mental toughness – 2nd Skies Trading

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Is The Stock Market Going To Crash From the Coronavirus?

Less than two weeks ago, a course member asked me the following question (click to enlarge):

Here was my response:

“You have to be prepared for bigger pullbacks & volatility than usual. You have to keep staying short till you see a broad base of instruments bottoming and showing a transition in the price action and order flow” – from my members coaching session Feb 14th.

This week, we got a taste of this volatility, and there is a decent chance the selling + volatility may just be starting. Hundreds of my clients and friends have been asking me, “Is the stock market about to crash?”

In this trading article, I’m going to discuss the coronavirus, the increase in volatility, what’s happening the financial markets, is the stock market going to crash and how I’m trading it.

So grab the popcorn and a good beer as we’re going to get into the thick and thin of it.

Coronavirus + Volatility = Panic!

Let’s get into some stats around this week’s incredible sell off in the global markets. This week’s drop in the S&P 500 was the fastest 10%+ drop IN HISTORY!

Exhibit A: The Fastest Correction (10%) in History (S&P 500)

In the last 7 trading days starting with February 20 – 28 (from open to close) lost 440 points shedding 12.9% while global markets puked $5 trillion in market cap.

Translation: In the last 7 days, we lost the GDP of the UK & India combined! (source: investopedia)

Also of note, the fastest and second fastest 10% declines (from peak) have happened within this decade.

Of all the decades going back to the 40’s, the 60’s and 90’s had 5 of the fastest 10% corrections in history. This decade is in 2^nd place with 4 of them (see below)

Also of note is 3 of the last 5 of these fast 10% corrections have happened in the last two decades and 7 out of 10 in the last 30 years.

Translation: these corrections are happening faster in more recent history than before.

What is also important to note is how low volatility was in the S&P 500 until the corona virus started to become prevalent in the markets (see below).

We had 71 days of super low volatility and many 5 day stretches where the markets never dropped more than .5% (green box)

Then we had a period of 17 days with mildly increasing volatility when the coronavirus was becoming more of an issue.

This culminated in a 7 day explosion of volatility last week erasing months of gains in a flash.

This is one of the most important trading lessons I’ve learned over 20 years. That markets can and often do sell off faster than the run ups.

The reason why this can happen has to do with market psychology and behavioral finance.

In a long bull trend, the general emotions are complacency, confidence and greed. This has to do with simple biology.

We are wired as humans to react more rapidly to stimuli which threaten our existence. Slow non-volatile bull markets don’t threaten us, so we don’t often react with alacrity at a small sell off.

The emotions behind a bear market or extreme selloff is fear, worry and panic. Hence a sharp selloff and quick loss in our portfolio is threatening, thus leading to fast reactions (SELL & SELL EVERYTHING!).

This is why markets can sell off far more quickly then on the way up.

There is a reason why the fastest week-on-week changes in the S&P 500 (%) are during crashes vs bull runs (see below).

The big moves to the downside (week-on-week %) are simply larger and more frequent.

This also means big week-on-week changes create a feedback loop for panic selling to continue.

What this means for investors and traders is we make quicker trading decisions during bear vs bull markets.

Now in comparison to the 2008 financial crisis, the S&P 500 lost 58% from Oct 07’ – Mar of 09’ over a period of 525 days peak to trough (image below).

We’ve already lost 12.9% (about one-fifth of the 08’ drop) in just 7 days!!!

And if we happen to get another 58% decline, we’ll be looking at an S&P 500 around 1400 by the time this is over.

Translation: this selloff has the potential to be one of the most rapid declines in history. And the speed at which we’ve lost so much so fast last week could create more selling from investors globally.

Going from a low volatility environment to a high one this quickly will create stronger biological reactions, hence the formula Coronavirus + Volatility = Panic!

Is The Stock Market Going to Crash?

Short answer: I don’t know. I don’t think we’re there yet.

We’ve had many 12+% declines in recent history (4 total) since 2016 with a 12.33% decline (Jan 18’) being the smallest and a 21.46% decline the largest (Nov 18’).

I think once we start seeing a 25% drop or larger, investors along with major institutions (Fed, Trump Admin) will start to really panic.

Combine this with the fact we’re in an election year and the last thing Trump wants is a stock market collapse.

In some sense, it’s even a bigger issue for Trump as he campaigned on his business skills, and has proudly taken credit many times about this being the “Greatest Economy Ever” pretty much anytime we’ve posted all time highs over the last few years.

Should we get a strong selloff next week and start reaching the -20% levels, expect a govt stimulus to come which (depending upon how its setup) could create a short term strong bounce.

But here’s the kicker…

Let’s say the coronavirus continues to spread from country to country with more and more population centers becoming infected.

Is a Fed rate cut going to inspire you to travel? No.

Will a Fed rate cut give you the confidence to go out in public and risk getting infected with a potentially deadly disease? No.

And this is how this threat to the markets is different than the 2008 great financial crisis.

The 08’ crisis was an economic one (over-leveraged exposure to housing) which was able to spread globally.

The coronavirus isn’t an economic issue, it’s a biological and containment issue.

Economic policies will be more effective (like in 08’) simply because it was more of a 1-1 relationship (economic problem & an economic solution).

However, economic stimulus isn’t going to change a biological health scare because the relationship isn’t a 1-1 match.

My sense tells me economic stimulus packages will be far less effective vs the actual biological and crisis management of the issue.

That is where IMO traders and investors globally should be looking for signs of a turnaround should this selloff get worse.

We haven’t gotten to the ‘Oh-Sh!t’ levels yet. Once we start to get into a 20-25% decline, then I think you’ll start to see real panic in the markets.

How to Trade & Protect Your Long Term Investments During This Time?

I wouldn’t think of buying anything till at least we see the market open this week.

How the Asian markets open will likely give a strong tell as to how the week will go.

Hence before you go rushing into what you think might be ‘cheap’ prices compared to recent history, wait to see how the market opens.

We’ve only had a few instances of the markets selling off for 3 weeks in a row since Dec 15’ (5 total) and none of them shed this much value.

For now, there are various ways you can protect your long term long term plays if you think there is more downside:

Trading Options

1) collect premium by selling calls on stocks you are holding long term

2) bear put spreads

3) buy outright puts on your long stock positions

Trading Forex

The currencies which have most benefited from this 7 day decline are JPY, CHF, EUR & USD while EM currencies suffered heavily (MXN, RUB, ZAR).

The JPY basket (JPY vs USD, EUR, GBP, CAD & AUD) gained 2.5% last week (image below).

Meanwhile the EM basket (USD vs CNH, MXN, ZAR & TRY) lost 2.6% over the same period (image below).

The EM currencies which suffered the most losses last week were MXN vs EUR (-9%), RUB vs EUR (-8.8%), RUB vs JPY (-9.5%), MXN vs JPY (-9.6%), CHF vs MXN (9.5%), & the CHF vs RUB (8.8%).

If the virus continues to spread, expect further capital to move into these safe haven currencies vs EM betas.

It’s important to note many of these currencies ran into some key support & resistance levels, rebounding a bit to end the week.

Forex currencies tend to overshoot key levels during major crisis, so if we see them blow past many of the current key support & resistance levels, we could be reaching all time highs or lows (EURZAR, USDRUB, USDMXN) on the quick.

I’ve been trading many of these pairs on the 5 minute charts trading intraday breakout setups with two positions.

I’d suggest using the first position to hit a medium term target while letting the second one run and capture as much alpha as possible till momentum changes manifest in the short term price action.

But this is only recommended if you are doing day trading.

Trading Stocks

If you feel an uncontrollable urge to buy stocks, I suggest the following plays:

Watch the market leaders who exhibited strength heading into the selloff and performed well on Friday. If they continue to exhibit strength, there may be a potential buy, but watch the price action:

1) Microsoft (MSFT) which gained 7.7% on Friday

2) Facebook (FB) which climbed 6% on Friday

3) Nvidia (NVDA) grabbing a 12.6% gain to end last week

4) If you don’t mind trading nano, micro and small caps, take a look at pharma stocks which have done well recently: NVAX +129% low to high last week, MRNA +96%, and for the truly brave micro cap trader CODX +591% last week low to high (big cajones required 😉)

Novavax (NVAX) chart below:

1) Sell Airlines (who wants to fly to another country when there’s an outbreak?) – source: bloomberg

NOTE: A more targeted method would be going after airlines in countries where travel bans or warnings are issued.

2) Sell Hotels/Entertainment which is down 20% on the week (same reasons as above)

There’s been a lot of profit taking in commodities, so I’d wait for a change in the short term price action context before getting long (gold and silver in particular).

Wrapping It All Up

Now is not the time to be listening to CNBC analysts, most of whom are not trading. Last week many were all calling stocks ‘cheap’ and in the process getting their a$$’s handed to them.

This is a time to be alert and nimble, using good risk management as the volatility moves on these instruments can wipe out weeks or months of gains if you’re not careful.

Hence trade smaller positions than your usual risk % per trade. Try more ‘proof of concept‘ trades where you put small feeler trades out, and if it progresses, then add on size.

I don’t think the stock market is at its ‘OH SH!T‘ moment yet, but we could get there fast.

I’ve traded now for 20 years and went through 2 major financial crisis (2001 dot.com bust & the 2008 great financial crisis).

