sweating and ready for combat! The same thing happens when trading, not that you necessary feel ready for combat but, our pre-disposed aversion to loss can make us let loses run.
The first step in getting around this is knowing why it happens. Using automated stop-losses can help, as it removes you from the equation (although I've not yet found any easy to set up and use stop-loss solutions in the software I have used). Other solutions involve tweaking the unconscious response in the context of trading, this would involve using an unconscious based technology, such as NLP or hypnosis. Another way would be to frame the trading situation in such a way that every trade is about protecting your bank (rather than making a profit), so the aim is always to focus on cutting losses. Working on the assumption that if the price swings away from you, it will keep moving away. Once you have closed the trade, then putting the last loss out of mind (so if the price suddenly bounces back, you don't start regretting following the system). The price will occasionally bounce back but in the long run, relying on that to happen is gambling of the worst kind and will lead to an empty bank.

Some great books on how the unconcious mind works are:

A book that goes into detail about how the unconscious mind has its beliefs installed and how to change them is (it can be pretty heavy going, so be prepared. It is very interesting and worth the read though):


The classic book on how our unconscious processes are used aginst us by marketers and advertisers and how to protect yourself: