BarroMetrics Views: The Rider, the Elephant and the Path

My apologies for not posting on Friday. Please take this as a replacement blog.

In the new Neurological model of learning, the key initial step is what Coyle calls, ‘the ignition process’.

Many newbies (I’d say, too many) skip it either because they don’t know it’s an essential step or feel it is irrelevant to trading. But as the research shows, skip this step and you are unlikely to succeed. This is not to say that if you perform it, you have a guarantee of success - think of  a lottery ticket. Unless you buy one there is no chance you  will win; buying one does not mean you must win.

That said, what is the ‘ignition process’?

It’s the series of steps that ignite and maintain our commitment to take meaningful actions i.e. actions that ultimately lead to our dreams.  The question is, of course, how do we do this?

A recent book I read, Switch, has a striking and memorable analogy: you need the Rider, the Elephant and the Path.

The Rider is your conscious mind.  He sets the direction and the roadmaps - he looks into the future and makes plans. But he has weaknesses.  He prefers analysis to action and prefers to solve problems rather than to look at what works.

The Rider sits on top of the Elephant and seeks to direct it. But given the size difference, his hold is precarious and exhausting. Studies have now shown that ‘will power’ without a break,  leads to progressive exhaustion. So we need to enlist the support of the Elephant in other ways.

The Elephant is our emotional side. To enlist its support we need to apply tools and techniques of the ’see-feel-change’ variety.

This is why in my High Performance Program, I ask the attendees to adopt a specific 8-minute visualization process. You see the Elephant tends t be lazy,  committed to the status quo and short-term motivated (i.e. it seeks immediate gratification).  But without its emotional energy and drive, long-term change is unlikely. So you do need to harness its support so that Rider and Elephant move in the same direction.

Now, we come to the Path.  One aspect that is often overlooked by traders is to create a set of habits and routines.

Trading requires we use both our reason and intuition. But as we have seen ‘reasoning’ is an energy sapping activity. For this reason, the more activities we can turn over to our subconscious, the more energy we have left for effective decision-making.

Some habits are obvious: updating the data base, checking the open-positions, checking and recording the previous day’s fills etc.  Some are less obvious. For example, although I am a discretionary trader,  I use a mental checklist;  when starting my left-brain analysis I ask:

• What is the trend (of my trader’s timeframe? Is it likely to continue or change? Is the current structure moving directionally, as a zig-zag correction or a complex correction?

The answers provide my strategy - to go long or short.  Once I have this answer, I go on with the other items on the list.

Another energy-saving trick is to printout the charts for analysis and write on the chart rather than perform the analysis off the screen.  Studies have shown that pure mental analysis consumes far more energy than working off a hard copy.

That’s the process - hope you find it useful. Feel free to contribute. This is a fascinating area.

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