The first one I didn’t know what I was doing and performed poorly.

The second one I learned my lesson and killed it.

Traders can make a lot of money if you’re smart and agile, defensive when you need to be and aggressive with precision.

But you’ll need mental toughness to manage your emotions and mindset during these periods.

Do that and you can make a killing. You may not see another time like this for years as its been over 12 since the GFC of 08′.

Hence, avail yourself of the opportunity, be patient, allow for more space in your stop losses due to the increased volatility, and trade with the most impulsive moves till you see changes in the price action and order flow across a broad base of instruments.

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This was a monster article that took hours upon hours to write and publish. Please make sure to pay it forward by sharing it with others on social media and leaving your feedback below.

Until then, good luck trading and I’ll see you out there in the field.

Trading Strategies

Trading Psychology: 5 Unique Insights from 10,000 Mantras

4 hours in, sweat on my forehead, a sore left knee and one feeling of exhilaration, I completed the 10,000^th mantra.

Yes, for over 240 minutes (minus the necessary 1 minute ‘loo break’) I chanted the same 9 Tibetan words 10,000 times in a row.

Personally, I thought it would be a tad easier, but the reality (and surprise) was much more challenging vs. how it appeared ‘conceptually’.

What I learned from sitting on my derrière, all 240+ minutes, reflected back some gems about trading and the mindset of breaking through.

Here are the 5 unique insights I got about trading psychology chanting 10,000 mantras in one sitting.

#1: 2,000 Punches & 1 Month of Meals

I recently started martial arts again (which I’ll be writing about in more detail soon), but am taking Wing Chun classes.

I am NOT taking martial arts because I want to be able to fight well, nor am I taking Wing Chun because I want to be Ip Man 😮

Photo of Ip Man training Bruce Lee

I’m taking it as a mind-body training with the goal of elevating both to the next level.

In my first class, I was practicing the basic punch and it looked sloppy (that’s putting it mildly).

The senior student helping me (who is awesome) said this while working on my punch, “to really get this down, you’ll want to do a lot of punches, like 2,000 punches until the muscle memory is fully wired in.”

It is pretty easy to balk at feeling like you have to do 2,000 punches before you can throw that sucker well.

But if that is what it takes, I’ll do it, and I’ll use the One Month of Meals Method which goes like this:

If you were to walk into your kitchen right now, and right in front of you was all the food you’d eat for an entire month, you wouldn’t feel hungry.

The irony is, you’ll eat that amount of food every month, and already have been for decades. Yet done one meal at a time, it’s quite workable.

And that is how you should approach big projects which require tons of reps.

Trading is no different. I often give my students homework on what they should practice.

One such method is to practice a trading strategy, or even a price action skill to hone their trading and improve their performance.

For this, I suggest Forex Tester 2, which is like the driving range for traders. Below is a good video explaining some basic methods of how you can use Forex Tester 2.

For those interested in getting a discount on Forex Tester 2 – click here.

Now consider the following – most professional golfers hit about 300-500 golf balls a day, either on the course or a driving range.

With that piece of info in your brain, how many reps and practices are you doing per day?

For a good article on what it means to trade like a sniper – click on that link.

Getting back to the practice, while doing my 10,000 mantras, I grouped them into 5 groups of 2,100. This was much more manageable because I’ve done rounds of 2,100 before.

Why 2,100?

When you do a mantra practice like this with high reps, you have what is called a ‘mala’ which is like prayer beads you see in many religions. Below are a couple of mine.

Normally in my tradition, they have 108 beads as do the two on the right (108 being a special number).

I have a smaller mala (blue one on the left) which has 21 beads on it. So for each round of 108 on my main practice mala, I turned the 21 bead mala 1x. Once I completed a full round on that mala, I knew I did 2,100.

Five rotations later, I did 10,500, but only counted 10K because I’m guessing I didn’t do a few quite so well.

If I was counting down, that would be like looking at an entire month of food in front of me.

But breaking it into smaller meals made it more digestible.

So whatever your goal is with trading, break it down into smaller bite-sized chunks, then shoot for those as they become much more manageable.

#2: You Must Challenge Your Self-image to Grow

Your self-image is the overall corpus of how you see yourself. It is the sum of your habits, attitudes and beliefs. It is essentially what you think it is ‘like you’ to do.

Think you’re good at playing basketball? That is part of your self-image.

Think you’re not the best dancer (as I certainly am not)? That is part of your self-image.

Your self-image has boundaries whereby the lower and upper boundaries of your self-image determine your success in trading.

If your self-image was already setup to succeed in trading, you’d already be there.

To change your self-image requires it to be challenged, and it has to be done so via a new self-image which is in direct conflict with your current one.

