Big Mike's Trading Blog

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Trading Psychology and How The Mind Works, Part I

A friend and fellow trader, George, has written some excellent articles on How The Mind Works in relation to Trading Psychology.  With his permission, I will be sharing his work on this blog over the next few days.

I cannot stress enough the importance of Psychology and Money Management, and George has been a great inspiration for me in this area.  He is the Moderator of the Psychology and Money Management forum and I strongly encourage you to come and join the discussion, you have nothing to lose and everything to gain!

I'm speaking from experience when I say that indicators are not the holy grail, you are -- meaning the holy grail lies within yourself and not on a chart, you just need to find it.  George's teachings will help you find it.

First, some background information on George, in his own words:
I started trading 10 years ago. I've been trading almost everything that anyone can trade. From stocks to turbo warrants. They all have one thing in common, as Jesse Livermore put it "The market has always, been the same and it's always gone be the same; The only thing that changes are the actors, and they lack the memory".

I've blown up at least 5 accounts. Man, that felt good saying it Before I was ashamed of saying it. After all we live in a competitive, goal oriented society. Failure is not getting you any bonus points.

I started to be profitable when I understood that there's more to trading than just a chart, and a lot of trading techniques. When I got tired of blowing up accounts, actually that happened after 2 or 3, I understood that there's another way to approach all of this. I discovered the brain. We all have one, above our shoulders, but we don't really care about how it functions.



I believe that evolution always takes place when we understand that, instead of fighting each other, help one another, and collaborate.


And without further ado, here is his first article:


Default Trading Psychology and How The Mind Works (I)

I'm going to write a series of articles that will treat how the mind works and it's connection to trading.

How does the mind work? We all have one, but how aware of it's functions are we? How come a desired change, only takes place when it's a matter of life and death. How come you always worship all those people that have the proper discipline, in order to succeed with all they put in their minds?  How come you're never nice to yourself, if you were to observe yourself and hear your own thoughts outside of yourself?

Big questions and the answers seems so far away! But it's actually quite easy to figure it out, when you understand how the mind works!

Let's start by dividing the mind into three sections. They are the inner subconscious mind, the subconscious mind and the conscious mind.  We're not going to treat the inner subconscious mind, because it's function is to run your organs automatically.

The conscious mind is divided into four sub sections. They are:
1. The Rational Mind
2. The Analytical Mind
3. Will Power
4. Temporary Memory

The Rational Mind's function is to give you reason. That's where all your reasons lie, in that mind. It's actually pretty simple to understand. Whatever you do in your life, you do it because of a reason. If we are to be lacking reason for the things we do, we end up in mental hospitals. Well, most of us don't get that far, we simply stop doing those things.

The Analytical Mind is the mind that's analyzing things for you. You think that a lot of the things you do in life, are done without thinking. But that's never true. Whenever you tie your shoes, or whenever you open a door. That's your analytical mind, analyzing things for you. Should I open it or not? And so on!

Will Power, is the big, big bad guy. You're probably thinking that's where all your investments should be. Stop blaming yourself. It's not helping you with whatever you want to change, improve or do what's so ever. Simply because it's temporary. How many of you guys have tried to stop smoking, and managed to do it for a couple of days, in order to throw in the towel later. It's not your fault. It's built that way. It's just temporary.

Temporary Memory, is the memory you're using on a daily basis, in order to remember things that's making your life easier. Like, where your address is and stuff like that. That memory is not big and it's not going far back. That's why, If I ask you if you remember what you did when your were three years old, you'll not be able to tell me about it.

That's how the conscious mind works. On a daily basis we spend about 1-5% in the conscious mind. The rest is spent in the subconscious mind.  The conscious mind perceives about 40 bits of information per second. The subconscious mind about 40 million.

In the next article I'll explain how the subconscious mind works.

Take care all you guys out there and may the Trend Gods be with you!

/George

To be continued...

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