The Chimp Paradox and Trading

The Chimp Paradox, written by a leading UK sports psychologist Dr Steve Peters, is a simple yet incredibly powerful metaphor for the battle between the rational and emotional aspects of our minds. It is not a scientific theory, but rather helps a person make sense of how our emotional/intuitive mind affects and impacts our decision-making capabilities.

The ‘Chimp Paradox’ metaphor describes the brain as working in two modes, the chimp and the human mode. The chimp mode (inner chimp) is the area of the brain driven by feeling, sensing, impressions, emotional thinking and gut instincts. The chimp is intuitive, makes snap judgments, thinks in black and white, and is capable of being paranoid, irrational and emotive. Its primary motivator is survival.

On the other hand, the human part of the brain is rational, evidence-based, thinks in shades of grey, and operates on balanced judgement. The human part of the brain is driven by having a greater purpose in life rather than the pure survival instincts of the chimp. 

There is a third aspect to the metaphor, the computer within our brain. This computer, which had an empty hard drive at birth, is only as good as the information it contains and is limited by its operating system and hardware. The computer contains stored beliefs, some of which are positive, some negative, some deeply hard-wired and tough to change, and others easier to re-programme. 

Our personalities are formed by a combination of the chimp, the human and the computer, which both the chimp and the human refer to as their resource for their own respective reference points: All together they dictate how we think, feel, act and behave. 

Given the chimps emotionally driven nature, the assumption would be that it is far better for the human to be in charge at all times. However, life is not that simple, we cannot simply ignore or turn off our 'inner chimp'. This inner chimp is part of our nature, and as in real life, the chimp is far stronger than the human: You wouldn’t want to take on a chimp on in a fight? A chimp has 5 times the strength of the average human, and far more staying power. 

In reality we function by being in a constant interplay between the two, rather like a hybrid car switching between battery and gasoline. However, as mentioned, there will be times when our inner chimp, far stronger than our inner human, will take over. At these times, typically when we are not switched on, or tired, bored, disengaged, or perhaps triggered, anxious and fearful, our minds can be easily hijacked. When this happens, the chimp can run riot, and the consequences can be hugely destructive. 

It is when kept in balance and in check, that more effective decision-making and greater performance comes to the fore. It is by keeping the inner chimp calm, that you can do better work.

However, there is another level, even better than calming the chimp,and that is making the inner chimp your ally. I am sure you can recognize times in your lives or work, when you achieved great things almost effortlessly, you may have been 'in the zone', or 'in flow', that is a example of your inner human and inner chimp working in harmony. 

That is the 'Chimp Paradox': Your inner chimp has the power to be highly destructive, but can also be your greatest source or strength, helping you achieve incredible things, sometimes against all odds. 

Great Performers Learn to Tame their Inner Chimp

It is on the back of this metaphor that one can draw upon the success of outstanding performers in many fields, including great traders and investors. Master performers learn to tame their inner chimp and work with it in practical ways to harness its enormous powers of intuition, creativity and emotional strength. When combining the power of the chimp, and the logic and resourcefulness of the human, great things can be achieved. However, when fighting the inner chimp, surrendering to his simplistic ways, or attempting to placate him, we can undermine our own development and growth.

The full title of his book is 'The Chimp Paradox: The Acclaimed Mind Management Programme to Help You Achieve Success, Confidence and Happiness'. You can find details of the Chimp Paradox and other books on Trader Mindset at our book's page here.

Steve Peters provides an excellent TedTalk which can be seen below, or at this link here. 

The AlphaMind Podcast

The AlphaMind podcast is co-hosted by Steven Goldstein and Mark Randall, market veterans with over seven decades between them in the financial markets. The podcast delves into the lives and stories of extraordinary guests whose experiences provide a fresh and powerful lens through which to understand the mental, emotional, psychological and behavioural challenges people face when encountering risk and uncertainty in financial markets. To find out more visit the AlphaMind podcast website. 

The AlphaMind Podcast is produced in partnership with 'The Society of Technical Analysts'.

The AlphaMind Trader Performance Coaching Programme

Our powerful Trader Performance Coaching Programme focuses on helping people develop and improve the key risk skills, abilities and mindsets which contribute to trading performance mastery.

This programme makes use of our unique and powerful ‘Human Alpha Performance Model’ which helps illuminate the human aspects of the risk process as people navigate their way through the Financial Markets. The model helps people make sense of their behaviours when taking and managing risk in the financial markets, whilst the coaching helps people to make key changes and adjustments which drives growth in risk capability and personal performance.