If you haven’t had the experience of consistently profiting from trading, then currently it is not in your self-image to trade successfully.

GOOD NEWS – YOU CAN CHANGE YOUR SELF-IMAGE!

How do you change your self-image? By challenging it, by finding its limit, by building experiences of going beyond what your self-image thinks it’s ‘like you’ to do.

If you think you cannot do 300 push-ups in a row right now, you’ll need to build up to that. Only until you’ve done it several times will your self-image think it is ‘like you’ to do it.

That is where testing yourself enters the picture.

The self-image will only grow (think expand) in terms of what it can do, through testing & challenging it.

Whatever thoughts enter your mind, whatever doubts, fears, worries, excuses, or moments where you want to quit – that is your current self-image resisting.

It will resist change and want to stay where it is, and this is what you have to fight against.

Hence the formula is simple – if your current self-image doesn’t fully know it is ‘like you’ to trade profitably, you’ll need to expand it till it knows it inside and out.

NOTE: For those wanting to learn strategies and techniques to grow a self-image for successful trading, check out my advanced traders mindset course.

#3: Concentration Oscillates, Coming Back is Key

Go for any long run, or do 1,000’s of reps of anything in a row, and your mind will wander.

Shoot, let’s be honest here – how many paragraphs or lines in this article did you read before you got distracted and thought of something else?

This Sunday, while chanting the mantras, it became appallingly clear an imperfectly trained mind will result in an oscillating level of concentration.

During the 4hr chanting bonanza, my mind cycled across a giant spectrum of concentration, between a zen like focus while walking across a tight-rope 1,000 feet in the air vs. a monkey on crack after eating 9 tablespoons of sugar!

And of course everything in between.

There were definitely periods of being highly focused while others of barely being there.

The point being – unless your mind is perfectly trained, your ability to concentrate will oscillate.

What’s important to note is, the periods of focus aren’t a problem. It’s when you are highly unfocused that the worries, fears and doubts creep in.

Your brain on average produces between 50,000-70,000 thoughts per day. If you aren’t focused or controlling that mental activity, then it is controlling you and coming from your unconscious mind.

Ever been in a trade you initially felt great about, yet all of a sudden, it’s only moved a few pips against you and you feel under a death grip of worry it’s going to stop you out?

That is your unconscious and limiting beliefs taking over your conscious mind, and if you don’t correct it quickly, or know how to deal with it, it will take you underwater.

The key lesson here is to keep coming back. If you have a plan to bring your mind back when it wanders, some sort of mental cue you engage, that method will pay dividends in building this muscle.

By coming back, you train your mind to develop stronger and stronger levels of concentration.

And make no mistake, the science is clear – those who have greater focus and clarity form better memories and make more calculated decisions.

If you practice mindfulness meditation, even after a short period of time, it can re-wire your brain, and improve your concentration.

Better memories = greater pattern recognition while trading and the results from more calculated decisions are obvious to any trader.

Want to increase your edge and profits while trading? Keep coming back.

#4: My Ass Hurts & Why That’s A Good Thing

Ever sit on your rump in one place for 4 hours in a row, moving only once? Doesn’t feel good, eh?

At the end of the 4hrs of chanting mantras, my ass hurt, but in many ways, it was a badge of honor and a good thing.

There is a great story about a Buddhist master and his ass:

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He was at a riverbank saying goodbye to his greatest student with whom he shared everything he knew, experienced and understood.

After a final embrace, he bid his student farewell, who then picked up his backpack, and walked away over a stone bridge to the other side of the river.

Just before the student was finally gone from sight or sound, his teacher called him back.

Walking back to find out why, his teacher’s eyes were clear and penetrating while he said the following, “You being a special student deserve one of my greatest teachings of all. Make sure you cherish this one deeply and never forget it.”

With his student attentive, ready to receive such a great and profound teaching, the master turned around, pulled up his robe, showed his bare ass and said “LOOK!”

“You see this ass? The one with lumps on it from sitting and meditating all these years? You now know what I have gone through to realize what I did – all through persistence.

You need this mindset! This is the essence of what I have taught. Practice without stopping, and it is only a matter of time. Exert yourself with mental toughness and the no-obstacle mindset. Do this until you’ve mastered what you set out to do.”

The first time I read this story, my initial response was laughter wondering what this student was thinking when he saw his master lift up his robe and show his full moon.

But after that moment of humor and imagination, I realized any high level of skill I’ve built in my life has been through tons of practice.

Watch a professional athlete today and you’ll see them practicing more than they are playing. Football players play one game a week and practice for 5-6 days. Basketball players practice at least 3-4x for every game they play.

