Archives of “emotional reaction” tag

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There's nothing you can do

  
  Education
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You might be at a stage of feeling very frustrated with yourself.

I know what this feels like – you begin to marvel at your own lack of discipline and ability to do what you know. It’s like “Arrgh! Why can’t I just WAIT for the damn setup?! Why am I such a screw up at this?!”

Speaking from experience, it’s frustrating because you just want to get on. You have plans and goals and now you see that your own idiocy is preventing you from making any progress towards them. All I can say is that there’s nothing you can do about this period except keep going and wait for it to pass… It’s deeply ingrained. You have to trade through it; six months, a year, two years… Grit your teeth and plow on.

In a way, you have to relax into your own ability to seemingly pick every wrong move in the market. Just accept it. Providing you are not losing big money, you CAN relax into it. The good news is you are in fact building up a tolerance to taking losses during this period – you ARE actually developing a skill. It’s called “risk tolerance.”

If you’re still in that “God dammit!” phase then do this: just keep losing and losing, but begin to try to take the losses without any emotional reaction what so ever and move immediately to the next trade.

Once you can do this, you then move on to learning to let go of your need to have success NOW. This combines with learning to do nothing in the market – learning to wait. Why not wait, you’re gonna lose anyway right? So you might as well wait…

Now you’re building up patience. This is a foundation that leads to a little magic further down the track, when you get to the point where you see that you could take any system and trade it properly to discover its true potential. All those millions of methods you tried for 3 days and abandoned in disgust now sit there like a pile of spare parts in the bike shed. You become interested in them again – there could actually be a few decent ideas amongst that lot.

So learn to lose.
Then learn to wait to lose.

You will be building risk tollerance and patience. There are more steps after that, but there is no way to skip this process, it has to be gone through by all.

Fear and Greed in Financial Markets: A Clinical Study of Day-Traders

  
  Education
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GreedkillsContrary to common folk wisdom that financial traders share a certain set of personality traits, e.g., aggressiveness or extraversion, we found little correlation between measured traits and trading performance. The study finds that subjects whose emotional reaction to monetary gains and losses was more intense on both the positive and negative side exhibited significantly worse trading performance. Psychological traits derived from a standardized personality inventory survey do not reveal any specific \trader personality profile”, raising the
possibility that trading skills may not necessarily be innate, and that di erent personality types may be able to perform trading functions equally well after proper instruction and practice.

Being prepared

  
  Education
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Make a list of everything that can go wrong and determine how you will respond to that situation. That will be the key to your success – knowing how to respond to the unexpected.”

Ask 3 essential questions:

1. Why am I taking this particular trade? ( is it part of carefully prepared plan, or is it an emotional reaction; what is the catalyst behind the move and does it have the potential to sent the stock’s price higher; are there other better trading alternatives for my money)

2. What if a am wrong? (figure out where and when I will exit, before I initiate the trade; where is my stop loss and does it makes sense to be put there; how much am I risking? How am I going to protect my capital against “unexpected” gaps)

3. What if I am right? (how am I going to protect my profits; where I would exit and why)

Remember that good trading is all about managing risk. If you are entering a position without knowing where you are getting out when you’re wrong, then you’re sunk before you begin.

Learn from your mistakes

  
  Education
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“The single most important advice I can give anybody is: Learn from your mistakes. That is the only way to become a successful trader.”

David Ryan

Make it a habit to review all your trades once a month. Notice where you entered and ask yourself why did you initiated such a position. What was the underlying reason behind your move. Was it pure emotional reaction or strictly following a plan. What were your exit rules and how well did they help you to preserve capital and maximize profits. No other exersize will teach you more about your weaknesses and strengths.

Over Trader Anonymous : Here's A Great Tip

  
  Education
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overeating

Over trading is the single most damaging thing to an account. the commissions alone will eventually slowly eat away at capital and that’s not even taking into consideration the mental and emotional drain you will go thru. Your soul goes into a dark place when you over trade and get poor results. Sometimes it made me even angry and i used to lash out at others.It took me years to figure out that trading more ironically meant more losses, (more…)

Mastering Impulse and Fear

  
  Education
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The Trader/Subscriber

1. When what I am trading is not moving, I need to get better at sitting on my hands. Something in me keeps pushing me to pull the trigger — and it often wins.

2. For every trade, I need to place my stop at the “If the price gets here, I was wrong” location and no closer. If the size of that stop is just too scary, I need to pass on the trade. This is the way he sets his stop.

This is  our response to this Subscriber

I think trading live for you is important. Though good for learning methodology, learning psychology does not happen when trading simulated. Different worlds. When risk enters the picture, our hidden assumptions about uncertainty comes to light — if you’re looking for them. In your scheme this is how you are discovering your placement of stops from what I can see. They appear to be a mixture of standard textbook knowledge of stop strategy and your emotional reaction to them.  (more…)

Surfer vs Gambler

  
  Education
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surfer-The ocean and the markets have many things in common. For one, they are both a dynamic event that is constantly in flux, and from the average traders point of view, beyond any possibility of manipulation. It is what it is; it will go where it goes.

 

This analogy works if we consider the mindset of a surfer. He knows that he is in a passive relationship to the sea, yet he also knows that he can develop a skill in relationship to its ever changing movements in order to reward himself. The surfer cannot demand anything from the sea, he can only wait for it to present him with an opportunity and engage it when the time is right. To go in during a total calm or a tsunami would be both equally foolish; he must wait for the conditions to be right. (more…)

Perfectionism and Avoidance

  
  Education
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Perfectionists are often motivated by avoidance: the need to avoid unpleasant emotional experiences. Traders who seek the perfect system are also likely to be motivated by the need to avoid unpleasant experiences.  

Avoidance
Imagine taking part in a game where participants are divided into two groups, blindfolded and asked to stick out their right hand. The first group is given ten dollars each time they extend their hand. They soon learn how to play the game and, no doubt, enjoy playing at every opportunity.The second group is also given ten dollars, randomly, about 80% of the time. The remaining 20% of the time, instead of being given a dollar, their hand is jabbed with a pin. Most participants in this group are likely to quit fairly quickly — they focus on the pain and ignore the reward.With trading losses, the only pain that you will suffer is the emotional reaction to a loss — often far worse than being jabbed with a pin. If you concentrate on avoiding losses rather than on maximizing your overall gain, you are unlikely to succeed at trading. 

Surfer vs Gambler

  
  Education
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waiting_for_waveThe ocean and the markets have many things in common. For one, they are both a dynamic event that is constantly in flux, and from the average traders point of view, beyond any possibility of manipulation. It is what it is; it will go where it goes.

 

This analogy works if we consider the mindset of a surfer. He knows that he is in a passive relationship to the sea, yet he also knows that he can develop a skill in relationship to its ever changing movements in order to reward himself. The surfer cannot demand anything from the sea, he can only wait for it to present him with an opportunity and engage it when the time is right. To go in during a total calm or a tsunami would be both equally foolish; he must wait for the conditions to be right. (more…)
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