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Notes From Tom Hougaard tonight

TraderTom Live Day Trading, [10/9/2022 4:52 PM]
Sunday Night Diarrhea

The Default Mind Switch – Part 1

I have been exposed to many trading philosophies in my professional career. At its core all techniques fall into one of 4 categories:

1/ you buy low, and you sell high (anticipating or reacting to a bullish reversal)
2/ you buy high, and you sell higher (momentum trading)
3/ you can sell short high, and cover lower (anticipating or reacting to a bearish reversal)
4/ you can sell short low, and cover lower (momentum trading)

Whichever approach we use can be traced back to these simple fundamentals of the market. It doesn’t mean there can’t be losing trades. By its very definition of the “market” someone must do the opposite to you, otherwise you can’t facilitate the trade, and they are interpreting the market differently than you do.

In other words, trading is simple. You get a signal. You react to that signal by establishing a position. Then you manage the position.


This simplicity is what attracts people to the market. It seems so simple. And it is simple.

The cruel reality is that every trade carries with it a very real risk of loss, and money is deeply tied to people’s emotions, perceptions of self-worth, self-image, safety, security, social status etc.

The reality for most traders is that this business isn’t simple at all! They will receive a signal. They will act upon it. THEN they begin the process of an internal dialog as they argue with themselves about whether or not to take a position. The potential of loss creates stress and anxiety in their minds, which leads to procrastination and often a period of hesitation.

This emotional discomfort will often (I wanted to write “always”) lead to unintended impulses, stress, discomfort, anxiety, second guessing and remorse.

Our brains are biased towards fear avoidance, towards uncertainty avoidance, and towards risk avoidance. We might tell ourselves we are risk takers, but our subconscious have the final say in that argument, and it is not a risk taker.

Our minds are compromised. We are operating on a piece of software that ensured our survival 100,000 years ago, when as tribal hunter gatherers our lives were constantly challenged by a harsh environment filled with food uncertainty and physical danger.

When the brain perceives a threat, it begins a sophisticated rebalancing of internal resources. One of the most damaging aspects of this for traders is that when they experience a “fight or flight “response to trading stressors.

The brain pulls glucose away from brain function and digestion and re-tasks it to the muscles needed to fight or flee the threat.

This results in less fuel for the brain, and the suppression of higher-level cognitive function. Simply put, when we take a trade, and experience that “lump in our throat” we become measurably less intelligent, less objective, and much more emotionally reactive.

It is not the lack of technical knowledge that separates the winners from the losers. We look to others to solve our problems and smart businessmen and women are there to take your money in return for giving you safe passage to the promised land of profits.

But they are wrong, because if they knew the real reason, they would not only teach you how to operate the tools. They would tell you how to operate the mind that operates the tools.

Our default switch in our brain is what we need to address to turn this ship around. This default mode is responsible for all of our inner dialogues. If you change that, you literally change your world instantly.

For the majority of people on this planet, they engage in a dialogue that produces almost entirely self-limiting and negative conclusions and outcomes. If you ever had the thought of “I am not good enough”, “I am not worthy”, to name a few, then welcome to an active default mode network.

But I will teach you how to change it – one small step at a time, so that your mind becomes your greatest asset as opposed to your liability.

TraderTom Live Day Trading, [10/9/2022 4:52 PM]
But I warn you – up front – that it is not a one-off fix. It is a daily routine – often repeated several times a day – until a rewiring is in place. And even so – like a muscle – it is a life-long endeavour to keep it strong through repetition and pressure.

I say it is a small price to pay for the life you want.

Until tomorrow