“The ratio is clear – always practice (and train) more than you perform, no matter what the skill.”

Discipline and an unrelenting practice builds mental toughness, along with a mind that only knows success. Do this and it is only a matter of time before you find the pot of gold waiting for you.

At the end of my 4hr session, my ass hurt. However, in my mind, that was a good thing as it was working towards my commitment and goal.

Hence the question has to be asked – is your ass hurting today?

#5: You’re Either Committed to Succeeding, or Quitting

The stats suggest about 7.5% of all traders accounts at the end of this year will be larger than what they started with.

That may seem daunting, and the number is not exactly enticing. I think one of the problems is there are many people telling you it’s ‘easy’.

Anyone telling you it’s ‘easy’, or portraying images of people sitting on beaches with their ever so light laptops, hands folded behind their backs as they smile with glee, enjoying the lifestyle of a professional trader from some remote beach isn’t being honest.

They are selling a dream, and targeting those of you who do not want to work for it, who want it easy. Essentially they are looking for (no pun intended) easy prey.

Trading is a mental performance discipline, and by default will challenge your mind, brain and mindset to go beyond what it already knows and what habits you already have.

Anytime you push yourself to go beyond what you can easily do now, you’ll run into a little voice, and it’s often a naysayer type voice (negative).

It’s the one that tells you why you cannot, should not, and will not do it. It is great at coming up with excuses, finding reasons why you should take the next off-ramp, how there really is no benefit in crossing the finish line.

The difference between those who break through vs. those who break down, is the former group fights back against that little negative voice.

The latter individual listens to this voice, believes it, and gives into it.

I’ve never met anyone who feels confident about themselves, while continually NOT finishing what they started.

“The strength, confidence and rewards go to those who punch through, who test themselves, experience their limits, and keep going.”

I’ll be completely frank, I had anywhere between 10-20+ moments of that voice popping up in my head, like a dude wearing lederhosen in the middle of the New York Stock exchange, clearly standing out, trying to get my attention.

And let me tell you, he did a pretty convincing dance.

But regardless of what that voice in my 10lb dome said, my mind was resolved from the beginning – that is part of becoming successful.

If you listen to that voice and believe what it’s saying, it will win.

And it is an expert at weeding out half-hearted commitments.

What it really comes down to is – you’re either committed to succeeding, or quitting.

In Conclusion

There is nothing easy about becoming a professional in any skill, let alone trading.

The path to a successful trading psychology and mindset come only through training.

My guess is if you incorporate some (if not all) of these 5 insights into your trading practice (and life), you’ll see the benefits to your performance and profits.

For those wanting to train your mindset, build up your self-image and learn how to pull the trigger, check out my advanced traders mindset course where I teach you how to do this successfully.

With that being said – is your ass hurting today? Are you committed to succeeding?

Please make sure to comment below and share this with anyone you know can benefit from it.

Change The Way You Think, Trading Strategies

Mental Toughness: The Only Way Out is Through

Being the last in a line of 6 kids, my closest brother growing up (Mike) was 2.5yrs older. This translated into him being a lot bigger (and taller) than me.

In my early years, my parents would often go to the movies and leave us home. Back then, cable TV was not like what it is today. After 2pm, there was no more TV, and only 30 channels were available.

Movies were not as ubiquitous as they are today, so many of those would repeat. One such movie was ‘Rocky‘. Ever inspired by such flicks, my brother and I would take all the furniture in the living room, push it to the walls and create a ‘ring‘.

We didn’t have boxing equipment, so we’d dig into our winter gear – grabbing ski hats and two sets of snow gloves. Minutes later we were going 5-10 rounds.

The problem with this scenario was the massive height advantage my brother had. He could simply fire away at range before I could even make contact, let alone cause damage.

This translated into me getting hit first, taking punishment on the way in. I had to fight through before I could start to cash in.

I definitely got knocked down more than he did. But every time I got knocked down, something in me emerged more as the fights went on.

At first it was frustration. This then transformed into anger. However the next step wasn’t an escalation in this line of feeling (which would have been rage).

Instead, I started to embrace the challenge – embrace the fight. I would relish in my abilities to take punishment while keep fighting on. I had to get smarter, learn to endure, and fight through the obstacles.

Without a doubt, I lost many of those battles. But I was determined to get my damage in, and keep on fighting.

Afterwards we’d take off the ski gear, move the furniture back as if nothing had happened. Next in the routine was to look at our faces in the mirror – observing the damage.

None of us said much, we just appreciated these little battles, and whatever scars came with. Why do I share such personal sentiments?

Mental Toughness for Trading

From all the emails & comments I get: the questions, worries, and doubts from struggling traders, I think a strong dose of mental toughness would be a game changer.

