12 Nov

Trading Beliefs: Monkeys, Wooden Legs and Your Trading

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Are your beliefs keeping you from becoming a successful trader?


Are your beliefs keeping you from becoming a successful trader?

As always when we begin the year we want to wish you a happy and prosperous New Year. It seems like we always make New Year’s resolutions to improve our trading. But are we making important resolutions? Do our resolutions force us to take a look at our thinking and beliefs?

But first, let me ask you some questions about your beliefs about money, wealth and trading. How many of you have heard that trading is … a zero-sum game? How many of you believe that? How many of you have heard that 70% of traders lose money? How many of you believe that? How many of you have heard that trading is for a cold-blooded, unemotional person? How many of you believe you really won’t make money trading?

Do any of these beliefs, or similar beliefs, live in your thoughts? Where did you get these beliefs and are they true? This leads me into a couple of stories and studies. I’ll start with a classic experiment, conducted in 1967 which taught us a lot about acquired behavior.

Part I:

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Trading Beliefs


Five monkeys are locked in a cage, a banana was hung from the ceiling and a ladder was placed right below it. As predicted, one of the monkeys immediately saw the banana and decided to climb up the ladder to grab it. However, assume that as a monkey would start to climb the ladder, a researcher would immediately spray the monkey with ice cold water. But in addition to spraying the single monkey that was climbing the ladder, he would also spray the other four monkeys, as well.

When this process was repeated with another monkey climbing the ladder, that monkey and all the other moneys in the cage would be sprayed with cold water. This was repeated again and again. Soon the lesson learned by all the monkeys was, that climbing the ladder is painful.


Part II:


Once all the monkeys had experienced this process one of the monkeys was replaced by a new monkey that was inexperienced with the process (he had not been in the cage). As expected, when the

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new monkey saw the banana it climbed the ladder. However, the other four monkeys, knowing that climbing the ladder is painful, immediately began to pull the new monkey down and beat on him. Soon the new monkey learned that climbing up the ladder is painful without ever being sprayed. This is repeated until each new monkey brought into the cage is fully trained, that climbing the ladder is painful.

All the new monkeys learn that climbing the ladder is painful even though none of them have been sprayed. They had no knowledge of being sprayed; they only knew that if they climbed the ladder it was painful. Eventually, all the monkeys in the room that have experienced the cold water spray are replaced by monkeys that have never experienced the cold water treatment.

It was interesting to note that the new monkeys climbing up the ladder would look at the other monkeys as if to ask, “Why are you beating me up for climbing the ladder, can’t you see the banana?” The other monkeys responded with the look of, “we don’t know why but we know it’s painful and that’s the way we do things around here.”


This doesn’t just happen with monkeys!

I’ve seen a lot of these ‘monkeys’ who had no idea why they were doing what they were doing rather, just reacting because that’s what they had been taught. It got me thinking at this time of year, how many of our beliefs are based on the same types of situations.

Sometimes we’re not sure why we do the things we do, were not sure why we have some of the beliefs, but we just know we have those beliefs.

Trading Beliefs

It reminds me of the story you may have heard where the husband comes home and his wife has cut off part of the ham before cooking it. When he asked his wife why, the wife’s response was that it was just the way her mother did it. When he asked the mother why she did it, the mother’s response was that she had to cut the end off so the ham would fit in the pot.

Just to prove it’s not only the ladies who fall into the trap of imitating without understanding this story comes from 1958 …

A young, frightened, and injured journeyman electrician was brought into the hospital suffering from electric burns. Shortly afterwards his instructor, a chief electrician, trading beliefsarrived. “Why on earth didn’t you turn off the main power switch before you tried to splice the wires?” asked the chief.

The young lad responded, “I wanted to save time chief, and I’ve seen you stand on one leg, grab the wires, and splice them without turning off the power”

“My God kid!” exclaimed the chief, “Didn’t you know I have a wooden leg?”

It seems like we can look at these stories and laugh thinking, ‘how people could be so dumb?’ or ‘how can anybody have a belief like that without really knowing why?’ It seems the longer I’m involved in trading, the more I see the trained monkey and wooden leg behavior in traders.


Are your beliefs holding you back?

Our beliefs create actions. Our actions create results. If you are not getting the results you want in life, and in trading, it might be a good time to question your beliefs.  Are they true?

Trading Beliefs

Harold Lloyd told the story of a country boy who was afraid of a shadow. Every boy in the countryside bullied and teased him. One day his grandmother gave him a talisman that she assured him his grandfather had carried through the Civil War and had made him invincible. “Nothing could hurt him,” she told him, while he wore this talisman. He believed her. And the next time the bullies started to tease him he proceeded to wipe the earth with them. That was only the start. The following year he had become known as the bravest boy and was willing to take on and do things others were afraid to do. Then when his grandmother felt he was thoroughly cured she told him the truth, the talisman was nothing more than a piece of junk she picked up by the roadside. She knew all he needed was to have faith in himself and believed that he could do these things.span style=”color: white;”>Trading Beliefsspan style=”color: white;”>Trading Beliefs

I use these examples to point out that you achieve what you believe. It’s your belief in yourself and, in general, that will guide your destiny in this life. This belief literally is a gift from the gods. If you believe and expect that great things are coming to you, you will find great things come to you. You are entitled to everything good therefore expect nothing but good.

