Do Traders Have Free Will?

Every day people are fighting with many competing desires, 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 quit 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 do not close out your losing trade now.

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 cannot 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.

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 did not 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?

The Neuroscience Behind the Decision

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 responsible for the control of emotions and behavioral impulses. The 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 extent 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. Your choice to take a trade or not is determined by a pattern of neural activity.

The trading process can be reduced to a series 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 and within.

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.

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.

It is not the impulses you can change, but how you deal with them. 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 behavioral patterns. Losing a trading account can be considered a failure, accompanied with merciless self-loathing, or it can be viewed as feedback that something is missing that is crucial to future success.

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.

It is one thing to give in to an urge to take profits too early; it is another to realize 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. 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.

Four Steps To Taking Back Your Control

1. 01

   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. 02

   Accept that mistakes and emotional and mental pitfalls are part of every trader. You are not special, you are not a failure. You are just going through challenges every trader experiences.

3. 03

   Most traders look at more experienced traders and think: "No way, I could never be like this." If you think like that, you will not get there. We all have been through the same challenges you face right now. When even your Number 1 fan (you) is not supporting you, how can you have a chance of success?

4. 04

   Do not expect your family and friends to support you before you support yourself. Start cheering yourself on for being brave enough to change your life and dealing with all the challenges that come with it.