This programme has been delivered over the past 10 years to people at many of the world’s leading trading and investment firms.

Click here to find our more about the programme, or email info@alpharcubed.com or steven.goldstein@alpharcubed.com.

AlphaMind is a collaborative project between Steven Goldstein of AlphaRCubed Ltd and Mark Randall of The Mark Randall Consultancy. 

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‘The Chimp Paradox’ and 'Success in Financial Markets'.

The Chimp Paradox, written by Steve Peters a leading UK sports psychologist, is based on  simple metaphor which describes the interplay between the emotional and rational functions of our brains.

The ‘Chimp Paradox’ metaphor describes the brain as working in two modes, the chimp and the human mode. The chimp is the area of the brain driven by feeling, impressions, emotional thinking and gut instincts. The chimp makes snap judgments, thinks in black and white, and is capable of being paranoid, irrational and emotive. Its primary motivator is survival. On the other hand, the human part of the brain is rational, evidence-based, thinks in shades of grey, and operates on balanced judgement. It is driven by having a greater purpose in life rather than the pure survival instincts of the chimp. There is a third aspect to the metaphor, the computer within our brain. This computer, which had an empty hard drive at birth, is only as good as the information it contains and is limited by its operating system and hardware. The computer contains stored beliefs, some of which are positive, some negative, some deeply hard-wired and tough to change, and others easier to re-programme. Our personalities are formed by a combination of the chimp, the human and the computer: Together they dictate how we act and behave.

The assumption at first glance might be that we want to be in human mode at all times. However life is not that simple, we cannot simply ignore or turn off our 'inner chimp'. This inner chimp is part of our nature, and as in real life, the chimp is far stronger than the human and has far more stamina. A chimp has 5 times the strength of the average human, so don’t even think of challenging him to strength contest. Furthermore, the human requires a lot more energy to function than the chimp. Thus when tired, fatigued, and depleted, the human brain is more likely to turn off and we automatically switch to chimp mode. In reality we function by being in a constant interplay between the two, rather like a hybrid car switching between battery and oil/gasoline. However, as mentioned, there will be times when our inner chimp, far stronger than our inner human, will be in control. When this happens, the chimp can run riot, and the consequnces can be hugely destructive. I am sure everyone can think of times when they have functioned in this way, letting their inner chimp run wild. However understanding your inner chimp, and keeping him calm, can help bring the chimp, to a degree, under control. And in some cases you can make the chimp your ally. When you are under attack you want your chimp to be fighting your corner. And therein lies the paradox, there is a time and a place for everyone’s inner chimp to prove both useful and necessary.

It is on the back of this metaphor that one can draw upon the success of outstanding performers in many fields, including trading. Master performers learn to tame their inner chimp and work with it in practical ways to harness its enormous power’s of impulsivity and emotional strength. When combining the power of the chimp, and the logic and resourcefullness of the human, and using the computer as a more productive and reliable reference source, great things can be achieved.

How does this play out in the financial markets, where belief in the superiority of rationality and logic reign supreme?

We have been carrying out some fascinating research into the proclivities and behaviours of successful risk-takers. Our work is based around a number of banks and hedge funds where we coach traders and portfolio managers. The research is on-going and still its in early days, however we are seeing some clear trends emerging which may surprise some people’s expectations of traits and characteristics needed for success in financial markets. (We recently presented our initial work on trader personality as part of a webinar which can be seen here).

One of the aspects of our personality research we are seeing is a close correlation between success in volatile markets, and a tendency to favour emotional cues over rationality and logic, particularly when one is trading shorter-term time-frames. Perhaps this is not overly surprising when one links this to the ‘Chimp Paradox’. In fast volatile markets, the ability to make money relies as much on an on ability to react fast to new news and seemingly irrational price action, as it does on an ability to read markets and having a strategy for trading the markets. Allying the human rational perspectives; a definitive trading plan with strict money management, with the chimps extraordinary sensing and intuitives abilities, enables individuals with these skills to thrive in short-term fast markets. However, allow that chimp to run wild, and all the good work will be undone. Our recent interview with Brady Dahl, author of Momo Traders, revealed how these masters of fast markets are able to survive and thrive. The traders featured in Momo Traders mastered the art of allying their inner chimp with their inner human.

There will however be days where where extreme volatility reigns and fear stalks the markets. On these days the markets are full of agitated chimps, each reacting to threats, and making seemingly irrational decisions. January 2016 saw virtually a whole month of these days. So well done to all those who came through January on top. 

