My past posts support Osho’s contention that continuous thought creates the mind. And when you have two conflicting continuous thoughts going on in your head, then you have two minds vying for your attention. The battle for control of the two minds is what make an ego.
Ego = continuous thought #1 (mind #1) vs continuous thought #2 (mind #2)
As in any battle, the mind that has the most training will always win. Since we are all by-product of our society, in the absence of new training, our preprogrammed mind will always win. It is the “I’m right” mind. I call it the natural mind because it comes out automatically without any effort on our part.
Preprogrammed mind = Natural mind = Automatic mind = I’m right (or I need to be right)
If our natural mind is in charge while we are trading, then we are “blind” to what the price action is telling us. In other words, what our eyes see and process when looking at the chart or tape is being shouted down by our natural mind.
Your brain processes the price action from the vision of your eyes and give you the following thought, “Whoa! Price is going down like a waterfall!”
“Ignore it! It is only a temporary. Price will go back up because my fundamental analysis says so!” your natural mind shouts at you.
“But I wanna cut my losses!”
“Don’t you dare! I want you to buy more! Average down here ’cause I’m right!”
And so it goes…
And here is the rub.
Most of us are not even aware of this natural mind being our obstacle in the pursue of investment success; instead most of us are looking at the wrong direction. We think that if we have a Holy Grail trading system, our natural mind will listen and obey its signal and we will be on our merry way to being rich.
You see, what you have forgotten is that our natural mind will have no part of it. It will denounce the so-called Holy Grail trading system the moment it spits out some losing trades.
Just by being aware of this natural mind isn’t going to make you a better trader but it is a necessary first step. From here, we need to train another part of our mind to become a winning trader. A mind that is trained in the art of trading to displace our natural mind during trading hours.
Let me give you a parallel example to get my point across.
Before I learned the simple four movement in martial art as I explained before, I didn’t know how to defend myself correctly. Hence, when a punch was going for my face, my natural mind would have me reacted in fear and my body helplessly unorganized to defend such a sudden attack.
In the same token, our natural mind is not prepared to deal with a situation when our belief of the stock is being challenged by price action going the wrong way after our buy order is filled.
After getting proficient of my four martial art movements from weekly practices, my trained mind and body automatically countered an attack before the natural mind even had a chance to get involved.
In the same token, when the stock goes the wrong way after I’ve bought, my trained mind (from the many hours of researching the statistical significance of supports & resistances, candlestick chart formations, moving averages, momentum indicators) automatically executes an order to close the trade to cut losses or lock in profit before the natural mind has a chance to say no. Trust me, your natural mind is very adept in talking you out of taking the proper action to cut losses.
“Are you sure you want to cut losses here? You do know that price will go back up after you cut losses, right?”
The truth of the matter is that the ego is not completely wrong here. Statistically speaking, (even if it is only 10% of the time) we WILL from time to time cut our losses quickly right at the bottom of a correction. And it is from this statistical event that our ego persists in haunting us in order to freeze us into inaction.
By training your mind in the art of cutting losses quickly, which will require a firm commitment on your end, you will transform yourself to cut losses automatically without thinking. Remember, our ego is simply a dominant continuous thought process; thus any thinking on our part will automatically bring forth our ego. Hence, if you can cut losses automatically without thinking, you are way ahead of most traders whose natural mind is their dominant decision maker.
Nevertheless, our natural mind is a very powerful ego and can get really feisty if you ignore it too often. Say you cut your losses quickly in one of those statistical event of getting out at the bottom before market takes off without you, your ego can do seriously harm on your psyche by blasting you with all kind of insult and emotional guilt and pain. After a bout of this guilt-ridden episode from your ego, you may not be so sure about cutting your losses quickly next time.
And this is why it is important that we train ourselves in calming our ego with other form of exercises such as meditation, Tai Chi, yoga, chanting, etc.
Being aware of our ego messing up our trading is not enough, you must know how to cut your losses quickly in spite of the interference from our natural mind. To do that, you must embark on a training like an ambitious Karate martial artist who wants to earn his 10th Dan black belt or someone who want to achieve the highest level of internal Tai Chi masters like the ones on the video below:
Remember, these are just friendly demonstration of the internal martial art. To achieve the highest level of internal martial art, it is not the exercise and practice of the physical movement like Karate but a long and patient practice of cultivating chi. Believe it or not, if you embark on a path to cultivate chi, you are also embarking on the path to minimize the impact of your ego as well since ego can prevent your chi from developing. Thus, practicing Tai Chi is one of the routine I like to keep up on a regular basis.
My 2 cents.