Monday, September 09, 2019

Key Perspectives in Trading Psychology - 1: Our Two Modes of Processing

In this series of posts, I will present key ideas from the new book, Radical Renewal.  That book is written as a series of blog posts and so can be accessed without registration and free of charge.  

As I described in the recent webinar, we have two ways of processing our experience, including markets:

1)  The self-focused mode - This is a rapid mode in which we assess events for their relevance to ourselves:  whether they are good or bad for us, whether we like or dislike them, whether they excite or bore us.  Much of our moment-to-moment emotional experience reflects these self-relevant assessments:  what makes us happy, fearful, frustrated, eager, etc.

2)  The other-focused mode - This is a slower mode in which we experience the world around us based on our connections to what is outside ourselves:  our closeness to other people, our understanding of the world, our beliefs and values, etc.  The emotional experience from the other-focused mode is different in quality from that stemming from our self-focused processing.  For example, in place of happiness, we experience joy and fulfillment; in place of relaxation and calm, we experience peace.

What we call ego is the sum of our self-focused processing.  It shows up as our self-talk:  our continuous inner dialogue about our experience.

The sum of our other-focused processing is what we call soul.  It shows up as our inner experiences of meaningfulness and significance.

The ego--our self-relevant mode of processing--is necessary for survival.  It mediates our fight and flight responses and steers us toward what we deem good for us and away from what we see as harmful.  That self-relevant mode has real survival value.

To thrive, however, and not just survive, we need those connections to realities outside ourselves.  Close personal relationships, a sense of community, a mission or calling in life:  these provide life with something more than fun and enjoyment.  They are what provide us with purpose and meaning.

One challenge we face in life is that, while we are in our self-focused mode, it is difficult to be other-focused.  If I'm preoccupied with my problems at work, I won't be a very good listener to my spouse.  If I'm caught up in the minutiae of my daily calendar, I can lose sight of my broader goals in life.  

To succeed at discretionary trading, we need to be able to maintain a feel for markets and understand what they are doing.  When we are self-focused about P/L, catching or missing moves, making right or wrong market calls, we lose our ability to read markets accurately.  We respond to our fight/flight mandates, not to the broader meaning of the situation.

It is very important to understand this:  It is our self-focused internal dialogue--our self-chatter--that gets in the way of trading solely based upon our insight and understanding.  This is why I emphasize in the book that good trading comes from the soul, not the ego.

When we cultivate our other-focused processing modes, we increase our capacity to detect meaning from markets.  

In the next post, we'll take a look at techniques that help us stay soul-full in our trading.