The 4 Laws of Behavior

Change: How to Break Bad

Trading Habits and Build
Good Ones
Presented by Clement
Saturday 20th May 9-10pm EAT
Introduction
Hi everyone, My name is Clement and I'm a Forex Trader, I mainly trade the news. I'm here
today to talk about how to effectively apply the 4 laws of behavior change to one's trading.
I read the book Atomic Habits early this year and it completely changed my way of thinking
about habits. The book introduced me to the 4 laws of behavior change:
• Make it obvious.
• Make it attractive.
• Make it easy to do.
• Make it satisfying.
These laws can be applied to any area of life, including trading. By following these laws, you
can make it easier to develop good trading habits and break bad ones.
In this presentation, I'll discuss each of the 4 laws in detail and provide examples of how you
can apply them to your trading. I'll also share some of my own experiences with breaking bad
habits and building good ones.
I hope you find this presentation helpful.
The Habit Loop
• Cue: A cue is a trigger that tells your brain to initiate a behavior. For
example, the aroma of food might be a cue that tells you to eat.
• Craving: A craving is a feeling of wanting something. When you see food,
you might start to crave it.
• Response: The response is the behavior that you engage in. In this case,
the response would be eating or buying the meal.
• Reward: The reward is the feeling of satisfaction that you get after
engaging in the behavior. In this case, the reward would be the taste of the
food.
The habit loop is a neurological feedback loop that helps us learn and
automate behaviors. The cue alone might be enough to initiate the habit.
The 1st law
Make it Obvious
The cue should be obvious.
This makes it easy to start a habit and difficult to forget. For example if you want
to start eating more fruits just get a bowl and place it on the dining table with the
fruits in.
One of the Best ways of trying to start a new habit is to Identify a current habit
you already do and stack the new habit on top or in between.
This is called habit stacking.
In trading for example, if you want to start Journaling the best time to do it is
usually at the end of the day, therefore you can stack this activity on top of what
you already do.
Personally, I journal after I’m done cleaning utensils just before I watch a movie
then go to bed. You can try doing it too. My former self was just cleaning utensils
then Movie then bed time so I stacked the Journaling habit on top of something I
was already doing.
In the Image beside, it is shown how habit stacking
is done. Personally, I wouldn’t recommend
stacking more than 2 new habits in between old
ones.

Another Good trading habit that can be induced

into your routine is physical exercise in the
morning when you wake up.

I personally stacked these new habits, taking a

morning walk then checking the News that’s after I
wake up. (I don’t take breakfast until 3 hours after
I’m awake)

“Early exercise will help you start the day with more
energy, focus, and optimism. Plus, after a morning
workout, you're more likely eat healthy and say
active throughout the day.”
The two most common cues are time and location.
If you want to start a new habit you have to set a time and location for it. In the
above example of journaling the time is already set, as for the location it is
recommended that one chooses a location where a similar activity already
happens. In this case my work station is suitable for this.
The location has to be an environment where the cue already exists, in this case a
book and a pen are the cues. Because I also journal with my PC it has to be there
and it has to be on and the app for journaling open in the background.
Inversion of the 1st Law: How to Break a Bad Habit
Make it Invisible
Eliminate the Cue.
If you want to break a bad habit first thing to do is to eliminate the cue and prevent the start of
the habit loop.
In trading, one problem that can be solved this way is emotional trading.
The majority of traders fall victim to emotion trading during times of high market volatility,
reason being they don’t have a plan or they’re not following it.
The solution in this case can be easy, first step is to know times when the market will be very
volatile. I know of two main time windows when the market volatility is at the extreme, the
New York Session and During major news releases.
If you have this problem of emotion trading and you can clearly see there’s a time window
where you fall prey to it first thing is to eliminate the cue, in this case the Cue is seeing the big
move in the market.
Eliminate the cue by limiting exposure to the market during this time window. Go find
something to do.
If it is necessary for you to watch the market, to watch it without making trades means you
shouldn’t monitor the market from your trading app. You can use News websites with Live charts
instead.
2nd Law
Make it Attractive
This is the Law that deals with the Craving part of the habit loop.
Habits are a dopamine-driven feedback loop. When dopamine rises, so does our motivation to
act.
According to how dopamine works the anticipation of a reward, not the reward itself is what
gets you to take action.
Temptation bundling is one way to make your new habit a bit more attractive. This is the act of
pairing an action you want to do with the one you need to do.
In trading one good habit that can be adopted via this method is Patience.
A lot of Patience is needed in trading, either when waiting for a setup to form, waiting for your
trade to playout or just waiting for something.
In the previous slide I have mentioned that one can avoid emotion trading by staying away
from the market, that means you have to be patient and wait for the volatility to settle. This is
where the temptation bundling technique becomes most useful.
 As you wait, you can watch a series or a movie you like, you can also
seize the opportunity and use that time to spend quality time with
your loved ones if you have any, lol.

