In this episode I had the opportunity to deep dive into the topic of developing the ideal trading mindset with Rich Friesen.
Rich brings a deep wealth of knowledge to the table drawing on his many years as a broker, floor trader, financial software developer and entrepreneur.
Now he works with financial professionals, independent traders, business leaders and entrepreneurs who want to expand their mental game to make more consistent profits.
Rich traded 20 years in the pits at the Chicago Board of Trade, the Chicago Mercantile Exchange and the Pacific Exchange. He went on to start Trade Management, LLC one of the few consistently profitable firms on the Pacific Exchange options floor which he later sold.
Rich holds a B.A. in Philosophy, a Masters Degree in Clinical Psychology and is a graduate of the Gestalt Institute in San Francisco along with Master’s training in Neuro Linguistic Programming (NLP).
In the show we talk about –
“The real question for me is what mechanisms are you using, what beliefs do you need to have, what is your identity that supports that and once we’ve identified that then the question is does that still fit you?”
“One of the things that I always do in my coaching is move people toward self-rapport because ultimately that change is not just trading but that changes life significantly.”
[04:16]Houston: Good morning Rich, how’re you doing today?
[04:18]Rich: I’m doing great, it’s a beautiful day in Morin just North of San Francisco, I ran the dog this morning there’s a blue, blue sky with occasional puffy clouds and it’s just – it’s a wonderful day here.
[04:31]Houston: I’m glad to hear that. Well, thank you so much joining the show before we start today I’d just like to quickly introduce Rich Friesen; Rich has a really long history with financial markets and I’ll get him to give you his background in a few moments but what really drew me to Rich’s work is that he spends a great deal of his time coaching traders around a multitude of topics but specifically what caught my eye was around the topics of trading psychology and mindsets and what I really appreciate about his work is that he layers in plenty of layers – so there are elements of neuro-science, there are elements of NLP work and psychology. So before I deep dive much further, maybe I’ll just ask Rich to give us his background as well as how maybe things have evolved in the financial markets.
[05:33]Rich: Great. I started out as a Philosophy major in school and also I ran a family retail business – I was a glass blower for many years but after I saw the end of the Arts and Craft movement in the late 70s, I moved to the financial markets and went to work for Merrill Lynch as a futures salesman to get my feet wet. I also had a friend from college Joel Richie and you can read about him in the – I just dropped the name of the book but I’ll get it for you in a second – and he started a company called CRT – Chicago Research and Trading so I went to see them at Chicago Mercantile Exchange and was going to start just trading on my own and he said well just come work for us – and I did. And that is the start – a short story is when I was trading with CRT…
[06:17]Houston: And what year was this?
[06:19]Rich: Oh, that was in 1983.
[06:21]Rich: I was on the floor of the Chicago Mercantile Exchange, I was trading options on the S & P futures and my trainer said I was the worst trainee he had ever had and he could have been a little more diplomatic nevertheless, he was right and this has been foundational to me because when I started trading on my own and started trading my own money – I started keeping notes on everything – every little bit that I learnt and I had a six inch stack of cards with tiny print on both sides and that eventually became a training manual for the firm I build – Trade Management – which was one of the most consistently profitable trading firms on the floor of the Pacific Exchange and the reason is that I really sense, I started from ground zero like many of the traders who are listening to this. I had to claw my way up the learning path and my job was to make that path easy for the traders who were trading my money and we became a successful trading firm until I sold and then I went in and created an online trading exchange which developed many patents and eventually all that was sold to Hitachi.
[07:46]Houston: Interesting. And then how did you get into the game of coaching retail traders after that?
[07:54]Rich: While I was still very young, I also got a Master’s degree in Clinical Psychology -I spent four years training at the Gestalt Institute which is the Fritz Berle offshoot in San Francisco and more recently I Master’s Certification in Neuro-linguist Programming so my interest in Psychology has been there for a long time and so when I bulging my own trading firm what I noticed is that some traders just took off –they took our method; it was consistent – we had a method that just minted money and some traders were just not able to manage that. So what I was I said was “man, what is the problem” so I did more training and more this and more that and it didn’t seem to matter so I said I guess I have to these go and I had a talk with my sister Wendy who was a budding hypno-therapist who had just gotten certified and she was eager to ply her trade and she says “let me give a whack at it.” So what we discovered was that the issue in these traders was not the methodology, it was not the markets but it was the space between their ears.
[09:04]Rich: And so we discovered stuff like one of the traders would get to a certain level in his equity and then he would lose it and he’d get back up and lose it and get back up and lose it and through hypnosis we discovered that out of respect and devotion to his father, it would have been an insult to his Dad to make money than his father. Now, totally out of conscious thinking, totally out of awareness but that sub-conscious belief whenever he got there he would figure out ways to not make money ([09:34]Houston: Self-sabotage) and another one came from a long line of poverty in West Virginia – a bunch of basically hill-billies and the big numbers in his bank account basically created so much discomfort to his core identity, he couldn’t relate to his family anymore in the same way so he would give it back. Another one – his Mom, he had a severely handicapped brother and a single Mom and he knew if he started making money his mother would come after him for some money and give him and given the conflicts, given the lack of a clear feelings towards his mom, that conflict allowed him to sabotage his trading account. So then I started thinking “wow, I wonder what is going on here” and I have another story about myself and if you’re interested we could tell it later about how I discovered some of my own psychological limits.
