How to use conditioning to improve your trading (Part1)

Most traders know what they need to do but have tough time actually doing it. Traders know they should cut losses faster and let winners run. Traders know the importance of having a method with edge. Traders know the importance of stops. Traders know the importance of right position sizing and risk management. Traders know they need to be disciplined and focused. Most traders know what they should do but many have trouble getting themselves to do it.


Between intention and reality there is a big gap.


Every now and then faced with losses or failures traders decide to focus on some of these "should do" tasks and jobs , but many just can't seem to maintain the momentum to see it through. For many such problem continues months after months. Every few days or every few week they resolve to be more focused and disciplined traders and yet after few days they revert to their old ways. This cycle leads to loss of confidence. and at some stage this marks the end of their trading career or leads to disillusion.


How can you overcome such problem.


Psychologist have studied this problem and have a solution for this. The solution for this is conditioning. Behavior change requires conditioning. Conditioning is a process by which behavior can be modified by associating a stimuli or by learning a new behavior. Conditioning allows you to self correct your behavior. If you understand how conditioning works and how it can be used to change behavior, you can change your behavior.


Before getting in to trading I spent around 11 years in marketing and advertising field. You can not be a good advertiser or a marketer unless you understand conditioning. A good marketer understands how to condition people to buy his or her products. Marketers condition people to buy their products daily, weekly , or monthly through deep understanding of consumer behavior. That is why many of you like a Pavlov's dog run to a Dunkin Donuts or Starbucks early in the morning. Marketers have skillfully associated beer and snacks consumption with sports watching and so like Pavlov's dog you reach for a beer when watching football.




Marketers use conditioning to shape your buying and product consumption behavior. Billions of dollar worth of advertising is designed to condition your behavior. A store layout is designed to condition you to buy high margin things. Every day you are exposed to hundreds of messages designed to condition you to buy or use a product or services. As a former marketing person everyday I see dozens of examples of conditioning at work.




Religions are also based on conditioning. Like marketers religious leaders skillfully use conditioning to ensure followers think and behave in certain manner. As a result followers of a religion exhibit certain kind of behavior with great discipline. Religious rituals and practices are designed on deep understanding of conditioning. Certain religions promise rewards in afterlife while some offer immediate good or bad judgement on your behavior. Any message that starts with "thou shalt" is a conditioning message.


Animal trainers use conditioning to train them. If you look at methods used by horse or dog or dolphin trainers, they are based on deep understanding of conditioning theory. The dolphin gets fish for performing the trick. The drug hunting dogs are trained using conditioning to find hidden drugs.


Parents use conditioning to shape kids behavior. Desired behavior is rewarded with encouragement or reward and undesired behavior results in punishment or timeouts. Parents who understand conditioning raise well behaved kids. Teachers use conditioning to maintain discipline and build good behavior. My daughter's teacher uses green, yellow, red and, purple cards to condition kids. For good behavior kids get green card for bad behavior red card.


Conditioning is used by couples also. If you are nice to your partner you get rewarded and if you are nasty you get ignored. A gift of 5 carat diamond might get you a reward of several nights of good sex. That is conditioning at work.


Same conditioning understanding can be used to modify your own trading behavior and improve your discipline.




There are different types of conditioning you can use. You can use thought conditioning or you can use behavioral conditioning. Thought conditioning is focused on controlling what you think. The underlying premise is that if you change your thoughts then your behavior will change. In behavior conditioning the focus is on changing behavior and not focus so much on thoughts. If you change your behavior you will achieve your desired objective.