It feels so sudden. It feels like it is out of our control. It feels like something just took over. It feels so persistent. It feels so irrational.
We start with good intentions and make a vow. Before we start our trading day, we may review our previous trades and notice those impulse trades that didn’t serve us at all. And we make a vow never to make an impulse trade again. We make a vow to follow our plan. We make a vow to execute each and every one of our setups. We know intellectually so well that if we were to follow our plan, follow our risk management rules, that we could be instantly profitable. Or, even better, expand existing profits.
Our brain makes a dramatic shift. And yet when we see the markets start to move we become excited and all of a sudden, we just know where the next leg of the market is going. Before we know it, we executed that trade. Our stop takes us out. Now we are a wee bit upset because we knew they just took out the stops before the trade went our way. All of a sudden, we are trying to make up for that loss. And we take another trade not in our plan and out of our strategy. We cancel a stop and take a bigger loss. Then we hesitate to take the next trade that is the perfect set up for our strategy, and we miss a big move.
And then our frustration builds as we hear our internal critic. We stop trading with a loss for the day. The voice of our inner critic becomes loud and clear. Once again we made impulse trades. And then we start to berate ourselves for the behaviors we know haven’t served us that day.
We vow never to do that again.
We certainly didn’t plan those trades. We certainly didn’t intend to make those trades. And yet, out of nowhere, it feels like these trading impulses just took over and produced the trades that created the losing day.
The opposite may also be true: we miss the great trades. Perhaps we intended to take every trade that fit our set up for the day. We saw the set up coming, we plan for it, and as our hand moves towards the mouse to make the trade, an impulse in the form of a voice or criticism, says “Wait, what about this factor? What about that factor? Did you see this indicator?” And we hesitate, and once again we miss a trade that would’ve been profitable.
It feels like all these impulses came out of nowhere. They feel random. They feel irrational. They don’t feel like who we are.
And yet, they persist.
What if, imagine what if these impulses weren’t irrational at all? What if these impulses weren’t random? What if these impulses were well-constructed?
What if these impulse trades were generated from well-established neurological structures? From multiple MRI studies, we are beginning to understand that the decisions we make, although it feels like we make them consciously, are often made out of awareness and before we are consciously aware that we actually made that decision. In fact, neuroscientists are beginning to predict decisions from MRI data alone, that a person will make before that person is aware of how they decided to make that decision.
Yes, from the brain activity alone, the researchers can know before we do what decision we will make. It turns out that our decisions are in fact made in a complex array of neurological inputs in the emotional centers of our brain. Then our brain does something wonderful. It allows us to believe that we made the decision from our highest conscious state. Yes, it fools us. And as a result, although it feels like we made the decision, it had already been made before we rationalize our behavior.
Impulses may not be impulsive. Even if it feels odd, consider this for a moment. Let’s reframe the problem from “trying to control irrational and random impulses,” to the assumption that these impulse trades are actually well-planned in the subconscious parts of our brain. For a moment let’s step inside the model that says that these impulses have a positive intent for our lives, were created to help us either survive or thrive and that we can learn from them.
If impulses are not impulsive, how does that change the problem?
We can stop fighting our brain. With this framework, we can take a deep breath and can start to accept those impulses and learn from them. Rather than struggling and fighting them, we can accept them. And once we accept them, we can learn what they’re about. And once we learn what they are about, we can then discover the positive intent they have for our lives. Once we understand this positive intent, then we can build on the underlying intent to create new behaviors that not only feel better in the moment but serve us better.
But, the big question is how do we do this?
We teach the three Golden Keys in our Compass course, group work and private coaching. The three Golden Keys are:
So let’s get very specific. Pick an impulse that no longer serves you. It could be an impulse to hesitate executing your strategy. It could be an impulse to take a non-strategy trade after a series of losses. It could be an impulse to cancel your stops. It could be an impulse to overtrade. It could be an impulse to trade from boredom. Whatever it is for you, pick either one of these behaviors we just mentioned, or some other behavior that feels like it is an impulse and feels out of your control and no longer serves you.
Now, let’s assume that this impulse isn’t something that is just random. Let’s assume this impulse is a well-formed pattern of neurological connections in your brain. At the Mind Muscles Academy, we call these NEMES, or neuro-meta structures. Let’s also make the assumption that these neurological connections were created some time ago as a way to help you survive the challenges in your life. Now with these assumptions, we can start to map impulses in a way that may be more helpful than thinking about them as an irrational part of yourself that needs to be controlled.
Are you willing to do a brief experiment on your experience of trading from impulse? If so you can do the following simulation. If you prefer not to, that’s okay also, you can just read it as information.
Pick a time in your trading where you had an impulse trade. The more recent the better, the more powerful the better, the more it still bugs you, the better.
Select a time that may still have an emotional charge. It might have been several losing trades in a row. It might’ve been boredom. It may have been a thought such as “I really need to make money today.” The most important part about this exercise is to really get a visceral feeling for the context that triggered the impulse. Please take a moment to relive that experience. Imagine the charts, imagine your positions, imagine what happened earlier that day or the previous day. Step into that experience as if it were right now. Take a moment to really get the feeling and the experience in the context of what was going on just prior to that impulse behavior.
What was going on just before that impulse took over? What was the context that set it off?
Now you can write down what the context was. Spend the time to write the details of the situation out of which the impulse was created. You can come back to this blog when you are done.
The next question may require some focused intention to answer. And that’s okay.
How did this impulse serve you? That’s right, in this model we are assuming that impulse came from a complex set of neural connections that has a positive intent for you. Did it relieve your boredom? Did it relieve a buildup of physical pressure? Did it fulfill a need for you to be right? Was it an expression of your anger? Did you connect it to your dreams of being a successful trader?
On some level this impulse serves you. Now the outcome may not be what you want, but in that very moment that the impulses triggered it serves you on some level for something. Your job, is to become aware of the positive intention of this impulse and how it serves you in that very moment. The answer may not be immediately clear. If so, the next time that you feel a trading impulse that is outside of your plan, notice in that moment how it serves you. Notice what it does for you. Notice what it relieves for you.
Once you have that positive intent in that moment, then you can ask yourself a real powerful question.
What alternatives can I create that will serve that positive intent that will also give me better outcomes?
You no longer need to suppress it. If for example, the trade relieved anxiety or pressure, take 30 deep slow breaths. If the positive intent was to relieve boredom get up and do something that is more interesting.
Now you have a powerful tool to shape the impulsive trading. You no longer need discipline. You no longer need willpower. All you need is the context that triggers the impulse, the positive intent of that impulse and what that impulse does for you in that moment. Then you can create an alternative behavior that fills that positive intent and at the same time has an outcome that serves you better.
Do the exercise:
Please note: the spreadsheet mentioned in the audio has evolved into the Mind Metrics App. You can simply record your own responses in an Excel spreadsheet to record your discoveries, or you can create your own log to journal your findings in whatever form works best for you.
A veteran broker and floor trader, Rich went from the "worst trainee trader ever", to building one of the most consistently profitable options trading firms on the Pacific Exchange by training his traders using neuroscience. Rich also holds a Masters Degree in Clinical Psychology, a B.A. in Philosophy, and is a graduate of the Gestalt Institute in San Francisco along with Master’s training in Neuro Linguistic Programming (NLP).