Do Traders Have Free Will?

Every day people are fighting with many competing desires, that are ruled by mutually incompatible goals and aspirations: you want to lose weight, but crave a pizza, you want to exercise after work, but feel too exhausted and just want to switch off watching TV with a glass of wine, you want to quite smoking, but eventually give in to the longing to take a deep long breath filled with smoke.

As a trader you face the dilemma that you want to let the profitable trade run, yet feel the urge to take profits now; you want to be disciplined, yet hang on to losing trades and you impulsively jump into a trade, giving in to your urges and temptations, not knowing why you find yourself unable to resist, even though you are fully aware of the often devastating consequence of large financial losses looming if you don’t close out your losing trade now.

Most traders believe they should know and behave better than that, be disciplined and patient, and exercise better judgement by overcoming short term desires and following long-term goals. Not being able to overcome their self-sabotaging behavior feels deeply personal to them. If that is you, the next phase is, that you begin reading self-help books, look for new trading systems and study even harder. But after months or even years of effort you are still no closer to being the trader you want to be. You tried to change your habits, yet the books still fail to make an impact and you still can’t figure out why you encounter so many obstacles in yourself. These experiences suggest that there must be more to trading success than knowledge and willpower and the question beckons: Do you really have the free will to think any other way? To act free from compulsions and desires and make prudent trading decisions?

In my experience, you as a trader beat yourself up for something that is not your fault! Traders, who believe they have free will in their trading fail to understand that they are not the conscious authors of their self-sabotaging feelings, thoughts and actions. Think about it:

Where Does Impulsive Behavior Arise From?
Think about it, where do your thoughts and intentions, lack of discipline, and lack of patience come from? Where do urges and temptations to jump into the market or take profits too early or the resistance to take a loss get formed? You did not pick your parents or the time and place of your birth. You didn’t choose your gender or most of your life experiences. You had no control whatsoever over your genome or the development of your brain. And now your brain is making choices based on preferences and beliefs that have been hammered into it over a lifetime – by your genes, your physical development since the moment you were conceived, and the interactions you have had with other people, events and ideas. Where is the freedom in this? Yes, you are free to do what you want, but where did your desires come from?

Professor Peter Bossaerts from the Brain, Mind and Markets Institute at Melbourne University used MRI scans and discovered that a trader’s brain shows activity in the pre-frontal cortex well before the trader consciously acts on a decision. The pre-frontal cortex is the area in the brain that is responsible for the control of emotions and behavioral impulses. This fact that the brain shows activity before thoughts come to the conscious awareness of the trader, proves that no one has the freedom of will to the extend they thought they had. Lack of patience and discipline emerge from background causes of which the trader is unaware and over which they cannot exert any conscious control, and hence are not to be blamed for.

I want traders to know this:”It is not your fault! What you experience is normal! Every trader fights with urges and temptations, there is nothing wrong with you and you are not alone!”Your choice to take a trade or not, is determined by a pattern of neural activity. The trading process can be reduced to a serious of impersonal events: neurotransmitters are bound to their receptors, muscle fibers contract, and the trader clicks the mouse button to enter or exit the trade. The mind is constantly influenced by the world around them and the world within them. Neural activities are caused by genes, cultural and environmental conditioning, ranging from childhood experiences in the past to lack of sleep in the present, influencing mental and physical activities. These manifest in neurophysiological processes that unconsciously influence your decision-making process in trading.

So, essentially your thoughts, urges and temptations are determined by multiple causes and influences. Decisions, intentions, efforts, goals and willpower are causal states of the brain, leading to specific behaviours over which you ultimately have no control.

How To Take Control of Impulsive Trading Behavior

Hope for the future requires an honest account of the past. It is the understanding of your past conditioning and environmental stimuli that give you great insights into how you are likely to behave in the future. Emotional turmoil can undermine the best intentions of the mind. The key to taking control of your neural processing is the fact that there is freedom in interpreting and re-interpreting the meaning of life’s occurrences. Different ways of thinking have different consequences and there are paths towards making wiser choices.

It is not the impulses you can change but how to deal with it. What does that mean: Some thoughts are depressing, dis-empowering and keep you stuck in the self-sabotaging loop, others are inspiring and help you to progress and change your behavoural patterns. Losing a trading account can be considered a ‘failure’ and accompanied with merciless self-loathing and regretting the past, or it can be viewed as feedback that something is missing that is crucial to future success.

So, free will lies not in eliminating urges and temptations in the present, as this is pre-determined by the past. The freedom lies in the interpretation of these and consciously choosing the subsequent behavior. Acknowledging that you don’t really have free will in the present, actually increases your chance of freedom for the future, because now you realise your hopes, fears, and neuroses are less personal and permanent. It doesn’t matter how you have thought or behaved for vast stretches of time in the past. A creative change of inputs to the mental system creates new neural pathways – learning new skills, forming new relationships, adopting new habits of attention – and may radically transform your trading life.

In day to day life, knowing that you want coffee over tea is all you need to function. You don’t need to know why you choose one over the other. A behavior like trading however, requires conscious deliberation and sustained effort at every turn. Becoming sensitive to the background causes of the thoughts and feelings from the present allow for greater creative control over the future.

It’s one thing to give in to an urge to take profits too early, it’s another to realise that this behavior may have been caused by low blood sugar, lack of sleep or previous unpleasant experiences. Impulsiveness would become nothing more than a nutritional deficiency. And now with that new insight the trader can take charge of their trading destiny. A bit of food, a good night’s sleep or a new belief system may be all that is required to make better trading decisions.

Three Steps To Taking Back Your Control:

1. Stop beating yourself up and resisting the urges and temptations when they creep up. What you resist persists! That judgmental approach is exactly what keeps you stuck!

2. Accept that mistakes and emotional and mental pitfalls are part of every trader. You are not special, you are not a failure (okay you are not a success as yet either), you are just going through challenges every trader experiences.

3. Most traders look at the more experienced traders and think ‘No way, I could never be like this’. Well, if you think like that, you won’t We all have been through the same challenges you are right now. Beating yourself up, idealising more experienced traders etc. is what we call ‘dysfunctional’, when even your Number 1 fan (you) is not supporting you, how can you have a chance of success?

4. Don’t expect your family and friends to support you. How can they support you if you don’t even support yourself? Start supporting you, cheering yourself on for being so brave to change your life to the better and dealing with all the challenges that come with it.

It is not your past that influences your future. Your past influences your present. It is your present new insights and understandings that influence your future behavoiur that creates new and better trading results.

The good news is that any efforts to improve matter and you can change.

With a toast to your trading profits