[10:30]Houston: So is there one clear cut path to success or do you have to really chunk it down to the individual and say alright we have to work on these persons and you know on a case by case basis if ever I want what’s gonna work for that individual?
[10:45]Rich: Well, the answer is yes to both – as I say the questions that I get over and over again and we’ve done over a thousand assessments and surveys and they are pretty well the same and that’s because we’re all operating with the same human brain. The human brain that developed on the Savannahs of Africa for our survival and so as a result those common kinda things to us is where in the mind muscles for traders training is that we deal with those common things. Now in addition to those like the trader who couldn’t make more than his father out of love and devotion to him, you know that’s an individual thing, so yes we have a common brain, yes we have common biases, yes we make the same persistent trading errors because of that and then we layer on top of that our own individual limitations that keep us from the success we want.
[11:45]Houston: Interesting, so what then are the biggest mistakes that you commonly see with traders, are there places in terms of the development that you usually see traders kinda get stuck or have challenges at?
[11:57]Rich: Yeah. The list is pretty common and the one that comes up almost, I can open a survey but I’ll see what I can remember – confidence in my strategies, executing my strategies consistently, changing my behavior after a string of losses – like revenge trading; changing my trading behavior after a string of wins as in cockiness, inability to move from successful sim trading to real trading. So that’s the things that are at the top of the list; other things are: unable to pull the trigger, fear of loss, inability to see the set-ups and see the trading as it is in real time – when I look back on it things are obvious – but in real time, my brain shifts and filters things in ways that doesn’t serve my trading. So those are kinda the basics – there’s a lot more nuances to those and a lot more variation. What we do in our boot camp course is and I’m going through that right now – we’re running a boot camp from now through the end of the month, end of the year. And I list all of the issues that the traders have in a spreadsheet so like I just was working with one of my traders last night and he has a big list – he has like nine issues – generally, we get down to three or four and then we say what state of mind would you like that would resolve this issue. And then we create a state of mind in a positive description. So, if for example, so if the problem is a fear of losing money, then we would say on the opposite side the joy of trading a statistical edge.
[14:07]Houston: Right, so taking that belief and kind of turning it around?
[14:12]Rich: Right, so what we do is then we step inside that positive experience; this is interesting because in my world, in my model the brain will help us go to places that feel better; that in the moment – and I’m positing a model here – that we always make choices that feels better. We never move to a choice that’s worse so even a heroin addict who knows that this is eventually going to kill him – in that moment it feels betters to have that shot than to stay with his present experience. Even soldiers in World War ii when they were storming the beaches of Normandy and they opened those landing craft – even knowing that they might die, it felt better to get out of that craft than to let down their fellow soldiers and their comrades. So, if we’re working with that model, and again, everything I do is just a model and I can talk about why I phrase things that way but if we’re working with that model and we only make choices that feel better in the moment, then our job as coaches is to organize exercises and simulations that allow us to experience that feel better in the moment so we have a place to go and once we have a place to go our subconscious can start working on it but most of the traders that start working on a boot camp with me, I ask them to experience that feeling of where they’re really and are wand where they want to be and most of them are unable to experience it viscerally. So my job is to get them to experience viscerally and we go on to what stops them and many times there are other things and this, you may not even believe me Houston; a trader says I wanna make a lot of money – that’s what his goal is – and I will say having that what of value will you lose. “Oh nothing; it’s great – I could be rich and if I make more I can earn some respect, oh it’s gonna be wonderful.” ([16:25]: Houston: Right) But when we really started to work with on it, that state is out of their identity, it’s out of their belief system; they will lose their friends, rich people are bad and we really need to recognize what value system they have and how that success will conflict with it and so by viscerally experiencing that new state of mind we now have the place for us to go to and if we get to that state we know we have cleared out all the ecological and other issues that maybe surrounding it.
[17:02]Houston: Right, so does that model, is that the idea that perhaps you have a certain set of ingrained habits that you are operating from and you have no – we’ve heard it that you can’t get rid of habits, you replace old habits with maybe better ones; so is that the idea that you’re creating a new visceral experience so maybe you can float from the old crappy ones that weren’t working for you and kinda flow into these new ones that are more conducive to whatever behavior you want?
[17:29]Rich: Well, I think you just put your finger on a really important point and that is – I’m gonna back up a little bit and answer that question – most of us grew up in what I call the two-storey nut house and what that means is on the top storey we have our neuro –cortex, our rational thinking part of our brain. This is the part that makes excellent decisions, looks into the future, kind of calculates what we need to do and makes the perfect, wonderful decision.
[17:59]Houston: Completely rational.
[18:00]Rich: Totally rational, like really good; on the lower storey, however, we have our devil – our impulsive, our visceral, our greed, our fears, we have all these emotions and desires and it’s the job of our top storey to discipline our bottom storey so that it behaves itself and so what happens is we have New Year’s resolutions type therapy and it’s like many cultures will tell their traders say just be more disciplined, well that’s like a track coach telling a sprinter, just run faster
[18:42]Houston: What’s wrong with you, move those legs.
