by Mark Douglas
This kind of unfortunate experience is certainly not typical, but it’s not that uncommon either. I chose it for two reasons: First, most people can relate to it in some way, either from their own direct experience or through the experience of someone they know. Second, as we analyze the underlying dynamics of this experience from an energy perspective, we’re going to learn about 1) how our minds are designed to think, 2) process information, 3) how these processes affect what we experience and 4) our ability to recognize new possibilities. I know this may seem like a lot of insight from just one example, but the principles involved apply to the dynamics beneath virtually all learning.
As a result of being physically and emotionally traumatized, the little boy in our example now has a memory and one distinction about the way dogs can express themselves. If the boy’s ability to remember his experiences is normal, he can store this incident in a way that represents all of the senses the experience had an impact on: For example the attack can be stored as mental images based on what he saw, as well as mental sounds representing what he heard, and so on. Memories representing the other three senses will work the same way.
However, the kind of sensory data in his memory is not as important as the kind of energy the sensory data represents. We basically have two kinds of mental energy: positively charged energy, which we call love, confidence, happiness, joy, satisfaction, excitement, and enthusiasm, to name a few of the pleasant ways we can feel; and negatively charged energy, representing fear, terror, dissatisfaction, betrayal, regret, anger, confusion, anxiety, stress, and frustration, all representing what is commonly referred to as emotional pain.
Because the boy’s first experience with a dog was intensely painful, we can assume that regardless of what senses were affected, all of his memories of this experience will be in painful, unpleasant-feeling, negative energy. Now, what effect will this negatively charged mental energy have on his perception and behavior if and when he encounters another dog? The answer is so obvious that it may seem ridiculous even to ask, but the underlying implications are not obvious, so bear with me. Clearly, the moment he comes into contact with another dog, he will experience fear.
Notice that I used the word “another” to describe the next dog he has any contact with. What I want to point out is that any dog can cause the boy to feel fear, not just the one that actually attacked him. It won’t make a bit of difference if the next dog he comes into contact with is the friendliest dog in the world, one whose nature is only to express playfulness and love. The child will still be afraid, and furthermore, his fear could quickly turn to unrestrained terror especially if the second dog (seeing a child and wanting to play) attempts to approach him.
Each of us has at one time or another witnessed a situation in which someone was experiencing fear, when from our perspective there wasn’t the least bit of danger or threat. Although we may not have said it, we probably thought to ourselves that this person was being irrational. If we tried to point out why there was no need to be afraid, we probably found that our words had little, if any, impact.
We could easily think the same thing about the boy in our example, that he is just being irrational, because it’s clear from our perspective that other possibilities exist than the one his mind has focused on. But is his fear any less rational than, let’s say, your fear (or hesitation) about putting on the next trade, when your last trade was a loser? Using the same logic, a top trader would say that your fear is irrational because this “now moment” opportunity has absolutely nothing to do with your last trade. Each trade is simply an edge with a probable outcome, and statistically independent of every other trade. If you believe otherwise, then I can see why you’re afraid; but I can assure you that your fears are completely unfounded.
PERCEPTION- AND RISK
As you can see, one person’s perception of risk can easily be perceived as irrational thinking by another. Risk is relative, but to the person who perceives it in the moment, it seems absolute and beyond question. When the child encountered his first dog, he was bubbling with excitement and curiosity. What is it about the way our minds think and process information that could automatically flip the boy into a state of fear the next time he encounters a dog, even if it’s months or years later? If we look at fear as a natural mechanism warning us of threatening conditions, then what is it about the way our minds function that would automatically tell the boy that the next encounter with a dog is something to be afraid of? What happened to the boy’s natural sense of curiosity? There is surely more to learn about the nature of dogs than this one experience has taught him, especially in light of the fact that our minds seem to have an unlimited capacity for learning. And why would it be virtually impossible to talk the boy out of his fear?
THE POWER OF ASSOCIATION
As complex as these questions may seem at first glance, most of them can be answered quite easily. I’m sure many of you already know the answer: Our minds have an inherent design characteristic that causes us to associate and link anything that exists in the external environment that is similar in quality, characteristics, properties, or traits to anything that already exists in our mental environment as a memory or distinction. In other words, in the example of the child being afraid of dogs, the second dog or any other dog he encounters thereafter, doesn’t have to be the dog that attacked in order for him to experience emotional pain. There just has to be enough of a likeness or similarity for his mind to make a connection between the two.
This natural tendency for our minds to associate is an unconscious mental function that occurs automatically. It’s not something we have to think about or make a decision about. An unconscious mental function would be analogous to an involuntary physical function such as a heartbeat. Just as we don’t have to consciously think about the process of making our hearts beat, we don’t have to think about linking experiences and our feelings about them. It’s simply a natural function of the way our minds process information, and, like a heartbeat, it’s a function that has a profound effect on the way we experience our lives.
