outseta.min.js

Mindset is a Verb: Setting Your Mind

by | July 6th 2024 | C.L.E.A.R., Connect, Loosen

A Practical Approach to Premarket Trading Psychology

Key Points:

  • Tools like the Perspective Map, Emotion Wheel, and FEELZ Scale help maintain emotional clarity and balance.
  • Self-awareness and acceptance are vital for traders to balance internal states and external pressures.
  • Addressing trading psychology at micro, mezzo, and macro levels improves decision-making and resilience.

Cultivating a mindset for making effective decisions and having psychological resilience is vital to success. This success depends on having a reliable and consistent system and understanding and managing personal, interpersonal, and environmental factors. Self-awareness and acceptance are vital in helping traders skillfully manage their biological needs, emotional responses, and behavioral tendencies while maintaining psychological readiness and resilience. Self-awareness forms the basis of psychological resilience and sound decision-making in trading. By understanding their internal states and how they interact with external pressures, traders can maintain a balanced and focused mindset, which is essential for navigating market volatility.

“Know thyself.”

– Socrates

mindset

Macros Aren’t Just for Economics

To enhance decision-making and resilience in trading, it is crucial to address trading psychology across different levels of analysis. These levels include the micro (individual), mezzo (interpersonal), and macro (environmental) levels. By examining trading psychology at each level, we gain valuable insights into how individual thoughts, interpersonal dynamics, and broader ecological factors impact trading decisions. This comprehensive understanding allows traders to make more informed and effective decisions.

Macro Psych Level (Environment/Systemic Factors)

Long-term situational factors and existential concerns come into play psychologically at the macro level. Life events such as divorce, grief, life transitions, moving, job changes, and aging can create stress and distraction. Also, concerns like the loss of money, choices, and a sense of powerlessness can erode a trader’s confidence and decision-making ability.

Aligning trading activities with personal values like family, spirituality, community life, and well-being provides a more profound sense of purpose and motivation when making decisions. It empowers every decision with purpose, from managing risk to trade size or waiting for a trade; we have all heard, “Trading is a marathon, not a sprint,” but do you act accordingly? Or do you act without being in touch with your values, your why? Experienced traders know the higher timeframes when they trade lower timeframes; great traders are in touch with their higher psychological time frames, i.e., their sense of purpose and values at all times.

This approach makes every decision connect to life, and you maintain access to your psychologic higher timeframes the way we should with higher timeframes on the chart. In this context, by integrating values into every trading session, traders can maintain a balanced and fulfilling approach to their work. Acting on your values every session ensures that trading is about financial values, including gains and capital protection, personal growth, and living your most vital life.

Mezzo Psych Level (Interpersonal/Social Factors)

The mezzo level focuses on the trader’s social environment and interpersonal relationships. Short-term situational factors like home environment, romantic and platonic relationships, family dynamics, and social upsets can significantly impact trading performance. Being tuned in to your life at these levels is an essential factor in what is motivating your trading decisions. It is not uncommon for trading to feel better than what is going on in our life, and then we use it to escape and use it regardless of costs as we learn to value avoidance more. If we don’t develop this self-awareness, we can head off course very quickly.

Micro Psych Level (Individual/Internal Factors)

At the micro level, we delve into the individual trader’s internal world, encompassing biological and psychological factors. Biological aspects like sleep, nutrition, hydration, and overall health directly impact cognitive function and emotional stability. Psychological factors such as anxiety, fear of failure, imposter syndrome, and past traumas can significantly influence trading behaviors.

Traders must understand risk management exists due to threats. The threat of the loss of capital leads to fewer choices and options in life, threatening autonomy and way of life. These threats activate the sympathetic nervous system, leading to stress and a clinical state called a restricted field of consciousness, more commonly known as tunnel vision. To counter these challenges, traders can employ behavioral management strategies like self-awareness, applied mindfulness, and emotion regulation techniques. Physical activity, proper nutrition, and daylight exposure are crucial to sustaining peak performance.

“To know yourself, you must sacrifice the illusion that you already do.”

– Vironika Tugaleva

The Tools for Setting Your Mind: A Morning Routine

To achieve long-term success in trading, traders need to focus on and understand three key levels that impact their psychological resilience and performance. These levels encompass personal emotions, interactions with others, and the complexities of their current macro psychology. By addressing these levels comprehensively, traders can develop robust strategies to navigate challenges and enhance their overall trading performance.


1 of 3. Setting Your Mind: The Perspective Map

To enhance decision-making and resilience in stock trading, integrate self-awareness and acceptance into your morning routine. Focus on managing biological needs, emotional responses, and behavior to mitigate unprofessional trading behaviors like FOMO. Align your trading actions with personal values, maintain physical health, manage emotions, and consider social and environmental factors.


Macro Level (Environment/Systemic Factors):

  • Life Events: Acknowledge and manage the impact of significant life transitions such as divorce, loss, or job changes.
  • Existential Safety: Mitigate financial loss and powerlessness fears by focusing on your values and autonomy.
  • Values Alignment: Regularly reflect intraday on your core values, such as family, spirituality, relationships, community, career, education, recreation, and health. It will impact your decision-making.

