Home Advanced Psychology and trading The Significance of your Beliefs and Filters in your Trading Journey

The Significance of your Beliefs and Filters in your Trading Journey


There is a mental structure for taking the best trading decisions. Most traders are not aware that they are actually trading their beliefs. They even might not know what their beliefs are. This article will provide you with fundamental information to understand the structure of excellence. Successful traders represent the information differently. To be successful, you need to know three things: your personal belief, your mental syntax and your mental states and resources. All these qualities will make you distinct.

Duplicating success is like duplicating a recipe. To copy the dish, you will need a mixing bowl, ingredients and the procedure of using the ingredients in the right quantity. Beliefs are just like the mixing bowl; they mix all the ingredients together. Resources are the ingredients of success. They make your mental state. A mental strategy is like the procedure followed for making the dish. You could go wrong in picking the right resource while executing a trade. At that time, ask yourself “what could go wrong?’.

Beliefs and filters

From previous articles, you have come to know how people form internal models of reality through generalisation, deletion and distortion. People use their beliefs to filter information so that their models are supported. You need to act on real-world information. People act on information after it passes through many filters, namely neurological filters, social filters, and individual filters. Let’s look at each one of them.

Neurological filters are defined by your sensory organs, which process the information. For example, it could be seeing or hearing from your sense organs. You cannot actually feel most of the energy waves around you. You are able to detect the pricking of a pin on your fingertips when they are just a few inches apart. But you cannot identify the same pricking on your back when they are separated by the same distance. As a result, we can only perceive a small portion of the real world. You begin believing the world through neurological filters.

The second type of filter is the social filter. This type of filter includes language, shared perceptions and moral values. Social filters strongly influence your belief. While neurological filters are for information limiting, social filters distinguish human beings. The graphs, charts, and technical indicators used by investors or traders are also a type of social filter. For example, people who use Gann system for trading have a different perspective on the market than those who do not apply it. Similar is the case for other indicators as well.

Finally, each individual has his own personal history. From his past, he would draw some experiences which act as filters, through which he sees the world. No two people have the same past. Everyone’s experiences are different, and experiences are what shape your belief. If a trader is able to make money in a bear market, then he has developed his strategy which performs best in bear markets only. He might not feel comfortable in bull markets, because he has no experience trading in bull markets.

Beliefs and the trader

Beliefs for a trader would be in the way they look at charts and how they interpret it. This could mean believing in bar charts, moving averages, or RSI while taking trading decisions. Conclusions and learning from previous trades can also be popular belief. Predicting future could also mean you are presenting your belief. For example, when you say “S&P 500 is going to have a major correction”, you are predicting the economy.

Everyone has developed belief through filtering and experience. Thus, objectivity shouldn’t exist concerning markets since every person has different filters and different backgrounds.

Beliefs bring confusion and dilemma in the minds of the trader. It affects your learning ability of a trading system. The world of investing is different than what we are living in. This is what experienced, and successful traders explain their students and other people.

Many good traders stress on the power of beliefs in determining your future. If you want to duplicate their success, then you must also share beliefs. If you don’t follow anybody, then you must at least have a belief system that will help you in filtering information and overall trading success.

If you understand and know how to filter information, then you will improve your investment results. You cannot separate filters from yourself. You can, however, make changes to your filtering criteria that are useful for making big profits. Even a simple belief about something can act as a filter.

Go over your psychology diary and top tasks of trading, looking at what additional filters you can include in your system. You can make a note of the differences in using different filters. After this, you should have developed certain expectations about the market. So what are these expectations, and how is it profiting you? Analyse how the beliefs are making you a better person overall.

Final words

By now, you should be able to develop your own strategies using your trading diary. Until you develop a mental strategy, continue doing something about it. Mental strategy determines what beliefs will dominate your decision-making process. Everything needs to be done by until you have a mechanical system that does everything for you. It is your mental strategy that will help you. In the following articles, we will discuss how beliefs can affect you as a trader. If you don’t do it properly, then you cannot duplicate a successful recipe. You will know how beliefs give rise to mental conflict.


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