To know more about the chimp paradox, Steve Peters provides an excellent Ted talk on his 'Chimp Paradox' which can be seen below.

The 'Behavioural Trading' blog is presented and managed by leading Trading Performance and Behavioural Trading Coach Steven Goldstein. Steven is Managing Director at Alpha R Cubed, which works with banks, hedge funds and investment firms to help them improve their people's capabilities  within their frontline financial risk businesses. To know more about Alpha R Cubed, visit their website www.alpharcubed.com or email Steven at steven.goldstein@alpharcubed.com.

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A Trader Recounts the Pain of Losing.

A coaching client of mine at a bank has sent me a brilliant email that they penned this morning. They have given me permission to post it on my blog, so long as they and their firm remain anonymous. (Rest-assured all my client's discussions are confidential, unless the client provides permission to reveal details, as in this case.) I feel it will be an interesting read to all traders and active investors alike, who I'm sure will resonate with some of the feelings echoed in this email. 

The email:

I had a bad trading yesterday, not a disaster by any stretch, but a bad day, I was run-over by the EURUSD action post the ECB meeting. That is part of trading, sometimes you win, and sometimes you lose.  – However what I always find hard is how unpleasant and disturbed I feel the next day, even though I have been through it on many hundreds of occasion in my career.  It seems you can never escape it, it never becomes a neutral feeling, but always a bad feeling, an ugly feeling. 

A few months ago, I decided to write down how I felt in my journal. I did this because I realised then, that within a few days the feeling is forgotten, and I usually cannot even describe the feeling a few days or weeks  later, however I do know that it may have had a detrimental effect to my trading which usually has aggravated the original setback.  I thought that way, the next time I have it I can compare how it feels now to how it was then. And I can also ensure that in future I take the best course of action, which in the past I have not always done.

This is a copy of the note I made then, about the same feeling I have now:

‘The first thing I notice is I feel tight around the back of my neck and have an uncomfortable feeling running down my back and down my arms from my shoulders. It is not a pain, but a nervous and unpleasant feeling, it runs almost to my fingers. As a result of this feeling I think I am more hunched when sitting at my desk. I also have a little of that feeling running down the front of my legs. Overall the feeling makes me feel a little heavy and slow. 

The feeling is also unpleasant in my head, but it’s different, my head feels a little hot as well a heavy, and also slightly fuzzy in a way that is hard to describe. There is a kind of pain running around it, but not a headache or migraine. It is focused mostly on my upper front part of my head. I am also slightly clenching and almost grinding my teeth, this makes my jaw feel tight and heavy. 

My mood is angry and slightly dark, on the one hand I am distracted from my normal morning routine, but also I would say I am more focused on the market than normal, my eyes are darting across the screens looking for news, data, watching prices and scanning charts. This is not good for me, because I work best in a structured way and this morning I feel like I have been knocked out of my stride. I can sense an impulse to get involved straight away, to go into the market and try and fight back. It is almost as if I have been insulted and need to both seek revenge and prove myself.‘  

The odd thing is, that the loss I suffered then and yesterday’s loss were not devastating losses, far from it. Also I know that losses are part of trading, I accepted that long ago, and in doing so that became a big part of my trading philosophy, a big part that I think has contributed to my success over the years. Yet, no matter how big, and often how small my losses are, I always feel the same. I am a rational person, and I know I will most probably recover, yet at this instance my emotions are fighting to over-ride my logic. – My experience and my head has taught me over the years not to trade when I am like this, but my immediate desire is telling me to get straight back into the trade. 

Yet if I do this it is likely to be the battle for me, and I will almost certainly lose. – Therefore I am removing myself from the screens. I will not look at the market all day. I know many people who are running portfolios and trade-books can’t do that, I however have that luxury. By Monday I know I will probably have recovered my composure, though the feeling will probably linger in a smaller way for a few days, and I must proceed with extra caution for a while.  

I am sure most traders, fund managers and active investors reading this will resonate with this, and in particular will also recognise the internal battle between the rational and emotional. – If anyone would like to know more about that internal battle, I would strongly recommend buying or downloading a copy of Professor Steve Peter’s brilliant book ‘The Chimp Paradox’.

If you would like to know more about Trader Performance Coaching please email me at steven.goldstein@chrysalis-pc.com or visit our website www.chrysalis-pc.com. Chrysalis Performance Consulting Ltd is the new name of BGT Edge Ltd

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