The activity you choose to do during this period of waiting has to be

realistic, consistent with the time frame of waiting you’re doing.

For example if you are waiting for a trade to playout, that might take
3-5 hours if you are an intraday trader so of course the activity you
choose to do has to be something that you can be sure within that
time you’ll be done.

To prevent Patience from becoming time-wasting set periodic

alarms to remind you that you are in the middle of something.

You can also set Price alerts to alert you when price hits your POI as
you go on with an activity you enjoy instead of staying glued to the
chart all day. This method however is only viable when you are close
to your work station since Price alerts need to find you ready to
make your move.
“we naturally adopt habits that are praised & approved of by our culture because
we have a strong desire to fit in”
The most effective way of making a habit attractive is to join a culture where:
- Your desired habit is the normal one
- You already have something in common with the group
“the normal behavior of the tribe often overpowers the desired behavior of the
individual”
This is where joining a community of traders becomes necessary, especially for
new traders who are trying to get off the ground and be consistent in their trading
activities.
To know which community is best for you, you need to make sure you have
something in common. Most trading communities I know have campus students
as the majority of the members because that’s something I have in common with
them.
The working class would join a community of other traders who are working class
too because then it would be easier for them to fit in and adopt the new habit of
consistent trading.
Inversion of the 2nd Law
Make it unattractive
Habits become attractive when we associate them with positive feelings, inversely, habits
become unattractive when we associate them with negative feelings.
Change your perspective to make the bad habit seem unattractive, repeat to yourself the
consequences that come from the bad habit.
Among the bad habits that can be dealt with by this method is overtrading and over-
risking.
Overtrading – “More trades do not increase your chances of winning, they increase your
chances of losing”
Over-risking – “Take small losses to stay in the game long enough for the big wins”
There are many such short concise statements to remind you of the negative impact of the
bad habit. For them to be a constant reminder, just write one on a sticky note and stick the
note at the bezel of your monitor or somewhere where you can read it clearly as you trade.
Overtime, your subconscious will gravitate you away from the bad habit.
This note you write has to be short and concise.
“winners are losers who never quit, losers are
winners who quit”
“One day at a time”

At school in my room, on the wall directly

behind the screen of my monitor I stuck this
note early this year as a constant reminder to
keep pushing.
The last line “one day at a time” reminds me to
take things slow and to plan accordingly.
3rd Law
Make it Easy
Reduce the amount of friction involved in starting your habit.
“the most effective form of learning is practice not planning”
Human behavior follows the law of least effort. We will gravitate towards the option that requires the least
amount of work.
Create an environment where doing the right thing is as easy as possible.
Apply the two-minute rule. The rule states: When you start a new habit it should take less than 2 minutes
to do it.
A good trading habit is being a student of the market and doing it consistently.
A good trader is always a student of the market meaning is open-minded and willing to learn.
Back-testing and keeping up with the market activity is vital for one’s trading success.
To start back-testing you should first try to do it in 5-10 minutes, then slowly maybe per week add extra 10
minutes such that overtime it’ll become something you do for hours effortlessly.
As for keeping up with market activity, I’ll share my personal experience with this one.
There are any variables that I have to keep track of, so I started by first setting up some apps on my PC to
open on startup and in full screen. Trading view and Discord.
As I gained more info about the market, stuff like Important websites to know, I keep them on my browser
as pinned tabs so that anytime I’m browsing the Web I can see the little icons on top and access the site
anytime I want without having to remember all the links.
I read a lot, an average of 5 articles per day. It’s a habit I have but it didn’t start like that, I started by
reading one article per day for three minutes only excluding the weekends.
I started by making it easily achievable.
Then slowly evolved to include weekends, then started reading slightly longer articles still one per day,
then set a new goal of Two articles, from there it spiraled into what it is now.
If you are a trader and you want to be good at what you do you have to keep learning always, and because
you don’t know what you don’t know that’s where now you need to learn from other people too.
On your Phone, to make a similar habit easy, download a news app of your choice and make sure it’s on
your Home screen somewhere you can see it easily.
Set small targets that are easily achievable .
Inversion of the 3rd Law
Make it Hard
Increase Friction.
Increase the number of steps between you and your bad habit.
A bad trading habit like checking your trades too often can be broken easily using the inversion if the 3rd
law.
This is when you are glued to your trading screen and can’t do anything else or when you can’t focus on
your day to day activities because you keep checking your trades too often.
To break this habit, you have to make it difficult.
On your smartphone you can Hide an app. I’d recommend deleting it altogether but the goal here is to do
something in moderation not abstaining altogether for it is important to monitor your trades.
If you have a PC then you can delete some apps from your phone and only use them on the PC since it
might be harder or even impossible to turn on you Laptop and check trades when you’re on the move.
I personally uninstalled Trading view from my phone and said I’d only use it on my PC to prevent myself
from looking for setups while I’m away from my work station.
That worked well, now I reinstalled the app on my phone but I don’t even open it because I managed to
break the bad habit.
As you can see, the phone automatically put the app to deep sleep
because it’s not used.
4th Law
Make it satisfying