This article is going to be a 250 cc shot to kickstart a change in your mindset, build up confidence, and help you see victory.

Before I give my key tips to helping you build mental toughness for trading (and life), I have to share this disclaimer:

I do not claim to be the pinnacle of mental toughness. I experience doubt, worry & fear. Sometimes in these moments, I crack, falter or fall. But I will get up & try again. Often times, my first reaction when things go badly, is to get frustrated. Next I get angry. Luckily, that fuse burns quick and transforms into a particular focus (which I’ll share later).

Disclaimers aside, let’s jump into building your own mental toughness gear to survive and thrive in trading and life.

#1 Coping Is Not the Endgame

There is one trade you can bet on being 100% accurate – that you will encounter obstacles, losses, and setbacks in life and trading.

Most of the trading psychology and mental strategies I see other ‘gurus‘ dish out like microwave psychology meals is to ‘cope‘ with such moments. And herein lies the problem.

“Coping by itself is not the endgame, nor an effective overall strategy for dealing with losses, obstacles & setbacks.”

It is a part of the strategy, but it is only one stage in dealing with mental, emotional or physical stress. You could equate it to treading water among crashing waves when you need to swim for shore.

This leads us to our next wilderness tool to survive and thrive in trading and life.

#2 Embracing the Challenge

The next part of building mental toughness is to embrace the challenge. This means expecting it as being a given, while preparing for it in advance.

Big piles of dog-shit will land right on the front door of our lives, often times when we least expect it. Being prepared will help you step over such moments.

Embracing the challenge = an understanding that discipline & hard work builds a successful mindset.

It means giving up any ‘victim mentality‘. It means the death of you saying such statements as ‘why me?‘, ‘if I only had this, I’d be successful…‘, or becoming religious during a losing trade.

It means not beating yourself down when you make a mistake or things go wrong, which only intensifies our negativity bias in trading, leading to more losses.

We have to be employing a positive mindset when our trades go south and life gives us a gut shot.

Embracing the challenge helps us bring a gun to a knife fight vs. those with a negativity bias. It also leads to the next key step in building mental toughness.

#3 Thriving on Adversity in the Face of Obstacles

Once we’ve embraced the challenges in front of us, we now have a steering wheel to turn this vehicle in the right direction. To complete the turn, we have to shift into a new gear, which means thriving on adversity in the face of obstacles.

I could have easily come up with excuses why I couldn’t beat up my brother. It would have been far more convenient to look for a way out instead of getting punched in the face.

But something inside me said ‘fuck this…I’m going to damn well land my share regardless of how much I take on the way in‘.

Thriving on adversity while facing obstacles flips the coin with our mindset and the blue-light specials peddled as ‘trading psychology‘.

It takes the situation and turns it on it’s head, meaning you now look for solutions instead of focusing on the problems. It eliminates any victim responses which only deflate your self-image, or ability to rally your forces when behind in the game.

What would happen if instead of saying ‘poor me‘, or making excuses in trading, you grabbed the charging bull by its sharp horns and said ‘I’m going to mount you on my wall when this is done‘?

What would that do to your mindset the next time an obstacle got in your way.

Every time you overcome an obstacle, you build trust & confidence in your self-image & abilities.

Every time you give an excuse for why you didn’t succeed, you deflate your self-image.

“Overcoming is the real currency of success.”

Start investing in that – of embracing your obstacles and using them to test yourself as you climb the mountain of success.

#4 Drop the Problem Focused Mindset

Our negativity bias is quite strong in our brains. How strong?

If we were to map out all the neural connections and real-estate in your brain, you’d have 500% more networks dedicated towards a negative bias vs. a positive one (on average).

You can read more about the negativity bias self-image and comfort zone here.

Focusing on the problems only activates this negativity bias even more. It does so via two predictable neurological responses:

1) Your brain will search it’s database for other problems that matched (or were similar) to the current experience

2) Your brain will become more likely to trigger the fight, flight or freeze response

Why does your brain do this?

Regarding the first problem (no pun intended), the brain is a pattern recognition machine. Every input it experiences will be referenced for similar data points in our memory banks.

Focusing on problems only re-activates these neural networks.

If you remember from my last article, I shared two key points about the brain and neuroplasticity:

1) Neurons that fire together, wire together

and

2) Passing mental states become lasting neural traits

What this means is if you continually reactivate the neural networks which stored your problems, you only make these stronger and more dominant (thus increasing our negativity bias).

This leads back to point 2 – whereby your brain becomes more likely to trigger the fight, flight or freeze response.

The primary part of the brain which activates this reaction is your amygdala, a little almond like structure of neural tissue near the middle of your brain, and part of the limbic system.

