Your Inner Trader is a **** - How Self Talk Destroys Your Trading
January 12, 2022
A big part of trading is a mental game, but the chances are your mind is working against you.
You might have hoped your inner voice would be on your side during the ups and downs in the markets. Guiding you, providing mental clarity and helping you navigate the uncertainty. But in reality, it’s probably filling your head with negative self-talk, distracting you during big decisions and convincing you you’re nothing more than a worthless gambler.
Luckily I have some good news for you.
There are things you can do to not only stop that negative inner voice but to actually take control of it and turn it in your favour. In this article, you’ll get started with that process by first understanding how negative self-talk affects your trading.
What Is Inner Talk?
Despite all the great advice that we should be living life in the present, this isn’t something we’re biologically built to do.
Of course, it’s a good idea to be more present, but unfortunately, that’s not our brain's default state. Naturally, when our brains are unengaged we revert to thinking about the past and the future.
On average, we spend about 30-50% of our daily awake time in this default state and a lot of that involves being in an internal conversation with ourselves.
It’s been estimated that our internal talk runs at a rate of 4000 to 6000 words per minute. That’s about 30 minutes worth of ‘out loud’ talking at an average speed.
This internal voice does a lot of good for us, but it also causes a lot of harm.
As humans, we are built with a negativity bias and our negative inner talk causes us to narrowly focus on the source of our negativity, excluding everything else.
A study from 2010 found that what participants were thinking about was a better predictor of their happiness than what they were actually doing. So you may even be succeeding at what you’re doing, but if that inner voice tells you it’s no good, you’re still going to be unhappy.
How Your Inner Voice Affects Trading
The funny thing about stress is that it’s actually a good thing.
It’s an adaptive response that helps our body to overcome threatening situations; our fight or flight response.
The problem is when it stops being adaptive and becomes chronic. This will have many negative health consequences and can cause you to become ill.
There are also ways it directly harms your trading.
When experiencing stress, your decision-making is not going to be up to scratch. Your negativity bias will be amplified and you’ll start taking much more significant risks. This can ultimately lead to a bad situation getting exponentially worse.
This is likely to be part of the reason why someone feeling stressed about a losing trade will quickly go into a negative spiral where they panic and add to the loss again and again.
What does this have to do with the negative inner voice?
The main culprit in keeping that stress active was found to be that inner voice!
If we don’t get our inner talk under control, it can sabotage our trading by increasing our stress levels and lead our cells to believe we’re in a hostile situation which causes them to suppress the normal functions that keep us healthy and safe.
How Your Inner Voice Destroys Focus
We’re constantly bombarded with information and stimuli. Our attention helps us filter out irrelevant information so we can focus on what’s important.
Most of our attention is involuntary, like when there’s a loud bang and we turn in the direction of the noise. But as humans, we can also consciously focus our attention like a spotlight on the tasks that need it.
However, when we’re overwhelmed with emotion, our inner voice will cause us to narrow our attention on the source of the negativity. It will exclude most other things except for that particular obstacle.
In most cases, that process will help us overcome the problems we encounter in life. But when it interferes with a learned skill that we’re trying to perform, we may have a big problem on our hands.
How Your Inner Voice Affects Trading Ability
Trading as a whole isn’t an automatic skill, but parts of it are. Sure, it’s not a motor skill like doing a backflip, but automatic behaviours are involved.
When performing learned skills under pressure, your negative inner voice will narrow your attention too much on the individual components of the skill and start to dismantle it.
It will break down the complicated scripts you’ve learned to execute automatically. In other words, it will ‘unlink’ you from the skill.
By over-focusing your attention on the individual parts of the skill rather than the total sum of the parts, you end up experiencing paralysis by analysis.
Your Inner Voice in Terms of Basic Neuroscience
Your executive functions are the foundation of what lets you steer your thoughts and behaviours in the way you want.
They allow you to solve problems, multitask, reason logically and control yourself. This means you’re able to manage work, trading and your everyday life with intelligence, creativity and general competence.
For example, your working memory is part of your executive functions and this allows you to keep relevant information in the present and block out needless information or distractions.
Trading relies on these executive functions since it requires a lot of focus and concentration.
The problem is, your executive functions have limited capacity.
Our brains will automatically clear things out of the way to save bandwidth for our executive functions. This is why we form habits; they’re automatic solutions to recurring problems we encounter. It’s also why we have strange quirks, such as our tendency to default to additive solutions rather than subtractive ones.
Our brain operates in a way that tries to clear things out of the way to leave resources for our executive functions.
Yet, our negative inner voice manages to get through and cause problems.
That negative inner voice takes up neural capacity, as it gets us narrowly focusing on the negative source of the inner dialogue. As a result, this negative inner voice jams our executive functions. It stops us from performing focused tasks, as we’re now dealing with a ‘dual task’.
The outcome is that your attention gets divided and blurred. Your working memory is impacted and your ability to trade at your best is destroyed.
So it’s clear negative self-talk is a big issue. The big question is how you can overcome it. This is exactly what we’ll be covering in part two.
The Rate of Inner Speech (1990) - Rodney J. Korba
Spontaneous Thought and Goal Pursuit (2011) - Klinger, Koster and Marchetti
Wandering Mind Is an Unhappy Mind (2010) - Killingsworth and Gilbert
Why Do Athletes Choke Under Pressure? - Beilock and Gray
Choke (2011) - Sian Beilock
Anxiety and Cognitive Performance (2007) - Eysenck et al.
Anxiety and Working Memory Capacity (2016) - Tim Moran