Last week's column focused on how to trigger a neutralizing shift in emotions during trading. The next tool is the second part of the process, and it helps to reinforce the shift we want to make. Like the trigger, it relies on the associations between the physical senses and the mind. Instead of aiming to do something that helps make the shift, as the trigger does, this one aims at stabilizing the shift. This technique is called anchoring. The trigger and anchor are designed to be used together as a smooth process to establish the shift and then fortify it. Once we've made a shift, we can hold onto the neutralizing thought or feeling by again performing a simple connection with the visual or kinesthetic senses. For example, perhaps we're feeling a little anxious after watching Toll Brothers ( TOL) go down. We employ the trigger behavior, let's say by pressing the left thumb and forefinger together, and this helps us to begin the search for neutralizing thoughts. One set of neutralizing thoughts might be: "Don't get excited. It's only short term, based on fears of war, possible rising interest rates and the consumer getting in over his head in refinancing. Everybody has 'bubble' on the brain and is afraid of bombs bursting in Iraq. But the fundamentals of the company haven't changed. The real estate market is continuing strong right through the holiday season, at a time it traditionally slows down. Just hang on." These thoughts might then be reinforced by an anchoring behavior, such as looking at a smiling Buddha statue on the bookshelf. Anchoring begins to build a mental and neurological association between the positive, neutralizing thoughts and the anchor of a pleasant smiling Buddha statue. Over time, it's possible (and even likely) that just glancing at the statue will further reinforce the positive feeling that goes with neutralizing the negative thoughts.
A Pleasing Setting for Easy Anchoring
And here's the good part: Once a firm mental association is made with the anchoring object, it can have its positive effect without you even having to consciously think about it. In other words, the anchor becomes unconsciously reinforcing simply out of habit. Since bad habits work this way, it makes sense that good ones do, too.