A losing period in trading does not have to follow a winning period. Drawdowns do not necessarily have to follow winning trades. A big one I’ve heard is, “you have to pay the price of education and training,” usually in the form of having lost a bunch of money. Is this a belief you have?<span style=”color: white;”>Trading Beliefs

I know traders much younger than I am who are very successful. They mentioned that, ‘no they didn’t lose a lot of money.’ They did however believe that they could learn from those who had gone before them and they enacted the risk management of those more experienced traders.span style=”color: white;”>Trading Beliefsspan style=”color: white;”>Trading Beliefs

There are many examples of how beliefs affect what we do. I do know that for a fact. Have you ever gotten more than you expected? Have you surprised yourself? And if you did, did you do something to bring it back down to where you felt comfortable? In talking with many, “market psychologists” among old-soul traders, the common theme these successful traders hold and know is that you have to believe in yourself. If a belief is holding you back or any belief, step back and ask, is that belief really true?

My challenge to you, this month …

So beginning this New Year I want you to write down your beliefs and ask yourself if you hold any of the following beliefs? Is money the root of all evil? Does money grow on trees? Do the rich Trading Beliefsscrew the poor to get rich? Are rich people jerks? … and so on, and so on.

If you have these believes, can you see how difficult it would be for you to become a successful trader when your inner-self is saying you must be corrupt to succeed? Your beliefs have to be in alignment with your actions for you to succeed.

I ask you look at your beliefs at this time of the year. Think about where you got them. Were they learned by you or were the passed down by your parents, family, or the other traders you met? Have you accepted them as true without questioning where they came from?

Trading BelieftsThis perhaps is the hardest challenge I see for traders. Traders need to recognize what they truly believe in and if their actions are in alignment with their beliefs.

I know I’ve said this many times before and I’ll repeat it again, “The quickest way for you to determine what your beliefs are is by keeping a journal when you trade.” If you don’t have a trade journal at least grab a common notebook. Record what you’re thinking during the day before you trade and while you trade in the afternoon. Develop daily rituals that help you succeed and keep track of them in your journal.


Here are six rituals Fast Company recently shared in their December edition:

1. Drink a glass of water when you wake up. Your body loses water while you sleep, so you’re naturally dehydrated in the morning. A glass of water when you wake helps start your day fresh. When do you drink your first glass of water each day?

2. Define your top 3. Every morning ask yourself, “What are the top three most important tasks that I will complete today?” Prioritize your day accordingly and don’t sleep until the Top 3 are complete. What’s your “Top 3” today?

3. The 50/10 Rule. Solo-task and do more, faster by working in 50/10 increments. Use a timer to work for 50 minutes on only one important task with 10 minute breaks in between. Spends 10 minutes getting away from your desk, going outside, calling friends, meditating, or grabbing a glass of water. What’s your most important task for the next 50 minutes?

4. Move and sweat daily. Regular movement keeps us healthy and alert. It boosts energy and mood, and relieves stress. How will you sweat today?

5. Express gratitude. Gratitude fosters happiness, which is why you should keep a gratitude journal. Every morning, write out at least five things you are thankful for. In times of stress, pause and reflect on 10 things you’re grateful for. What are you grateful for today?

6. Reflect daily. Bring closure to your day through 10 minutes of reflection. Ask yourself, “What went well?” and “What needs improvement?” So… what went well today? How can you do more of it?

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Trading BeliefsTrading Beliefs

May the year be prosperous and may good things come to you.  I know I am expecting good things for you.

Until next month …

 – Glen LarsonTrading BeliefsTrading BeliefsTrading BeliefsTrading BeliefsTrading BeliefsTrading BeliefsTrading BeliefsTrading BeliefsTrading BeliefsTrading BeliefsTrading BeliefsTrading BeliefsTrading BeliefsTrading Beliefs



Manuel Andrade says:

Great stories!
I does relate to me in certain ways… I have been a monkey and an electrician…
There is always space to adapt and transform… luck the ones who have the will to change and learn.

“Things do not change, we change!”

Chazz says:

Another great post. Those beliefs are killers and they can be deeply implanted. It’s good to shine some light on them. Especially the “you have to loose a lot of money to be a good trader.” Even on exposure to a different belief helps. Here is an article you may have missed from the New York Times magazine on a parallel idea called “Be Wrong As Fast As You Can” http://www.nytimes.com/2013/01/06/magazine/be-wrong-as-fast-as-you-can.html?_r=0

Glen says:

Cool Article Chazz. Thx! Glen

Grigoriy Arutyunov says:

I was aware of this when I started trading due to my involvement in Scientology. This aspect is very well researched in it and is called “false data”. There is also a powerful process that helps one to identify and get rid of these false conceptions. It is done by learning the true date first and then finding in one’s own mind the misconceptions on the same subject (that were acquired by one through the course of life). Unfortunately, it is so hard to get the true data or truth about markets and trading. I found media and educational literature full of junk (intentional or unintentional). I started a list of what I have found to be true about the trading and markets. It is a very short list. I think it has “anything can happen” that I would consider the basic truth about this subject. Could you share what you found to be true about this subject, not helpful, but true at all times and it is fundamental. Like Mark Douglas is saying that one is trading a “probability”. Is this true?

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