- 2000: Volume 9, No. 6 Mind Over Money: Creating Better Anchors

Why do you trade the way you do and get the results that you get? To answer that question, you would likely discuss the logical reasons that you make decisions. You would describe the signals from your trading methodology, your years of training in the markets, the gut feelings that you get, and the hard-won disciplines, that you have developed. However, these rational and conscious decisions and actions very often fail to answer this all-important question. Instead of heeding conscious commands, much of what we do is driven by unconscious motivations, associations, and signals of which we are completely unaware.

In the past, the popular press has constantly printed articles about how we as humans only use a small fraction of our brain's capacity. The implication was that the rest of the brain that appeared to be unused was available for us to employ if we could only figure out what to do with it. By learning to harness this unused capacity, what geniuses we could become and how successful we could truly be!

Making Associations

However, in recent years, scientists have found that most of that "unused capacity" is actually designated for use as associative faculties. So, in fact, we really are using this unused brain capacity; we are using it in associating one thing with another. When we see one thing, it reminds us of something else. This happens all day long, day in and day out. We associate everything that comes into the field of our five senses with all of the things that we have stored away in our associative storage files.

This ability to associate one thing with another is our way of saving time by figuring out immediately what something is or is like, so we know how to relate to it. In addition, it is a built-in survival mechanism. When we find something that reminds us of nothing else, it is a great revelation and cause for excitement or alarm. If we know how to categorize something immediately, we know instantly whether to fight or run.

For example, when we see a burner on the stove that looks red, we might associate it with our mother's voice yelling to us as children, "Stay away from the burner! You'll get burned!" And maybe, we also associate it with that terrible, painful burn we got when we failed to heed her, and the fact that we spent the summer recuperating instead of playing baseball with our friends.

Creating Anchors

Now, whenever we see a red burner, we have two instantaneous reactions. The first is to pull away from the hot burner. The second is to feel fear and pain. These two reactions, one physical and the other emotional, are associations that we make by reaching into those large memory banks in our brains once thought to be "mental dustbins." These associations are experienced so rapidly and automatically that we may not even be aware of them except that we may feel vaguely uncomfortable.

That red burner now has meaning for us. It has become an anchor. Every time we see it, we anchor ourselves to a set of reactions and associations. We do not question the anchor or its associations unless things keep going wrong for us. For example, if the association we made with that red burner was not pain and fear but pleasure, we would be a card-carrying member of the burn unit at the local hospital. How could that happen? Suppose that instead of feeling upset that you lost the summer to a painful recovery, you were forced to miss school. Instead, you stayed home, watched television, ate ice cream, and were waited on hand-and-foot by your mother, fussed over by everyone and made to feel like a hero. You might feel differently about red-hot burners then.

Many anchors do not have such a traumatic association. Some anchors have very positive associations and produce very positive actions and feelings in us. For example, a positive anchor could be that every time you sit down in your special desk chair and turn on your reading light, you are overcome with a peaceful sense that everything in your life is under control. At that moment, you are able to tackle any problem that comes your way in a relaxed, mature, and effective way. This type of anchor is welcome because it supports your life.

Trading and Anchors

When we understand which anchors we have created in our trading, we will understand why we act and react the way we do and get the results that we do. We can begin to see why we respond to certain signals in a particular way. If those anchors are positive ones, we will move forward. But, if they bring fear, doubt, powerlessness, or greed, we will progress in a much different direction.

Neuro-Linguistic Programming (NLP) is one of the best tools available to study anchors and the role that they play in our lives. As an NLP-trained coach, when a trader comes to me for help, one of the first things that I do is to figure out what his anchors are, both negative and positive.

One of my recent clients named Dan had developed a costly anchor. Dan lost a lot of money by taking a particular type of signal. The fear and pain he experienced during and after these trades had made an indelible impression upon him. As a result, Dan was unable to trade this particular signal. Each time he saw this signal, he reacted as though it were a red-hot burner. Dan's anchor was so powerful that he could not, even if he knew how to, undo this association by himself. This resulted in large losses that only deepened the anchor.

