By M. William Scheier, a futures trader and analyst in the E-mini Index contracts*
Posted: June 6, 2008

No matter how clever your trade entries are, successful trading is mostly a mental game. This treatise on trade psychology is appearing in a series of installments (and modified for use on this site) and has been excerpted from chapters of the book Pivots, Patterns and Self Recognition. The excerpts appear here by permission of the publisher, valhallafutures.com.

This is the third installment in this series, whose purpose is to examine the internal decision environment the trader faces within his mind. On the assumption that a better understanding of the mental conflicts we face will improve our trading results, the three modes of conflict are personified in separate “voices” inside of us. These are the Trader, the Account and the Analyst.

Chapter Two
The Stage

They know not how to listen nor how to speak. Heraclitus

First, there are rules of engagement for the separate and individual existence of our imaginary mental friends. The key physical constraint imposed on them all, by virtue of their shared space, is that there is only one podium in your head from which to speak. That podium must be used in alternate by any of these three speakers in order to have control of your internal voice.

And when one has control of it, the presence -- nay, even the existence -- of the other two becomes immediately unknown to you. In any moment of the waking hours, you are whoever is in control of that podium. The voice that emanates from that podium is your identity. To you, carrying yourself about the work-a-day world, that voice is you. And, never in your wildest dreams could you be convinced that more than one identity is using it.

Regardless of who has control of that voice, it always takes the same appearance. It's always you speaking. And, yet, at times, you can't help being amazed at your own acts and feelings -- as if apart from them -- at how different your motives can be from one situation to the next; at how it all seems far more to be happening to you instead of by you. Your resultant behavior seems, instead, compelled, sometimes in one direction and at times in another, as if it's not really you speaking inside yourself at all.

If you allow yourself to become self-conscious at certain moments in trading, you can actually hear that voice. It becomes most prominent at times of elation or strong pressure. It's at work at the moments of decision and arrival when it's time either to enter or exit a trading position or when you are witnessing the results of the position's outcome.

At such times such as these, we find ourselves dealing with either our intentions or the outcome of our intentions, and emotion, one way or other, is running very high. It's at these moments when the opportunity is best to listen to that inner voice, the voice that is then speaking so persuasively that we can hardly even know that it's at work.

And, if you succeed in hearing it, with a moment of revelation, you might become aware that the voice in yourself is not what you think of as self at all. The you in you, in fact, is the you who is listening to the voice, not the you who is speaking it. You're the listener, not the voice. The voice seems to be someone else. This voice and its identity are assumed by someone you don't really know and have only become aware of in glimpses, or so at least it seems in a moment of revelation.

But, this moment of revelation is unique. The voice in your head could never be strange. If it were, you would never listen to it. It would be noise, or worse, some kind of sickness you'd report to a doctor. No, the voice in your head could never be foreign. Or else -- like other things foreign -- it would simply be removed.

So, if the voice in your head is to be heard, it must assume a form you implicitly recognize; otherwise, it would never get through. In order for it to be hear, it assumes a disguise -- the perfect disguise. The voice in your head arrives disguised as you, the listener. Completely taken in by this disguise, you've come to do what you're told without question. But, assuming we can learn distinguishing characteristics about each speaker, we may be able to see through this disguise to the sources of each of our three inner trading voices.

The fact that only one of these characters inhabits the podium of your voice at any one time doesn't mean the others have left the building. At the disposal of each are weapons powerful enough to regain the podium from the other at any moment when everyday pressures of trading expose the core of their differing motives.

The Accountant has the weapons of fear and cozy warmth at his disposal; the Analyst has elation and humiliation. The Trader, however, has no emotions at his disposal at all. In fact, his whole being is built on the premise that he senses and suffers these emotions but cannot really do anything about them at their source. The Trader is awareness itself. His tasks are deliberate. He must polish all his attributes purposely.

The Trader is self-consciousness. Anything he acquires he acquires from learning. Anything he becomes he becomes with practice. The Trader must hone self-discipline in fiery battle. He must develop a distance from the effects of pressure and mistakes and resist the temptations of comfort. He must learn the deceptive quality of knowledge and thus acquire wisdom.

In regard to taking command, the Accountant and the Analyst have a tremendous advantage. They already come equipped with the motives they are known by, and furthermore, need not learn a single thing in order to inhabit the voice.

The Trader comes alone with nothing. There is no instruction book for the tools of wisdom and self-discipline by which he will need to survive and assert himself. Nothing about the Trader is natural or inherent. Whereas, everything about the Accountant and Analyst is congenital and given. The Trader's job is to figure this all out, recognize the other two for who and what they are, and stay in control of the voice. "The Trader must literally create himself."2...

*Reprinted (and modified) with permission from M. William Scheier and the publisher, valhallafutures.com