I’d like you to try and visualize the two-way flow of energy that reverses the cause-and-effect relationship that will make it difficult (if not impossible) for the boy to perceive any other possibilities than the one that’s in his mind. To help you, I’m going to break this process down into its smallest parts, and go through what happens step by step. All of this may seem a bit abstract, but understanding this process plays a big part in unlocking your potential to achieve consistent success as a big trader.
First, let’s get right down to the basics. There’s structured energy on the outside of the boy and structured energy on the inside of the boy. The outside energy is positively charged in the form of a friendly dog that wants to express itself by playing. The inside energy is a negatively charged memory in the form of mental images and sounds that represent the boy’s first experience with a dog.
Both the inside and the outside energy have the potential to make themselves felt on the boy’s senses and, as a result, create two different kinds of situations for him to experience. The outside energy has the potential to act as a force on the boy in a way that he could find very enjoyable. This particular dog expresses behavior characteristics like playfulness, friendliness, and even love. But keep in mind that these are characteristics that the child still has not experienced in a dog, so from his perspective they don’t exist. Just as in the price chart example I presented earlier, the child won’t be able to perceive what he hasn’t yet learned about, unless he is in a state of mind that is conducive to learning.
The inside energy also has potential and is just waiting, so to speak, to express itself. But it will act on the boy’s eyes and ears in a way that causes him to feel threatened. This in turn will create an experience of emotional pain, fear, and possibly even terror.
From the way I’ve set this up, it may seem as if the boy has a choice between experiencing fun or experiencing fear, but that’s really not the case, a
t least not in the moment. Of the two possibilities that exist in this situation, he will undoubtedly experience the pain and fear, instead of the fun. This is true for several reasons.
First, as I’ve already indicated, our minds are wired to automatically and instantaneously associate and link information that has similar characteristics, properties, and traits. What’s outside of the child in the form of a dog, looks and sounds similar to the one that’s in his mind. However, the degree of similarity that is necessary for his mind to link the two is an unknown variable, meaning I don’t know the mental mechanism that determines how much or how little similarity is required for our minds to associate and link two or more sets of information. Since everyone’s mind functions in a similar way, but, at the same time is unique, I would assume there is a range of tolerance for similarity or dissimilarity and each of us has a unique capacity somewhere within the range.
Here’s what we do know: As this next dog comes into contact with the boy’s eyes or ears, if there is enough similarity between the way it looks or sounds and the dog that’s embedded in his memory, then his mind will automatically connect the two. This connection, in turn, will cause the negatively charged energy in his memory to be released throughout his body, causing him to be overcome with a very uncomfortable sense of foreboding or terror. The degree of discomfort or emotional pain that he experiences will be equivalent to the degree of trauma that he suffered as a result of his first encounter with a dog.
What happens next is what psychologists call a projection. I’m going to refer to it simply as another instantaneous association that makes the reality of the situation from the boy’s perspective seem like the absolute, unquestionable truth. The boy’s body is now filled with negatively charged energy. At the same time, he is in sensory contact with the dog. Next, his mind associates whatever sensory information his eyes or ears perceive with the painful energy he’s experiencing inside himself, which makes it seem as if the source of his pain and fear is the dog he is seeing or hearing in that moment.
Psychologists call the dynamics of what I just described a projection because, in a sense, the boy is projecting the pain he is experiencing in the moment onto the dog. That painful energy then gets reflected back to him, so that he perceives a dog that is threatening, painful, and dangerous. This process makes the second dog identical in character, properties, and traits to the one that is in the boy’s memory bank, even though the information the second dog is generating about its behavior is not identical, or even similar, to the behavior of the dog that actually attacked the boy.
Since the two dogs, the one in the boy’s mind and the one outside of the boy’s mind, feel exactly the same, it’s extremely unlikely the boy will be able to make any type of distinctions in the second dog’s behavior that would suggest to him that it is any different than the one in his mind. So, instead of perceiving this next encounter with a dog as an opportunity to experience something new about the nature of dogs, he perceives a threatening and dangerous dog.
Now, if you think about it for a moment, what is it about this process that would indicate to the boy that his experience of the situation was not the absolute, unquestionable truth? Certainly the pain and fear that he experienced in his body was the absolute truth.
But what about the possibilities that he perceived? Were they true? From our perspective, they weren’t. However, from the boy’s perspective, how could they be anything but the true reality of the situation? What alternatives did he have? First, he can’t perceive possibilities that he hasn’t learned about yet. And it is extremely difficult to learn anything new if you’re afraid, because, as you already well know, fear is a very debilitating form of energy. It causes us to withdraw, to get ready to protect ourselves, to run, and to narrow our focus of attention—all of which makes it very difficult, if not impossible, to open ourselves in a way that allows us to learn something new.