Once we were able to identify the problem, Dan and I were able to undo the negative association with this signal so that he could associate it with potential earnings and no longer react from fear. The result was that Dan was once again making profits in his trading.

At the same time that you want to identify those anchors that are holding you back, you also want to identify those that are moving you forward. Last year, I worked with a highly successful trader who was making a great deal of money. What he wanted was to reach the next level of success. The way to do that was to find what had made him successful to date. We identified which anchors produced successful associations and results and focused on using them. The result was that he significantly increased his profits in one year.

Recognizing Anchors

The first step to creating the right anchors for your trading is to identify the ones that you have now. The following exercise will help you do this. This exercise will require you to stop and notice what is happening every time you take a trade. Pay attention to the specific steps you take and how you feel at each step. If the process is smooth and easy, with no hesitation, and you are consistent about when you take your entries, just keep doing what you are doing. However, if, like too many traders, your entry becomes a tug of war between you and fear or between you and uncertainty, you must note everything that you are doing at that moment so you can make some other choices.

Before we discuss how to recognize what you are doing in making better or different choices, we need to lay a foundation of what is necessary to get to this step. First, you must have a system or methodology that you believe will bring good results if you follow it. If this is not true, return to square one and redo your business plan or create a business plan, if you do not have one. Make certain that you have some sort of testing methodology to create a sense of confidence that you will make money. That being said, I will assume that if you are reading on, it is because the only thing that is keeping you from success are old, negative anchors that you have created as a result of losses or some other psychological issues.

This article is not about handling all psychological issues. It is about changing or recreating anchors that you have established which have trapped you in the same old patterns.

Exercise

1. Recognize what you are physically doing before taking a trade and during a trade. For example, are you sitting down, standing up, are you 10 inches from the screen, on the phone, or picking up the phone? What are you doing?
2. What is your strategy for taking the trade? Do you see a signal, recognize that it is familiar, feel good about it, and take the trade? Hear a voice in your head that is negative, then enter too late? Or, not take the trade at all? Strategies are not always easily recognized by the person who is executing them. However, if you pay close attention and ask yourself the following questions, you should be able to come up with, at least, the location of the stumbling block: What do I do next? What do I think next? What do I feel next?
3. Very often, it is the words that you say to yourself and the result of the negative pictures that you get in your head that creates the anchors. Therefore, you need to pay attention to what you say to yourself, the pictures those sounds create and the action that follows.

Creating a Positive Anchor

Once you have identified your negative anchors, the next step is to change the anchor by changing the sense memory that creates the anchor.

Here is an example of one trader describing what happens when he sets a negative anchor:

• Usually the voice comes at the end of the day, when I have had a bad run or when I am tired.
• I am looking at the chart and my computer identifies an opportunity.
• I am sitting down, leaning forward.
• The voice in my head is deliberate, loud, and fast. It is my father's voice.
• The voice is saying, "Suppose I am wrong—suppose I lose."
• An unresourceful state of fear is located in my gut.

Using this description, here is an example of a way to change the negative anchor:

• Make a rule that you will not trade unless you are in a Peak Performance State.
• Mentally rehearse a particular scenario when this anchor would not allow for winning action.
• Remember when you were in a Peak Performance State and notice where you are now re-creating the feeling. Say one word to describe the feeling, for example, "Confident."
• In your mind's eye see yourself stand up or go into another position or put on a hat when your computer identifies an opportunity.
• When you begin to hear the voice, make it sound like Mickey Mouse, then say "Cancel, Cancel."
• Change the words and voice to say, "I make money when I follow my rules."
• Re-ignite your Peak Performance State by saying, "Confident."
• See yourself taking the trade successfully.
• Continue to mentally rehearse this several times until it becomes automatic.

Conclusion

Each trader unknowingly creates anchors in his trading. Some of these anchors are positive and others are negative. These anchors are powerful, unconscious guides to the trading actions a trader takes and the results that he gets. However, once a trader learns to identify the anchors that he has and the steps required to create new and better anchors, he has the ability to create and select better anchors for himself. These new anchors will tie the day-to-day stimuli around him to the very acts and feelings that empower him to be a highly successful trader.