We are more likely to repeat a behavior if the experience is satisfying.

The human Brain evolved to prioritize immediate rewards over delayed rewards.
The cardinal rule of behavior change: What is immediately rewarded is repeated. What is immediately
punished is avoided.
This one’s easy when all the other 3 laws have been applied effectively.
“one of the most satisfying feelings is the feeling of making progress.”
This is where Habit trackers come in. A habit tracker is anything that measures whether you did a habit.
Habit trackers provide clear evidence of progress and that feeling of making progress is satisfying enough to
keep you going.
In Trading, Journaling is the Ultimate Habit tracker. This is why many times I insist and I tell people, journaling
is what will give you the most significant progress within a short period of about a year.
In your Journal at the end of every day, week, month, record your progress and describe how well you did the
new habit you are trying to start.
The anticipation of writing something positive about yourself is what will keep you on the right track in the
beginning, later, trying to maintain the already existing positive image you have of yourself is what will keep
you on the right track.
You can’t understand what I’m saying here unless you try.
 The Image shows an example of a habit tracker.
Now this one is outside trading and it’s for
tracking various daily activities to do for a 31-day
period, a month.
As you can see here it’s very visual, the goal is to
make a full rainbow by time the month is ending.
Seeing your progress form a rainbow slowly one
day at a time is what makes the habits satisfying
to do everyday.

But for trading The journal is enough.

I started Journaling long before I even came

across the Book Atomic Habits. I started
Journaling Three months after I had started
trading.

Then later when I read the book that’s when I

realized the Journal is a Habit tracker.
A habit tracker is like looking at a mirror, If you stand too close to the mirror you’ll see all the blemishes
and make you lose sight of the bigger picture, missing a day isn’t fatal. As long as you make up for what
you missed, in the long run you will be fine.
Inversion of the 4th Law
Make it Unsatisfying
“An accountability partner can create an Immediate cost to an action.”
Naturally we don’t want others to have a lesser opinion of us. A habit contract can be used
to add a social cost to any behavior. It makes the cost of violating your promises public and
painful.
In my trading I made a commitment to make all my trades public this year. I signed up to
be a provider whereby other traders can connect their account to mine and copy my
trades.
That way, my clients are my accountability partners unknowingly because if I make
mistakes they’re going to demand an explanation and their trust in me will be eroded.
This method also makes the habit of good trading rewarding, I make a commission out of
the profits I bring in for them and they believe me more, therefore the Habit of good
trading is immediately rewarded and bad trading is punished.
Another way is to share your setups publicly, In the trading community you joined in the
2nd Law, the group members are your accountability partners, in that if your work is
inconsistent they might point it out and tell you you’re tripping.
If you choose to work in silence and say you’re better off alone, there will be a lot of
friction when building good habits.
"If you want to go fast, go alone; but if you want to go far, go together.“ – African Proverb
Summary

By following these four laws of behavior change, you can make it more likely that you will stick with your trading plan
and achieve your goals.
Here are some additional tips for applying the 4 laws of behavior change to trading:
 Set realistic goals. Don't try to change too much too quickly. Start with small, achievable goals and gradually build
up from there.
 Be patient. It takes time to change habits. Don't get discouraged if you don't see results immediately. Just keep at it
and you will eventually reach your goals.
 Find a support system. Having people to support you can make a big difference. Find a trading mentor or join a
trading community where you can share ideas and get feedback.
With hard work and dedication, you can use the 4 laws of behavior change to achieve your trading goals.
 I’m through!
Thanks for attending.

Questions & Comments