Mezzo Level (Interpersonal/Social Factors):

  • Home Environment: Maintain a supportive home and relationship environment and note when these dynamics have a lingering negative effect.
  • Social Dynamics: Know how family dynamics and social upsets impact your trading mindset.

Micro Level (Individual/Internal Factors):

  • Biological Needs: Ensure adequate sleep, nutrition, hydration, and general health.
  • Psychological Health: Address anxiety, depression, perfectionism, fear of failure, and imposter syndrome. Acknowledge past trauma and childhood influences.
  • Threat Management: Recognize and manage stress responses to avoid tunnel vision and perceive trading as a non-threatening activity.
  • Behavioral Strategies: Practice self-awareness, mindfulness, emotion regulation, and urge management. Incorporate movement, exercise, and daylight into your routine.
  • Avoid Unprofessional Trading Behaviors (UTBs): Be mindful of FOMO, inappropriate sizing, gambling tendencies, risk aversion, etc.

Considering these factors each morning, you can maintain psychological resilience, readiness, and optimal performance in your trading activities.


2 of 3. Setting Your Mind: The Emotion Wheel

Incorporating the Emotion Wheel into your morning routine promotes clarity. Simply reflecting on and acknowledging your emotions will enhance emotional intelligence. You can better understand your complex emotional state by asking yourself questions about your current emotions, where they are felt in your body, and identifying the most prominent feelings and sensations. This practice helps you begin the day with a mindful awareness of your emotions, improving your ability to manage them effectively.


3 of 3. Setting Your Mind: FEELZ Scale

It isn’t just a static tool but an integral part of a dynamic process to enhance self-awareness and emotional regulation. Using the FEELZ Scale as part of your morning routine and throughout the day helps you reflect on your entire range of internal experiences, including emotions, thoughts, and physical sensations. This practice allows you to assess your emotional state from -5 to +5. If your score falls outside the range of -3 to +3, it’s a signal to realign yourself before engaging in high-performance activities like trading. This ensures you approach your day with a balanced mindset, ready to perform optimally and handle challenges effectively.


Why the Combination of the Three Tools Works:

  • Identification and Articulation: The first step involves identifying prominent psychological situations or factors at the macro level that need to be considered, as discussed in detail earlier. Be sure to subscribe to C.L.E.A.R. Mindset Magazine for an upcoming post on contextual trading psychology for more. The second is building a nuanced self-awareness of emotions using the Emotion Wheel and articulating what you notice, a significant aspect of emotional learning most of us have been underexposed to. This practice helps traders move beyond vague descriptors like “fine” or “okay” and delve into the specific emotions they are experiencing. By pinpointing these emotions, traders better understand their internal states and can better assess their impact on unprofessional trading behaviors.
  • Reflection and Assessment: Using the FEELZ Scale, traders assess their emotional and physical states. This involves reflecting on recent experiences and their impact on mood and performance. The scale provides a numerical range to help traders quantify their feelings, making it easier to determine if they are in an optimal state for trading. We use “between the threes” as the baseline. In the range of -3 to +3, there is a lower probability that your sympathetic nervous system will activate and create suboptimal performance states.
  • Regulation and Realignment: When the FEELZ Scale indicates that a trader’s state is outside the optimal range, when you get into the +4. +5 or -4. -5 ranges, the next step is to employ strategies to realign themselves. This might include mindfulness exercises, physical activity, grounding, or other emotion regulation techniques. The goal is to return to a balanced state where extreme emotions do not impair decision-making.
  • Continuous Monitoring: All three tools emphasize the importance of constant monitoring and self-reflection. Trading is a dynamic activity, and maintaining psychological resilience requires ongoing attention to one’s internal states and external pressures. By regularly using the Emotion Wheel, FEELZ Scale, and the Perspective Map, traders can stay attuned to their emotions and adjust their strategies and behaviors accordingly.

C.L.E.A.R. Mindset Connections

Connect: Self-awareness connects you to the present, enhancing focus. Using the Emotion Wheel and FEELZ Scale, you engage with your current emotional state, improving assessment and decision-making.

Loosen: These tools help loosen attachments to disruptive thoughts and emotions. Recognizing and naming emotions reduces their power, fostering mental clarity and resilience essential for effective trading.

Do What Most Traders Won’t

Imagine starting each trading day clearly understanding and experiencing your situational, mental, and physical state. My three tools are designed to help you assess your performance and psychological readiness, giving you a significant edge. Using these tools daily lets you start your trading day confidently and clearly, significantly boosting your performance and decision-making abilities while enhancing emotional intelligence.

The first tool enhances self-awareness, helping you identify your emotional and mental state to make necessary adjustments before the market opens. The second tool ensures your daily trading activities align with your long-term goals, preventing impulsive decisions. The third tool allows you to track your performance and psychological states over time, fostering continuous improvement and resilience.

Check out our Performance Psychology Workshop for Traders or our Online Community for a deeper understanding.

Sean Sawyer, MS

Psychotherapist | Performance Coach

Sean Sawyer, a psychotherapist since 2003 and full-time trader since 2017. Sean uniquely blends psychology and trading, offering insights from both worlds. His experience in psychological trauma and performance psychology helps individuals master decision-making and resilience in high-pressure situations.