Norman Welz takes the view that all trading success comes from the mind. For this reason he advocates approaches to directly alter people’s behaviour via their subconscious.
We move from trading and investing masters like Warren Buffett to another master of his field, Norman Welz. Although lesser known in the English-speaking world, Welz has become something of legend in the realm of trading psychology, especially in his native Germany.
That’s because his book on the subject broke new ground in what Welz refers to as ‘Applied Trading Psychology’.
There are many books explaining the concepts of psychology and how your emotional state can affect your mindset, but there is far too little information about how to apply these ideas to the real world of trading.
Welz’s website is aptly called BetterMind – because that is what he aims to help you achieve for your trading.
Norman Welz is a German psychologist and journalist who authored the book Tradingpsychologie – So denken und handeln die Profis (which translates in English to Trading Psychology – This is how professionals think and act).
Tradingpsychologie was published in Germany in 2012 and was well-received in the trading community. The strong reception was because of what many readers and reviewers said was the practical usefulness of the book. Welz calls this applied trading psychology.
Welz has hosted many talks and seminars over the years and was featured in the famous Trader’s Magazine in June 2013 with the cover story:
“Trading & Addiction” – Norman Welz
Norman Welz puts such a strong emphasis on psychology that he contends trading success is entirely down to psychology.
This may at first seem like an extreme viewpoint and even necessarily incorrect because knowledge of how financial markets work is necessary too. However, learning a trading strategy is obtainable for most people. The point that Welz makes in our understanding, is that it is not the misunderstanding of a trading system or not being able to find a profitable trading strategy that is the problem – it is implementing it. Why some can and some can’t is purely in the mind -psychology. “No brain, no stock market trading,” says Welz.
In his book, Welz refers to a study where 120 traders were given access to a trading system that had proved statistically to be profitable in 19 out of the last 20 years. After a year of trading, 119 out of the 120 traders lost money and 1 trader made a profit with the system. All but one trader had the wrong mindset to follow the system. “Success comes from the head,” Welz says.
The man himself explains his views on trading psychology in a brief video for Consorsbank.
Here are some of the top pointers from Welz…
The first mental block that new traders must overcome is the idea that ‘I can get rich quickly with trading” according to Welz. Even the most experienced traders will admit that their initial motivation to begin trading was money and a quick-fix for wealth creation. This mentality is a problem because as Welz puts it “by wanting too much, too quickly” it hampers the other abilities the trader might have to turn a profit.
The traders that find success will at some point – typically early on – have to end this “auto-regression against themselves” before they can begin to focus on the “process” of trading and accept that it takes time to earn money consistently in this business.
Welz takes the view that “people are not made for trading” because we are “emotional beings” and “our main goal in this life is to keep safe” and for that we need protection and security.
The concept of taking risks on a regular basis when trading, is counter to that natural desire to keep safe. So the result is when people try to trade, they take actions that in nature would protect them, but in trading actually harm them.
A second phenomenon that creates “trading fear” common to all traders is that we as people are shaped by our upbringing as well as by society, through culture and the media. All these forces combined create a certain common way of acting in order to function in society. The trouble is that the societal behaviour that is programmed into us from birth is not the behaviour that succeeds when trading.
What Welz aims to do through his work and his book is to reprogram our brains with behaviours that work for trading.
Welz discusses the concept that once you have repeated an action or even a thought process 400 times, then it becomes a part of the unconscious mind- i.e. you no longer think about it – it just happens automatically.
This is not a theory Welz dreamt up, scientists are increasingly aware of how much our subconscious controls our behaviour. Dr. Joe Dispenza states that a healthy human brain can process 400 billion bits of information per second. BUT we are only conscious of about 2,000 of those 400 billion bits of information. Most of the information of reality is processed by your unconscious mind.
The idea is to make the best trading practises part of the unconscious mind and overwrite the bad practises that might have been in your brain by default.
Part of the Welz method is to program as much as how he should behave with the financial markets into his trading plan. That includes
-When to buy
-When to sell
-What to do when the prices have moved in your direction and
-What to do when the market moves against you
It is in effect an instructional manual for how to behave, thus lowering the chance of unhelpful subconscious behaviour.
On any single trade, a trader faces close to a 50/50 chance that it will turn a profit or make a loss. The mistake that beginner traders fall into is thinking that the whole endeavour is just a game of chance.
By becoming aware of your mindset and your behaviour and by creating a trading system with a “certain advantage” that factors in what actions should be taken in order to use this advantage, the trader creates a process that can beat the market over time.
Here we study and understand in our own way, The Welz Approach. In two words it is behaviour modification.
On first reading this sounds like something out of George Orwell’s 1984 – the important difference is that you are modifying your own behaviour on your own terms to reach your own goals – which in this case is trading success.
Here you can see that Welz believes a mere understanding of the kind of issues we have analysed extensively across several articles – emotional biases, discipline and contrarian theory – is not enough. Everyone has their own personal mental barriers that need to be broken down to ensure success. The question is how do you do that?
Norman Welz works directly on the brains of traders via the subconscious using hypnosis. Hypnosis is of course not the only approach to improve one’s behaviour but is the method Welz uses. The overall idea is that people must actively engage in a process of personality modification to make themselves mentally suited to trading. According to Welz, “people who are not willing to attempt this should not even bother with trading.”
If hypnosis sounds a bit strange, then we can take a detour from the work of Welz to another phrase that has been around a long time in the world of self-improvement: Auto-suggestion. The idea of auto-suggestion was immortalised in the classic book ‘Think and Grow Rich’ by Napoleon Hill published in 1938. Welz, just like Napoleon Hill before him, emphasises the importance of the subconscious or unconscious mind.
“The principle of auto-suggestion voluntarily reaches the subconscious mind and influences it with these thoughts.” – Napoleon Hill
“Nature has so built man that he has ABSOLUTE CONTROL over the material which reaches his subconscious mind, through his five senses, although this is not meant to be construed as a statement that man always EXERCISES this control. In the great majority of instances, he does NOT exercise it, which explains why so many people go through life in poverty.” – Napoleon Hill
With his unique approach, Norman Welz gives his own answer to the age-old question “Can anyone be a trader?” His answer is YES – if they make the necessary changes to their mindset and behaviour. But very few will naturally have this mindset in place – and that goes a long way to explain why it takes time and patience to be a consistently profitable trader.
We share Welz’s view – via all the writings we have posted – that through some dedication to personal improvement, traders can shortcut some of the time needed to find success in trading.