The amygdala is super fast to react to any ‘threat‘. The more you do this, the larger the grey-matter and brain tissue becomes. This only increases your propensity to react to said threats.

This is a major reason why every pip the markets moves against you creates a far greater psychological (& neurological) response vs. when the market moves in your favor.

It’s the basis behind every negative psychological bias you have, whether it be the recency bias, loss aversion bias, or pretty much any ‘bias‘ behind our bad trades.

Another problem with continually activating the amygdala is it actually reduces grey matter!

A triggered amydala takes us out of the PFC (pre-frontal cortex). The PFC is critical to analyzing the price action context, pulling the trigger when we need to, and making profitable trades.

Done enough times, and your hippocampus (helpful for regulating emotions and making calm/calculated decisions) will see a reduction in grey matter, thus making you more prone towards emotional (read: fearful, worrisome, doubtful) decisions.

In a few less words – set off the amygdala + fight or flight response, and you’ve lost about 10-20 IQ points. Good luck making profitable trades with that!

Hence drop the problem focused mindset as it will only increase your negativity bias and trading losses. The solution is the next tool in building mental toughness.

#5 Adopt A Solution Focused Mindset

Remember how I talked about your brain scanning the database for similar experiences when encountering a problem? A solution focused mindset by default bypasses the negativity bias.

This approach leads your brain to actively scan for solutions. It will look for either identical (or related) situations whereby you encountered the obstacle, yet found a solution.

This has the triple benefit of:

a) building up your neural networks for finding solutions,

b) reducing your negativity bias

c) adopting a positive mindset.

I’m guessing you can see the benefits of creating this trio above. One key thing to note is adopting a positive mindset means you are less likely to take a victim mentality in the face of adversity. It also helps to build up your self-image.

Focusing on problems only tells you what’s wrong with the situation – it doesn’t tell your brain what to do. Contrast this to a solution based mindset which specifically tells your brain what to do when you experience difficulties, losses or adversity.

Done enough times, you build a brain which is wired to solve, overcome and achieve. After many laps and repetitions here, you have laid the foundation for the sixth tool in building mental toughness.

#6 The No-Obstacle Mindset

NOTE: Before I jump into this next tool, grab a beverage + something to snack on as this is a juicy (but good sized) story.

In July this year, Aruna (my partner) and I taught the Singapore Seminar – Change the Way You Think, Trade & Perform at the Ritz-Carlton Millennia.

This was supposed to be a 2-day event. What ended up happening was a movie-like Us vs. the Volcano.

A week before the event we were in Bali, mostly relaxing and getting ready for the event.

The flight from Bali is only a few hours to Singapore.

The day of the flight was also the day before the seminar was to start, so we decided to fly out early, get to Singapore by lunch, and have plenty of time to do our final prep. Nature had other plans.

Getting to the airport early, we quickly find out our flight is delayed. The airline attendants said ‘you’re flying out today, there’s just a small delay‘.

I thought – Ok…2hrs gives us plenty of time to still get there well ahead of schedule.

While waiting, I started to notice during these 2 hours how the airport was getting more full by the moment. Pretty soon, the flight board was showing more and more flight delays (see below).

Bells going off in my head that something was wrong, I went back to the airline counter. What I found out was the worst news we could get.

Hundreds of kilometers west of us, there was a volcano. It wasn’t spewing lava, but it was ‘active‘ and puffing out huge plumes of smoke from the bowels of the earth. Although the skies looked fine, flights were still grounded as the smoke pillows ventured west…right towards our airport!

The real danger in flying with volcano smoke isn’t the visibility…it’s the ash getting sucked up into the engines, which then crystallize, and pretty much destroy the engine from the inside out.

The thing about it is – the airline attendants knew about the volcano the first time they told us of the delays, they just decided to not inform us of that fact.

When I came back the second time, I investigated what was really going on, and they finally told us why. Needless to say, I was furious as losing those 2hrs reduced my options tremendously. It was now the afternoon and no flights were likely getting out for the rest of the day, perhaps even a week.

My first response (like when I was a kid) was frustration…which led to anger…which led to me practically yelling at the guy (who was nice throughout the whole process, even though they f-d up in not telling us earlier IMO).

I was about to teach a 2-day seminar, with people coming from over 10 countries, one of them flying over 10,000 kilometers to be there.

This was more than just the money & reputation I’d potentially lose from cancelling the event. It was about all those who spent their hard earned benji’s, taken off work, booked flights and hotels, which were now non-refundable.

How long was I frustrated, angry and feeling like I wanted to take someone out mafia style? About 1 minute. However, considering I’ve had an abundance of obstacles, problems and adversities in my life (some self-inflicted), I went into my general default mode – which is to look for solutions.