[18:42]Rich: Run faster; so what happens is in the two storey model we have the top storey that’s constantly beating itself up and then we get this – we get the rational part of the brain pushing and then we have our visceral reactions pushing against it and they are stabilized. There’s a lot of pressure here and both sides and this then become a stable system that because of the pressure on both sides become very difficult to break. So as long as we’re trying to suppress those feelings, those emotions and those parts of ourselves, what we are doing is we’re stabilizing a system that will not deliver the benefits that we want. So, in my model what we do is look for ways to constantly create rapport within ourselves ([19:41]Houston: I like that) and what you said about, you know habits and the way my model looks at it, we call them nemes n-e-m-e-s or neuro meta structures and these neuro meta structures are basically just neuro connectors in our brain and as you probably know that neurons that fire together, wire together. So if you think about driving the car for the first time, my gosh, do you remember all the things you had to think about – putting the clutch in – I’m giving away my age, you’ve probably never even driven a clutch car and then you know, you have to take your foot off the brake and accelerator, you have to look around you, you have to steer. I mean, it’s incredibly complex but now I’m sure you can drive on a freeway and have a conversation about trading psychology ([20:29]Houston: and don’t even think about it) and don’t even think about it and that’s because all these neurons that have fired together so many times because they fired at the same time, they wired together. So what we have is these nemes in our brain and here’s the escape from the two storey nut-house and this is really important: if you’re listening to this and you can make this mental shift, it will change your life and the shift is from being a good person/bad person. I grew up as an evangelical so we had Heaven and Hell, we had our spiritual side and our evil side, we had angels and the devil, you know so we had this flip; so if we can move from that two-storey nut-house, from that two storey universe into one where well, we have some neuro structures – some nemes that no longer serve us – wow, and they were created originally with positive intentions.([17:09]Houston: right) So when I’m working with traders and we have a persistent trading behavior, most of the time – and I have a process for doing this – if you’re interested we can talk about it – but I have a process for locating the origin of that behavior and every time, 100% of the time with my traders it was created when we didn’t have as many options and was created for positive intent. For example, many traders suffer from a critical voice in their head – every time they go trade, they hear boom, bo boom, why are you doing this, what about this, what about that indicator, that’s not quite right bllllhhhaahhhh. Well, if we go back and look at that critical voice, very often we had a critical parent and what we wanted to do is beat them to the punch. We wanted to criticize ourselves and correct our behavior so we wouldn’t suffer the pain of someone whom we loved and trusted and needed so badly to be so hard on us. Now that’s not the only reason but that was created with positive intent for ourselves when we didn’t have many choices and now of course in my model, the earlier that was created and the closer we attached that to survival to the very, to our very life and I have traders who were beaten with rods and bleeding when they were 3 and 4 years old and they still have the scars. Now those survival instincts that were created that deeply and attached to survival, then replicates themselves the rest of our lives so then what happens is we filter our worlds to support that belief and as a result it is a self-fulfilling system because – like I know a woman who is constantly being rejected and so the other day I called her up and somebody was coming to town that we both knew and she said “oh, nobody told me”; in other words, here I was, I just gave her the information and her filter was “oh, I’m left out.”
[23:42]Houston: She got defensive.
[23:43]Rich: Yes, so what we do is we filter everything we see to support that particular neme or that particular belief system and then it becomes self fulfilling. But what if you move from the two storey universe of being a bad person to one where you just have a neme, you just have a neuro meta structure that no longer serves you, now we can work with it and stay and rapport it with ourselves especially if we understand that it was originally created to serve us and if we understand that survival mechanism or what good it does then we can say “ok, how can we upgrade that neuro circuit; how can we upgrade that process and if that process in our brain understands that we aren’t going to get rid of it but we’re gonna upgrade it and improve it then we can relax because it will not give up its survival function. In other words, if it’s there for our survival we can discipline it all we want but our survival will always take precedence – whew.
[24:47]Houston: That was deep and layered so I mean let me try to unpack that a bit so it sounds like all of us have these kind of mechanisms or at least we’ve put in place for protective reasons. There are originally intended for positive effects but as we’ve matured and as we’ve entered into different areas maybe they no longer serve us and longer and instead of trying to fight them and push them down or discipline them as you said, maybe the better approach is that we simply acknowledge them, we don’t tie any kind of negative or poor self-worth for having these kinds of beliefs or mindsets and then we create something new. Like you said, upgrade our mindset or upgrade the beliefs so that we can then have something that’s more conducive to the behaviors we want.
[25:40]Rich: That’s so well put so what I do is I say first it’s awareness – so first we become aware of them and then you use the word acceptance and that is such a powerful word and then what we can do is we can – it’s the triple As – awareness, acceptance and then action. And the action is to acknowledge the original intent and then to look for better ways to express that original intention that’s saved or whatever it is. So often times I will actually have people talk to themselves or talk to their thoughts and they’ll say I am here to make sure that you can do your job – I’m fully gonna support you of your job and the job is not the dysfunction but the job is its original intent of safety, for example. I’m gonna make you’re safe so here’s my risk management plan, if I follow this plan, are you comfortable with it? Yes, and you make an agreement and then once you make that agreement and that part of you has accepted trading and that part comes up being critical then you can say thank you critical part, thank you for coming up I understand your concern about my safety so let’s go back and talk about our agreement again. So what you’re doing is re-processing that over and over again and like most people know a habit takes a while to do that, but if you can do that without acceptance and you can do it with self love and rapport then it becomes easier to repeat because it’s so good to take care of yourself and love yourself.
