from my course:
Gambling is an addiction, caused by a mental illness. It is not a chemical dependency issue like drugs, smoking or alcohol, but rather one we can control if we so desire. Similar to chemical addictions, certain parts of the brain are stimulated when we gamble. When we win, we begin to think of the happiness that lies ahead. These positive thoughts release dopamine in the brain and adrenaline in the body, giving us a ‘buzz’. Our heart rate, blood pressure and breathing increase. The dopamine in the brain stimulates the regions that control mood and motivation. We feel very happy and very alive. When we lose, only adrenaline is released. Since we lack the dopamine effect in the brain, but still have the increased heart rate, blood pressure and breathing, this enhances a feeling of fear. It is a primitive instinct, common during a fight for survival. Think fast, react fast, and survive. The increased heart rate, blood pressure and breathing cause a large amount of oxygen to accelerate the normal brain activity, forcing the decision making process to be sped up. Neurons do not have time to ‘consult’ parts of the brain controlling logic and reason, and bypass them. This is the early stage of panic. Placed bets during this stage are seldom logical or rational, and a self-destructive cycle emerges.
A trader may face the same problems, if they treat trading as a source of excitement. The trick for a trader is to operate void of emotion, so that the decision making process remains stable. When trading itself provides no ‘buzz’, it is less likely a trade will be entered for the wrong reasons. It is important that you do not allow yourself to celebrate a win, nor moarn a loss. It takes time to develop this emotional detachment, and it is a form of discipline in itself. Few traders I know have mastered this.
Discipline is the most important trader skill. In order to master discipline, we must first understand and define it. Many people confuse discipline with will power, in fact they are quite different.
Will power vs discipline.
1. Training expected to produce a specific character or pattern of behavior, especially training that produces moral or mental improvement.
2. Controlled behaviour resulting from disciplinary training; self-control.
3. 1. Control obtained by enforcing compliance or order.
2. A systematic method to obtain obedience: a military discipline.
3. A state of order based on submission to rules and authority: a teacher who demanded discipline in the classroom.
4. Punishment intended to correct or train.
5. A set of rules or methods, as those regulating the practice of a church or monastic order.
Will power - The strength of will to carry out one's decisions, wishes, or plans.
Discipline is something that is learned, while will power is something you either have or do not have. Perhaps it is genetic. Will power is the emotional form of discipline. Discipline is an autonomous thought process, while will power is an emotional response. Emotions are hard to modify. However it is possible to compensate for a lack of will power by developing strong discipline. We avoid using will power as a tool in trading, as emotional thoughts are seldom logical.
One thing I noticed about trading books in general is that they were big on demands. “You must do this, you must do that” e.g. “you must be disciplined” well that’s great. Just how exactly do I do that? It’s one thing to say, “get disciplined, stupid!” and quite another to show people how to achieve it. How many people even know what discipline actually is? How can they possibly achieve it if they don’t know what it is?
The mind can be improved the same way the body can be. If you train and condition your mind, it will respond with great efficiency and effectiveness. The brain, especially the subconscious, can be easily conditioned. The subconscious mind can be a great ally or a great enemy, and we are only just beginning to understand its workings. If you think something often enough, even if it is not true, your subconscious mind will come to believe it. Throw in some controlled body language and you can make your brain do anything you want. Try it now. Fold your arms and legs, tilt your head down, breath shallow, frown, and say “I am a bad person” ten times. How do you feel? Miserable! Now uncross your legs and arms, lift your head right up, hold a smile, take a deep breath and say “I am a good person” ten times. Better? Isnt it amazing how easily you can control your mind!
Discipline is a major benefit to those involved in martial arts. It would surely be easier to learn discipline using both mental and physical stimulus, from those who have thousands of years experience in mind conditioning and discipline, therefore any type of martial arts training is likely to improve your skills as a trader. The military have developed their own discipline system.
There are five steps to achieving discipline.
1. Motivation. Short-term reasons for taking action. These can be invented and programmed into the subconscious. Set minor goals, and devise a strategy to achieve them. As a trader our minor goals are to enter trades with good odds, while maintaining risk control and money management.
2. Incentive. Long-term reasons for taking action. These must be either genuine beliefs or convictions. Set major goals, and devise a strategy to achieve them. Our major goals are consistent profits and increased experience.
3. Visualisation. Picture yourself achieving the minor goals one by one. Then visualise yourself achieving the major goals. This supports the belief system. See yourself pulling the trigger when a stop is reached. This will make it easier when you need to actually do it.
4. Belief. Tell yourself that you can achieve the minor goals. Be repetitive. Realise that achieving all the minor goals results in achieving the major goals. Capital preservation is everything. Keep the losses small and let the winners run. Realise that it is possible to succeed as a trader if you maintain discipline.
5. Focus. When your mind is constantly analysng your activity or thinking about many different things, it distracts you from your awareness and performance of what you are doing in the moment. Your mental power is strained and the decision process can easily be corrupted. Mental discipline requires focusing your attention fully on the task at hand. When trading, minimise all other thoughts. Take action to ensure interruptions do not affect your trading. Be organised and prepared. "