NLP for trading: reframing
We have discussed in a recent article that some NLP techniques can be very useful in trading. Today we are going to learn a very powerful one, called reframing.
What is reframing? Simply stated, it means changing the meaning of an experience so that it will become more useful for us. As a matter of fact, the emotional response to an external event depends on the meaning we give it, and we know that emotions can affect our trading performance (to know what are the important keypoints for trading/investing succesfully see here).
Let’s clarify this with an example related to trading. Suppose that you are facing a series of losses, and you feel bad about that. This is likely to affect your next decisions, because you may not feel confident to take the next trade for fear of losing again. So you decide not to take the trade, and sure enough, it was a winning one that could make up for all the previous losing trades. Does it sound familiar? I bet it is.
How can reframing help us overcome this challenge? You know that your system is profitable (if not, you should not use it) and that drawdowns are expected. So it is normal to have some losses, and after a series of them, you will eventually get a series of wins. Hence, you are just closer to your next winning trade. This way of looking at the matter is much more useful, isn’t it?
But hey, nobody said you have to stop here. You can push reframing even further. For example, since your system is profitable the expected return per trade is a positive number. Suppose that, looking at your statistics, you realize that on average with one trade you make 50$. This means that in the long run, you can consider each of your losing trade worth 50$ of profit.
Those are just examples of reframing. The main point is: change the meaning you give to an external event so that you can change the emotional response to it and, as a consequence, the actions you will take. This way, your performance will improve.