[26:16]Houston: I like that approach so we’re gonna get tactical in a few moments because I know you have a lot of ideas in terms of how traders can make some changes kinda brass tax style so…
[27:27]Rich: I’ve got three months of trading so
[27:31]Houston: You’re trying to squeeze in the next half hour, right
[27:33]Rich: I tell you, we’re gonna get close
[27:38]Houston: So, let’s start – how do traders, where can they begin to get more in tune with their emotions, what’s a strategy or maybe an action that they can take to say “alright I believe you, I need to now, let me go in, how can I actually get more in tune” cause a lot of us, we’re not in tune with our feelings; we’ve been taught to push them down or to ignore them so how do we start to open up and say alright I value what my feelings are.
[27:63]Rich: Sure, one of the second course we have in our online courses is self aware mind – bringing clarity and focus to your trading decisions and here’s an exercise that you can do on your own that doesn’t cost any money and I can even send people directions if they want but here it is. What you do is you take a piece of paper, and you can make lines or you can do it in an Excel spreadsheet or in a word document but you’re gonna set an alarm or every depending on how frequently you trade but let’s just say for 10 minutes and you just take out your smart-phones set an alarm and then when the alarm goes off, you just kinda freeze and say what are my sensations? What are my physical sensations and you take a trip from your nose to your toes: say my jaws are tight, my chest is tight, I’m breathing hard, my heart rate is fast, my throat has a lump in it, my foot is bouncing up and down, my back aches and I’m tightening my fists. So you just go through it – here’s the important part, you don’t try to change a thing; it’s really, really important, if you try to change it’s gonna screw the experience up. So then you do that until you really good at just getting your physical sensations and it’s the easiest thing to do cause you literally take a trip from your top and start to pay attention; so then after you’ve done that and you’re really good and comfortable with it then when the alarm goes off you notice your feelings: I’m feeling sad, I’m feeling happy, I’m angry, I’m pissed off, I’m frustrated, I’m at peace with myself – whatever it is you just start noticing your emotions and your feelings and every ten minutes you just write them down and then the last thing is one which is really difficult but it provides a lot of benefit is the quality of my thoughts. My thoughts are self critical: I’m so focused on my work I don’t even notice my thoughts; I noticed my thoughts come and go but there are many things or right now I’m thinking I’m such a such a screwed up idiot and I have this critical voice or I’m listening to my spouse and I’m imagining them criticizing me for being a trader – whatever it is you just write down the quality of your thoughts – positive, negative and maybe a little bit of content. So you do that with your thoughts, now when the alarm goes off after you’ve gotten good at that, you do all three. And so what’s gonna happen is your gonna start to be aware when the alarm goes off and eventually this practice will get you to the place where you notice in real time so what we do is we create what we call the set score – S-E-T, sensation, emotions, thoughts; and again, I have more complete instructions for anybody that wants it but what you can do is on a scale of minus 5 to plus 5, score yourself on your sensations so let’s say you had the stomach flu, a migraine headache and you were throwing up and you had the shakes and you had fever of 104, you might say my physical sensations are a -5, they’re about as worse as they get
[31:25]Houston: You’re not dead but it’s pretty close.
[21:29]Rich: You wish you were – that’s a good way of explaining it; minus 5 is you’re not dead but you wish you were and +5 is – I’ve got diffused energy, my body’s shaking, I’m looking all around, I’m kinda jumpy, so you have tense amount of undifferentiated energy. A zero is “ahh, I exercised this morning, I’m eating well, my body feels at peace with, I’m relaxed, I have power there that I know I can use it and it’s just ready to serve me well” – that’s a 0. So we have one which is the low energy side, the other is the hyper energy and the middle is the powerful peaceful side and you do the same for your emotions, if you’re depressed, really depressed and you’re thinking about why should I live that might be a -5 but if on the other hand you feel that you are a god, and cocky and you’ve made six winning trades in a row and you’re gonna show that screwy market exactly what’s going to happen and you can just do anything and you’re on top of the world that’s a plus 5. Zero is – the emotions is: I’m ready for whatever the market does I’m at peace with myself, I have no agendas for the markets, I don’t need to make money, I’m just here to be in the flow. On the thought side, if you have a critical side – you’re nothing but a piece of crap or whatever and you’d rather just kill yourself and that’s -5 and on the other hand if it’s a 5 again is you’re a god and you’re this incredible person then that’s a +5. What you do then is that you add them all up so you have a possible -15 which isn’t very good and you should give me a call right away.