Because I’ve done this so many times, my mindset quickly resets and doesn’t see the obstacles, or get stuck. It works to go around, climb over, see through, or solve them…whatever it takes. It is the same mentality Navy Seals have, and it is one you need to succeed in trading and life.

This is called the No-Obstacle Mindset. It means that no matter what the obstacle is, you see it for what it is – an illusion. It means you see the solution and all the steps in between that get you there right from the beginning. It means you actually see yourself solving the problem, and doing everything you have to to make it happen.

Back to the airport fiasco, the situation was quickly degenerating with the crowds growing by the second. There were literally news cameramen filming the situation inside the airport. So what did we do?

After quickly assessing the situation, we had to setup a better base camp. Through the tortuga paced internet, already strained by more users than it could handle, we booked a hotel room nearby. Needless to say, rooms were going up fast (along with the price) by the second.

We then contacted our agent on the ground (Ivan Delgado) who works with FXstreet, and ironically, was going to the event. So now we were both in the same situation.

The reality was this – all flights east of the volcano were grounded. That means the nearest airport (which only flew domestic) had no flights as well. We simply couldn’t get out. The nearest airport was in Surabaya (Java), which was a 10+ hour drive by car.

I called the only local helicopter service, but he had a full book already, so no go there regardless of what price I offered him. There was only one other option – we’d have to wade through the Indonesian jungles, and jam-packed over-populated cities.

Ivan came up with a great plan and talked to his brother-in-law, a former truck driver who was part Jack Bauer-part Michael Schumacher. If the airlines told us at 6:30 am the next day all flights were grounded, we’d activate plan B and make the drive (which included a ferry to the island of Java).

Sure as sh!t, 6:30 am came, with the news all flights were grounded for the entire day. 30 minutes later, we had booked the last flight out of Surabaya to Singapore. However this was not the end of the adventure though.

To make the last flight out, we could only take 3 loo breaks, 2 of which had to be during gas refills. This plan B also meant we’d have to re-arrange the event with the attendees, catering and hotel till the next day since we’d only arrive at 2 am.

On top of this, we had to arrange for the hotel dry cleaning service ready to press our travel-wrinkled suits. At best, we’d have 3.5hrs of sleep for a 12 hour event. Somehow, we’d jumped over all the obstacles, and had an amazing event with the traders coming out completely different than how they came in.

Below is a photo of all the attendees (notice the blood shot eyes from no sleep with me – far left?)

Photo of Ritz Carlton in Singapore where we we were staying at.

Having a problem focused mindset would never have gotten us through this situation with flying colors (perhaps not even at all). It would have led to us being worried, fearful and complaining about what was wrong with the situation.

A solution based mindset was the only way we could have handled this, but there was one missing ingredient. We had to have the mindset of no-obstacle. We had to see the solution, and every step in between.

There was no space for doubt, which would only lead to delays, and we had no time to spare. Everything had to fall into place with dozens of small steps and decisions to make it work. It took everyone having a positive optimistic mindset that we could handle this situation.

The power of having a mindset of no-obstacle means you have the confidence, experience and belief there is nothing you can’t solve, figure out, or handle. Imagine how your trading process would be if you adopted this approach and made it the bedrock of your mindset.

In Closing

I’ve just shared with you what I’d consider to be a solid foundation in building mental toughness for life and trading.

This is certainly not meant to be the end of it, nor the last article I do on it.

However, the methods, strategies and models in here can completely change your brain, mindset and performance.

To recap, you learned how:

1) Coping is not the endgame, but just a small step in the process
2) To embrace the challenges which helps you expect, prepare and take them on
3) How thriving on adversity flips the equation on its head and helps you to look forward to obstacles
4) Why you need to drop the problem focused mindset as it increases your negativity bias
5) That the answer is to adopt a solution focused mindset so you only concentrate on what you need to do
6) How the no-obstacle mindset gives you a mentality which overcomes

Take on all the above, and you can re-wire your brain for success in trading and life. This is a very real thing.

Mental toughness can turn your mind, thoughts and actions from losing trades to making money.

It can give you strength, resilience and confidence to meet your challenges of trading head on, replacing your fears, doubts and worries.

It will put intangible weapons at your disposal, increase your confidence to take on greater challenges, and sharpen your mental edge to cut through almost any obstacle.

With that being said, have you been using coping as your only strategy?

How fully have you been embracing the challenges you meet in trading, and are you seeing obstacles as opportunities?

Do you focus more on problems or solutions?

Make sure to comment and share your thoughts below.

For those that want to discover the power of mental toughness, make sure to sign up for my Advanced Traders Mindset Course where we teach you how to specifically wire your brain for success and build a positive mindset.