Part 2: My Findings After Experimenting with AI: Psychology

Without question, the biggest hurdle a trader must overcome is their own actions.

For a long time I've pondered: Why do we overtrade? Why do we Under trade? How often does a trader actually know the right thing to do but are unable to act on that decision? Placing a trade anyway. Why do we feel the need to constantly check on a trade? Or in fact not just a trade, we check on no trade decisions also. I wonder how often a trader makes a no trade decision, walks away. But 20 minutes later returns to the chart, only to see it spiking up and places a trade. Inevitably, the trade stops out. The original decision to walk away was the correct decision all along.

And how do we combat these trading psychology flaws?

In my attempt to give a deeper explanation than the psychology section of my book, I had a conversation with Gemini. These are my conclusions:

There are three stages of a traders psychological journey:

Stage 1: Outcome obsessed

The Mindset: Starting out, you want to win every trade. Every pip towards profit or loss defines my success. The trader is entirely enslaved to the outcome of the trade they are in.

The Brain Cause: Dopamine Dependency & Amygdala Hijack.

In this stage, the primitive brain (the amygdala) is in total control. The brain treats trading exactly like a slot machine. A massive spike of dopamine is released the moment a trade is placed, meaning the gambler is hooked on the thrill of anticipation, not actual strategy. When a trade wins, the brain experiences an illusion of genius; when it loses, cortisol crashes you into a blind panic, leading to immediate revenge trading.

Stage 2: Internal friction

The Mindset: "I know exactly what my rules are, but it hurts to follow them." The intellectual understanding of your strategy has outpaced your emotional capacity to execute it".

The Brain Cause: Neural Rewiring & Prefrontal Cortex Exhaustion.

Two opposing forces battle it out. Your brain is actively trying to tear down old, deeply carved neural pathways of immediate impulsive gratification, while trying to build brand-new pathways of function and discipline. The intense psychological discomfort, manifesting as Hot Friction (anger, fear, excitement), the market is moving fast and you desperately rush into placing a trade. Or Cold Friction (boredom, loneliness, frustration), the market is moving slowly and you force a trade that's not really there.

Acknowledging these feelings means your brain is trying to rewire itself. The Prefrontal Cortex (the logical brain) is working overtime using sheer willpower to suppress the primitive urges to peek at the screen, chase spikes, or trick you into placing a trade. The brain wants the dopamine derived from being in a trade. And it will do anything it can to get you to place that trade, overpowering what you logically know you should do.

Stage 3: Peace

The Mindset: "This trade is just 1 of 1,000 trades. The immediate outcome is mathematically irrelevant. Winning or losing, this execution was the correct thing to do."

The Brain Cause: Nervous System Regulation & The 'Educated Gut'. The brain's reward center has shifted entirely, it no longer gets a dopamine hit from chasing a trade. But rather from keeping the process clean. Because the amygdala is quiet, the brain can tap into the educated gut. The nervous system is calm and your sole focus is 'to do the right thing in that moment'. You're trading with a biological feeling of absolute clarity and peace.

Stage 3 is the HOLY GRAIL of trading. Many traders will give up during stage 1. But I suspect millions are trapped inside stage 2.

Before I move on to discuss suggestions on how to break through stage 2, there is one more thing to discuss.

Under trading:

I suspect most people fall into the overtrading category, I've been there myself. But although not as 'glamorous' (accounts aren't blown quickly), under trading is still a blight, it's death by a thousand cuts.

Under trading happens when your strategy explicitly tells you to take a trade, your conditions are hit, but you freeze. You watch the trade leave the station without you, and it painfully hits the profit target you predicted. It is a massive issue, at best you leave money on the table. Worst case scenario: you miss all the winners and your account slowly bleeds out.

Undertrading is entirely a mechanism of self-preservation gone wrong. When the mind faces complex variables or deep fear of a negative outcome, it triggers an over-analytical freeze state. The trader is so afraid of losing money, the amygdala remembers the painful sting of a loss. It registers the act of clicking "Buy" or "Sell" as entering a zone of physical danger. To protect you from experiencing that emotional pain again, your brain floods your system with hesitation. It tricks you into looking for 'one more confirmation'.