[33:22]Houston: Probably shouldn’t be trading that day
[33:24]Rich: Probably not; and then you have a plus 5 or a plus 15, you add them up and divide by 3 so you have a minus 5 and a plus 5 it’s possible. At the plus 5, it means you’re in a pretty highly agitated, cocky positive state and I developed a system with, I have a trading advisory team and these are active traders who test things for me and a couple of the traders there noticed that when they keep their SET score next to their P&L that there’s a direct correlation and so not only does this exercise improve your awareness but also it gives you – it’s just like any technical indicator of whether you should be trading or not.
[34:08]Houston: It’s a technical indicator of yourself.
[34:12]Rich: Yes, exactly and we can talk more about other things like that – there was something else you asked about. Yeah, so self-awareness – the important part of this exercise when you’re doing the SET scoring is to say “that’s interesting, write it down, say that’s fascinating; wow I have that neuro structure that’s creating all these negative thoughts- fascinating”; now if you try to stop it by going back to the two storey nut-house then you’re bringing up an awareness and you try to stop it then that awareness is going to go high because it doesn’t like to get beaten up. So the important thing is to kid tease it up, think about it as a wild animal and you’re trying to tame it and you do it very slowly and you encourage it to come out and when it comes out and every time I call my dog and it came and I beat it – the dog’s not gonna come after a while. So you don’t wanna beat yourself up; again this is such a major shift in thinking, going from the two storey nut-house to this is just an old pattern that no longer serves me, so just think about it and the most important word I can think of here is curious
[35:26]Houston: I was just thinking the exact same word.
[35:28]Rich: Just be curious because curious means non-judgmental, it means you’re open, it means youre fascinated and if your state of curiosity that means everything else, that means you’re in rapport with yourself and that’s really important.
[35:43]Houston: Right. What a great exercise and I’ve tried similar practices before and I still do it now actually and I have actually thirty, I was doing it every thirty minutes a similar exercise – I don’t know where I got it from, but I was just capturing my feeling state; I wasn’t getting quite as great or regular but I was capturing it on the hour and certainly it’s a very valuable practice but it’s actually quite difficult as well. It’s not easy to do; I know it’s easy to simply say I’m not going to do it right now but I’ll do it later you know I want to do it when I feel better. But I think you know if you set it as ten minutes, it’s actually gonna be a challenge to do the exercise so thank you for sharing that. I challenge those people who are gonna listen to this podcast to give it a shot – try it for a week or a month and see if you can track yourself for that amount of time.
[36:32]Rich: Ok, can I reframe what you just said?
[36:35]Rich: Ok, it’s going to be a challenge to do that; what we’re setting that up as a difficult problem so everybody listening to that is now shifted in and they’ve now – their brains have associated that with other times in their lives when they’ve had a challenge and failed.
[36:52]Rich: So, let’s reframe that.
[36:65]Rich: Yes and, let’s find a way that is so fascinating to make these discoveries that it feels good and if again in my model you can improve to new behaviors or new activities or beliefs that feel better then let’s create a way; in other words, give yourself a reward when you’ve done it three days in a row – take your girlfriend or your boyfriend out for dinner – do something nice, you’re proud so look at that sheet and look at what I’m discovering I’m am changing my life around, I am starting to be in rapport with myself and figure out a way to have that everyone’s different so if I’m coaching a client, I will have a way for them to feel good about that so figure out a way and then if it feels good, it’s not a challenge anymore.
[37:58]Houston: Exactly, I appreciate that a lot because certainly we know that negative reinforcement works on some levels and that can get you to do certain behaviors but I think it’s easy to be negative and we’re wired to be negative so having other frames seem to be a lot more gentle and I think it’s a lot more, a little easier to take on for the long run as opposed to saying I got to be disciplined and I can do this for the next week or the next thirty days so…
[38:24]Rich: What I love about what you just said is the word gentle – I mean I can feel an emotional rush just thinking about being gentle with yourself. My God, we work so hard to beat ourselves up to behave and trade well and be disciplined, what if we just gentle and kind with ourselves? One of the things that I always do in my coaching is move people toward self-rapport because ultimately that change is not just trading but that changes life significantly. ([39:00]Houston: Right) and many of us have disciplined and negatively motivated ourselves to do certain behaviors that have been successfully rewarded ourselves for and if we imagine taking that away our mind goes to “oh my God, I can’t stand that all day.” It’s like we can’t imagine a world where we’re not beating ourselves up but I’ve had clients make that shift and we don’t just stand there all day…
[39:32]Houston: Right, yeah.
[39:33]Rich: We tend to have more energy, we’re in rapport with ourselves, we have all our parts working together and my God what a wonderful difference.
[39:32]Houston: Yeah, and so what do you find when you work with traders; I guess these layers onto what you said – a lot of people seem to be very protective about their stories but like you said they don’t wanna get rid of those things cause in some way it may have served them at some point in their lives so they are very attached to it. They’ve created elaborate stories around why they need these things, is it possible to – do you have to go back to the past and kind of figure out why, why you know your mom was bothering here or you dad, or your uncle…do we need to get to that level or depth or there I can just make a shift and put the past in the past and go forward with things?