Second, as I have already indicated, as far as the boy is concerned, the dog is the source of his pain, and in a sense this is true. The second dog did cause him to tap into the pain that was already in his mind, but it was not the true source of that pain. This was a positively charged dog that got connected to the boy’s negatively charged energy by an automatic, involuntary mental process, functioning at speeds faster than it takes to blink an eye (a process that the boy has absolutely no awareness of). So as far as he’s concerned, why would he be afraid if what he perceived about the dog wasn’t the absolute truth?
As you can see, it wouldn’t make any difference how the dog was acting, or what someone might say to the contrary about why the boy shouldn’t be afraid, because he will perceive whatever information the dog is generating about itself (regardless of how positive) from a negative perspective. He will not have the slightest notion that his experience of pain, fear, and terror was completely self-generated.
Now, if it’s possible for the boy to self-generate his own pain and terror and, at the same time, be firmly convinced that his negative experience was coming from the environment, is it also possible for traders to self-generate their own experiences of fear and emotional pain as they interact with market information and be thoroughly convinced that their pain and fear was completely justified by the circumstances? The underlining psychological dynamics work in exactly the same way.
One of your basic objectives as a trader is to perceive the opportunities available, not the threat of pain. To learn how to stay focused on the opportunities, you need to know and understand in no uncertain terms the source of the threat. It’s not the market. The market generates information about its potential to move from a neutral perspective. At the same time, it provides you (the observer) with an unending stream of opportunities to do something on your own behalf. If what you perceive at any given moment causes you to feel fear, ask yourself this question: Is the information inherently threatening, or are you simply experiencing the effect of your own state of mind reflected back to you (as in the above illustration)?
I know this is a difficult concept to accept, so I’ll give you another example to illustrate the point. Let’s set up a scenario, where your last two or three trades were losers. You are watching the market, and the variables you use to indicate that an opportunity exists are now present. Instead of immediately executing the trade, you hesitate. The trade feels very risky, so risky, in fact, that you start questioning whether this is “really” a signal. As a result, you start gathering information to support why this trade probably won’t work. This is information you normally wouldn’t consider or pay attention to, and it’s certainly not information that is part of your trading methodology.
In the meantime, the market is moving. Unfortunately, it is moving away from your original entry point, the point at which you would have gotten into the trade if you hadn’t hesitated. Now you are conflicted, because you still want to get in; the thought of missing a winning trade is painful. At the same time, as the market moves away from your entry point, the dollar value of the risk to participate increases. The tug of war inside your mind intensifies. You don’t want to miss out, but you don’t want to get whipsawed either. In the end, you do nothing, because you are paralyzed by the conflict. You justify your state of immobility by telling yourself that it’s just too risky to chase the market, while you agonize over every tic the market moves in the direction of what would have been a nice winning trade.
If this scenario sounds familiar, I want you to ask yourself whether, at the moment you hesitated, were you perceiving what the market was making available, or perceiving what was in your mind reflected back to you? The market gave you a signal. But you didn’t perceive the signal from an objective or positive perspective. You didn’t see it as an opportunity to experience the positive feeling you would get from winning or making money, but that’s exactly what the market was making available to you.
Think about this for a moment: If I change the scenario so that your last two or three trades were winners instead of losers, would you have
perceived the signal any differently? Would you have perceived it more as an opportunity to win than you did in the first scenario? If you were coming off three winners in a row, would you have hesitated to put that trade on? Very unlikely! In fact, if you’re like most traders, you probably would have been giving very strong consideration to loading up (putting on a position much larger than your normal size).
In each situation, the market generated the same signal. But your state of mind was negative and fear-based in the first scenario, and that caused you to focus on the possibility of failure, which in turn caused you to hesitate. In the second scenario, you hardly perceived any risk at all. You may even have thought the market was making a dream come true. That, in turn, would make it easy, if not compelling, to financially overcommit yourself.
If you can accept the fact that the market doesn’t generate positively or negatively charged information as an inherent characteristic of the way it expresses itself, then the only other way information can take on a positive or negative charge is in your mind, and that is a function of the way the information is processed. In other words, the market doesn’t cause you to focus on failure and pain, or on winning and pleasure. What causes the information to take on a positive or negative quality is the same unconscious mental process that caused the boy to perceive the second dog as threatening and dangerous, when all the dog was offering was playfulness and friendship.
Our minds constantly associate what’s outside of us (information) with something that’s already in our mind (what we know), making it seem as if the outside circumstances and the memory, distinction, or belief these circumstances are associated with are exactly the same. As a result, in the first scenario, if you were coming off two or three losing trades, the next signal the market gives you that an opportunity was present will feel overly risky. Your mind is automatically and unconsciously linking the “now moment” with your most recent trading experiences. The link taps you into the pain of losing, creating a fearful state of mind and causing you to perceive the information you’re exposed to in that moment from a negative perspective. It seems as if the market is expressing threatening information, so, of course, your hesitation is justified.