By convincing you to stay out, the brain thinks it won. It kept you safe from losing money. But it completely ignores the long term reality: skipping valid setups guarantees long-term failure.

So, whether you're an overtrader or an under trader, how do you break through stage 2?

First of all, you could simply try telling yourself 'I AM A STAGE 3 TRADER'. The theory being: IDENTITY BASED HABIT FORMATION, your habits follow your identity, it's a valid theory to try. But in the heat of the moment, with a spiking chart In front of you, it's easier said than done. Ultimately, the brain requires proof of habits before it can truly believe in an identity.

If simply telling yourself you're a stage 3 trader doesn't work, I have an idea.

The goal is to focus on the decision rather than the outcome. And you can train your brain to search for dopamine derived from making a good decision. There is a well spoken proverb: Two wolves are about to fight, the good wolf and the bad wolf. Which one wins the fight?... Whichever one you feed.

It's the sane with dopamine, all you have to do is feed the right craving.

My suggestion requires you to be extremely honest with yourself. Deep down you know the right thing to do in a given moment. If you're NOT honest, you'll ultimately be doomed to failure.

What you're trying to achieve is as close to 100% as possible 'Action integrity'. Meaning do your actions match your decision?

This is my suggestion how to accomplish it:

Action Integrity Spreadsheet:

Create a spreadsheet, either on a computer, phone or simply a piece of paper. The spreadsheet has 5 columns.

1) Date: Speaks for itself, the date of your decision. You could add the time if you wanted to be specific.

2) Decision: What you truly believe to be the right thing to do in that moment, trade or wait.

3) *Next visit: As part of your decision, the next time to attempt trading is allocated.

4) Action integrity: When you visit the charts at your next allocated time, you fill in the action Integrity coloum. Yes = you acted upon your decision. No= You deviated from your plan, either placing a trade if your decision was to wait. Or you didn't place a trade you knew you should. Or you peaked at the charts before your next allocated trading time (whether you placed a trade or not).

5) Streak: For each YES in the action integrity coloum, your streak grows by one. For each NO, your streak resets to ZERO.

Over time, your brain will start to crave 'keeping the streak going', rather than 'placing a trade'.

*There is a nuance to the NEXT VISIT part of the decision. The Nuance is 'IF NOTHING CHANGES' I will visit the charts at x time.

There will be occasions you're scrolling through headlines (I often check the headlines, even if I'm not attempting to trade in that moment). You'll notice that something has changed, an 'out of the blue event' that has created a trading opportunity.

On those occasions, it's ok to visit the charts even though it's not your allocated time. You can still write YES in the action integrity coloum. Because something has changed.

For this idea to work, you must be totally honest with yourself. Digging deep into your gut to write down your true decision, your brain will try and trick you into writing 'trade' when deep down you know it's a 'wait' decision. And your brain will try to trick you into peeking at the charts when you know there is no need to. And you must be honest with yourself as to whether you truly acted upon your decision.

If you can complete the task with honesty, your brain will eventually re-wire itself. It'll be so desperate to keep that 'yes' streak going, over time, all you'll want to do is wholeheartedly act upon what you believe to be 'the right thing to do in that moment'.

Alternative method:

If you didn't want to use a spreadsheet, there is another method. Simply get a glass jar or bowl and fill it with something (coins, matchsticks, poker chips, pebbles). The idea being, every time you can answer YES to 'action integrity' (I acted upon my decision and next time to visit the charts) you put a coin in the glass jar. Every time the answer is no, you empty the jar and start again. Eventually, your brain will desperately crave that clink of the jar filling up. All you'll want to do is wholeheartedly act upon your decision.

So that's it, that's my idea on how to train your brain to act on your decision and not focus of the potential outcome. Let me know what you think.

Please feel free to email any thoughts or questions: johnelfedforexblog@gmail.com