[40:19]Rich: In my model, what I do is I list all the issues that traders have; we have those in graphics so they can see it color-coded, how they’re progressing and then below that we have all their trading metrics and we have some special ones that are really important but below that we have something I call belief and below that identity. So that if we have persistent reds or persistent things then we need to ask the question what would somebody have to believe in order to consistently create that behavior; and if in fact that belief impacts on identity issues such as the trader I had whose identity was that of a poor person who had grown up in poverty then we need to look at some deeper issues around their self beliefs, their selves and their identity. But the point here is not like an analysis to spend years analyzing that but to create a behavioral change that serves us better. So when you only look at those things and when we look at those things we don’t ask the question why – let me rephrase that – I never ask the question why because the question why takes us to our neuro cortex and then we make a B.S to explain it. The real question for me is what mechanisms are you using, what beliefs do you need to have, what is your identity that supports that and once we’ve identified that then the question is does that still fit you?
[41:50]Houston: Yeah. And then you can begin to create the action plan and to again move that forward
[31:51]Rich: Right and again, moving that forward by a series of successive experiences that each one feels better than the previous one and that gets us to our goals and sometimes people let go of their goals. I mean that’s also possible; a number of my traders come to the conclusion that they shouldn’t be trading and I’ve saved them tens, in some cases hundreds of thousands of dollars because they’re trying to be traders, successful traders to fill an emotional need that is not going to ever be filled and so we re-direct them to something that will do it. For example I had a trader in South Africa who wanted to make a lot of money and so I talked to her for a long time and it eventually got down to having that much money, what will that do for you? Well, I’m really concerned about the lack of educational opportunities for a lot of the black teenage men and as a result they don’t have any hope – they grow up jobless and they commit crimes and they become a huge problem. Ok, so having that, what would that do for you? Oh my God, it will dah, da, da, da, da so then I’ve started coaching her on let’s go directly to that goal. If that’s what it is, what you want why I don’t have any money, well there’s a lot of people who care deeply like you do, lets figure out how to make this work and kaboom all of a sudden she was now unified in her purpose rather than trying to go through the difficulty of trading. So a lot of traders ask yourself what is, having that success what will that do for you and maybe there’s more direct or better way to get there.
[43:47]Houston: Yeah; that’s a very good question. So in your opinion, do all traders come to the game with baggage or have you ever met a trader who is like, you know what I got my head on straight so I’m good to go just give me the system and let’s start making money?
[44:04]Rich: I would say that all traders we all have baggage but I gotta admit I did have an exception. I hired a clerk when I was building my trading firm, his name was Tyson and he clerked for me just a short amount of time and he just seem so at ease, he just seem so natural, so I gave him a badge, gave him a lot of capital and he walked in to a pit and when I walked into a pit, I can’t tell you the harassment I got, I mean I had people put their nose two inches from mine, yelling and screaming and spitting you know, they just did not want the competition there because I was really good and I took you know, the money I made means less money for them they felt. So he walked into a pit, everyone likes him, he was tall, he is good looking, he was easy, he was amiable, he was funny, people gravitated to him, he traded the system, he didn’t vary from the system, he didn’t have a need to try show off or be right or think where the market was going, he just made money from day freaking one and so after about six months of just making almost the amount of money that I was. I said Tyson, I need some help, I have some traders that are stuck I want you to teach them – he was totally lost; since I had struggled and come up the hard way, I knew every bump in the freaking road but he grew up loved, he grew up confident, his life experiences were positive – he expected, just totally expected the world to be part of his success and he was so respectful of the world and so in tuned with when you looked at him you wanted to be part of that, so the answer is no, there is no traders who come without baggage and I have no idea how to explain Tyson.
[45:59]Houston: He is definitely an outlier- the black swan, that’s interesting. Do you think it helps if you catch people at an earlier age so when they start trading earlier, is it true hat as you get older you carry more baggage or you think that doesn’t even matter what age you start from?
[46:13]Rich: I haven’t notice any co-relations there.
[46:15]Houston: Oh, OK.
[46:17]Rich: In fact, probably the younger the better the older the more challenging.
[46:22]Houston: Women versus men. Do you find any difference between?
[46:25]Rich: Women are so much better oh my gosh as whole, they are willing to explore themselves, they are willing to take responsibility, they are willing to learn, I mean men we are comes fom our hunter DNA and we want to kill the beast and we want to be the one in the tribe that kills the beast and we want the acclamation for bringing home the food and we have a tremendous amount of ego attached to our trading. I mean, I have traders who lie to me, they are paying me a lot of money, I charge $500 hour for my coaching and they will lie to me about their results as though you know, so we men have a lot of testosterone, we have a lot of ego, we need to beat the market, where as a really good trader doesn’t have that, he says OK there is the market, I am going to let it talk to me, I am goint to be in the zone, I am going to be there, I have no need to brag in a trading room, in fact I am not going to tell people how much I make, because that’s not where my self esteem comes from. So us men probably have more to overcome than women. The women again, I don’t want to be sexist here and quantify things, but there is a difference – in that women do tend the lack of that kind of male testosterone, A type personality, it makes it more difficult to go sometimes through the challenging parts, because we don’t have that driving force([48:16]Houston: that drive) Now having said that I know men and women who are in all sides of that continuum, so I certainly don’t want to create a sexist debate after this.
[48:19]Houston: Very interesting insight you know, and I was just thinking as you were saying that I was just thinking about the book by John Coates, The Hour Between Dog and Wolf
[48:26]Rich: That is a, everyone should read that.
[48:27]Houston: It’s a great book yeah, I definitely have that on my top favorite books to read about trading. So what are some of the roles around you know, hormones and neuro-transmitters in trading? Talk about testosterone and how that can get you into trouble? Is there something that we can do as traders kind of tactically to kind of modulate you know, the expression of these you know, hormones or neuro-transmitters, can we do certain things like activities or exercises to get us in the right state of mind or the right physical you know presence to trade?
[49:06]Rich: Well, what have you done that you found that works?
[49:08]Houston: For me, number one I think I don’t know what the role is between this and neurotransmitters and hormones, but certainly meditation helps quite a bit for myself, I have talked about this on previous podcasts, but meditation for me has kind of given me the ability to create space between decisions and I find that to be very interesting and I am a big believer in kind of high intensity, any kind of high intensity work, whether it is training or even trading you know, spending time of really deep focus and then you know, having the ability to just relax and not be focus, just kind of completely you know, replenish myself, so those type of activities I find that you know, from a physical perspective allows me to be a little more even keel with my trading and I don’t seem to be so hovering ([45:48]) as I’m able to modulate myself by kinda being more even keel.
[50:10]Rich: Excellent, but then again that’s a whole other hour just on that.
[50:19]Houston: We need a part two here
[50:20]Rich: What you talk about is what I call a break state and that is where we can break our normal reactions, so for example one of the things that I do is a slow deep breath, in fact maybe seals are taught this you know,and this is good exercise for your lungs a well, I six count for inhale, hold for four,slow- six count release and then let the air out for four and let it sit there and what this does is if your going (rapid breathing) you can actually start to feel afraid, so what happens is, if our medulla is which is the fight or flight part of our brain is triggered – because let’s say the trade is going against us – and we start rapid breathing and we have all the physiological adrenaline rush going on then what happens is the medulla checks with the neuro-cortex – the thinking part of our brain and says hey, because the medulla is so fast it reacts like that, but then what it does is checks with our brain, the neuro cortex and say hey, now that I’ve got us in panic mode and we are ready, is there any reeason really to continue? And the neuro-cortex normally says no, no reason to continue it’s all fine – there is no danger, but what sometimes happen is and this is in PTSD is that the neuro-cortex will look at the body, notice that we are breathing fast or adrenalizing or our muscles are tense and say, oh my God, something must be wrong look at what our body is doing, so then we get into this loop that just keeps going, so our medulla can be fooled by doing the slow breathing, because if we are doing the slow breathing, we don’t do that when we are panic. So the seals are taught this, arm forces, policeman and so what I have done is, I have done this so much now, that whenever there is a tense, even if my wife yells at me for something, of course she never yells at me ([52:31]Houston: you’re a saint) , who could yell at this face, right away I go (in hale and exhale) and boy does that just calm me down. I can go into a whole other hour about relationships and slow breathing around relationships – so that’s the break state and that really helps. In fact, more and more I am doing that, just during the day, just every now and then, just doing that and I can drop my blood pressure 20 points, I have a blood pressure machine here that I am just starting to experiment with, I can drop it 20 points by doing slow breathing for 5 minutes.
[53:16]Houston: Yeah, I have play a lot with you know, tracking heart rate as well as with heart rate variability and just by doing like you said that deep breathing you know, I have tried the heart breathing where you out your hand over your heart and as you wear your heart rate monitor you’re literally seeing as you breath in and try to breath through your heart, imagine you know the breath coming into your heart and bringing it out again. My heart rate will drop easily 10, 15 beats, just by spending that bit of focus and thinking about the heart beating, so that breathing kind of turns off the fight or flight or maybe turn it to a level of arousal because the nuero-cortex doesn’t have a trigger at point to say you need to look for you know, maybe some danger.
[54:01]”]Rich: Exactly right and that’s really just a great exercise.
[49:51]Houston: Yeah, so how does, what do you think – for new traders, in your opinion – is there a best place for traders can kind of start with trading like is it best for us to start with systems and methodology and then progress to psychology or do you have a prefered journey for traders to devlop themselves?
[54:29]Rich: Yes, start with a sim account, start with a real simple strategy – it doesn’t matter almost what it was – even a moving average cross-over whatever it is and just learn execute that – execute it, execute it, execute it, execute it and if you execute it consistently 100% of the time then you don’t miss any trades, you don’t avoid pulling the trigger on your trades and then you can evaluate the system and by doing that you get used to execution first over and over again the traders I get have gotten either complex systems or unclear and they’ve lost money and they’re afraid to pull the trigger or they intuitively trade off the system and it’s hard to even to determine whether the system is viable, because they have introduced so many psychological variables into it. The other piece of it is – and oh we don’t have much time, is how we look at strategies, I like to flip strategies on their head. But not by looking at what strategies can I use, but what is the quality of the market right now and to focus on that and that is a whole other hour of itself, but there is just so much for new traders and but just to start simple and start training your brain to create these new neural patterns that you can build on as you get more complex.
[55:52]Houston: And then when do you start developing the psychology part of trading, does that sort of become kind of common sense once you start to see how things react to you system and managing trade plan and how compliant you are; or is it that you have to kinda stumble into it?
[56:04]Both talking and laughing together
[56:17]Rich: One hundred percent of trading is psychological and especially for the independent non-algorithmic trader so as a result that’s the biggest influence and that I believe is where our attention needs to be – the strategies, the methodologies, the markets – they can all come later once we’ve got our mind sets right, the rest is fairly easy.
[56:35]Houston: Great and we are running low on time so we are just going to ask for a couple quick questions for you as we look to share just one more tactic to traders. What would you advise to traders who are having real issues, you know they have a strategy set up – they’ve defined it, it’s pretty simple but they are still having a real issue with compliance and they just can’t seem to follow the signals? What would you advise that person? Do you have ant tips or tactics?
[57:00]Rich: I have tried to undo some decisions I made in the past and it’s really difficult. You know to go back in time and redo it, it’s just really hard because the time machines are expensive and they’re not that ([57:14]Houton: reliable). And I’ve tried to make decisions in the future for myself, so going into the future and making those better decisions so again that’s really difficult, but I can make a decision right now, right now, right now so the important focus is to speak in the now and be aware of everything and bring those awareness to this moment where it is relatively easy to make new behaviors. So just focusing on the now, being aware of it, being aware of the voices in your head – your physiology and being aware of hesitation; that’s interesting I’m hesitating before I make this trade; you know there is something in there that has positive intent for me again rapport with yourself, be curious about it and letting it be. Because if you can just let yourself be and accept all those parts eventually they will start to evolve on their own as versus the two storey nut house where you try to discipline yourself.
[58:16]Houston: I like that, that’s great advice, but just one more question. You talked about John Coates’ book about The Hour between Dog and Wolf. Are there anymore related trading books or any other related material that you will recommend traders to read up on?
[58:31]Rich: Mark Douglas is good, Steenbarger is good and there are just a lot of great books. So just stay on, beware when a coach tells you that you need more discipline. That means, red flag, they really, they are buying into the bifurcation of your brain, which is a two storey nut house and I think that for me and my life – let’s forget about trading for a moment but let’s just look at our lives. How do we want to live our lives, if we are fighting ourselves how can we love others? If we accept and love ourselves and notice ourselves and be curious about ourselves – we can now transfer that same feeling to others. My relationship with my wife and kids has improved immensely as I learn to love myself, as I learn to accept myself; I am able to accept them. And as a result when people are around me I am much more attractive, I am much more engaging, I’m a better salesman as I have stopped fighting myself and have accepted all my parts. Wow, what a change it can be for everyone as we move toward that place of self-kindness, self-acceptance and allow ourselves to just build that rapport so that all parts of ourselves are working together.
[59:58]Houston: Well said; we don’t need to beat ourselves up traders, that part of the business but we don’t have to reinforce that by building on beliefs and mindsets around that; what a great way to end things. So Rich, I just want to thank you again for today’s call so many great nuggets. What’s the best way for people to stay in contact with you, if they like what you said, how can they keep in contact with you, where can they engage you? Where can people follow you?
[60:24]Rich: Rich at mind muscles dot com, plural rich at mind muscles dot com. Or you can go to mind muscles for trader’s dot com. And mind muscles for traders, I love talking to almost everyone, I love meeting new traders, I love talking to new people because sometimes in ten minutes I’ve had dramatic shifts because people have shifted just the way they have looked at the problem. So feel free to contact me we have online courses, we have recordings, we have boot camps, we have private coaching. So I’m happy to engage people in terms of their budget, in terms of their needs, and I’m always willing to talk to somebody to figure out how they can improve their lives cause that’s where my heart is. I come from this and see people changing their lives this is just so thrilling to me; I just love that and that’s a big part of what I get out of this.
[61:02]Houston: I appreciate your work, thank you so much Rich.
[61:22]Rich: Ok, take care Houston.
[61:24]Houston: just one more thing before I wrap up – as usual I just want to say we will have a link of all the things Rich talked about here in the show notes, we’ll have a transcript of our call and all the resources will be there as well, so if you want you can go to the trading edge dot org, back slash episode ten and for all the listeners what’s the one big insight you got from today’s podcast. I love to hear, just drop us a line in the comments section. And you know Rich gave us a lot of tactics and ideas today so what would you be willing to try, so take one thing from today, I don’t want this to be just information that no one uses. Try one thing, Rich really layered a lot of stuff so pick one and try it for seven days or thirty days and let us know how that changes your trading.
[62:07]Houston: Thank you again Rich, we really appreciate it today
[62:09]Rich: Thank you Houston; you take care, have a most wonderful day.
[62:11]Houston: You too, take care. Bye bye
mindmusclesfortraders.com – Rich’s training program for traders
Self awareness exercise – Deep dive into the exercise we speak about in the interview
The Hour Between Dog and Wolf: Risk Taking, Gut Feelings and the Biology of Boom and Bust – Book by John Coates on the neuroscience of trading
Trading psychology presentation by Rich-
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