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Questionnaire for Traders

The following questionnaire asks you to assess your emotional experience during your trading. Specifically, you’ll be rating how often you’ve experienced the following feelings over the past two weeks. Below, I’ll explain how to score the questionnaire; please complete the items before looking at the scoring. My next post will explain how to interpret your results.
Please use the following scale for your responses:
1 = rarely
2 = occasionally
3 = sometimes
4 = often
5 = most of the time
1) I feel happy when I’m trading _____
2) I feel stressed when I’m trading _____
3) I feel alert and energetic when I’m trading _____
4) I feel discouraged when I’m trading _____
5) I feel capable of succeeding at my trading _____
6) I blame myself when my trading doesn’t work out _____
7) I feel satisfied with my trading results _____
8) I feel edgy and frustrated when I’m trading _____
9) I feel in control of what happens in my trading _____
10) I make impulsive decisions when I’m trading _____ (more…)

How bear markets affect our decision making

READ THIS NOWAs of this Friday, the S&P 500 has gone 980 days without a 10% decline, according to Birinyi Associates, the fifth-longest such stretch on record. This past week’s nervousness, set off by the insurgency in Iraq and the surprise defeat of U.S. Rep. Eric Cantor, is thus the perfect pretext for investors to think about what they will do when the market takes a serious beating.

For, sooner or later, it surely will—and those investors who have honestly prepared for it will stand the best chance of surviving unscathed. In a downturn, you won’t be the same investor that you are now—unless you rely on rules and procedures, rather than willpower alone, to regulate your behavior.

New research shows that the kind of stress brought on by a collapsing stock market fundamentally changes how people make financial decisions. (more…)

Unavoidable Disappointment

If you’re trading for emotional satisfaction, you’re bound to have lots of problems and continue to struggle, for two reasons. First, often that what feels good is often the wrong thing to do. Second, the game of trading, and it is a game in many respects, involves being disappointed fairly often.

Even for profitable traders a certain number of trades will lose money, and even the winners don’t always work perfectly or match your exact expectations.

As a trader, it’s impossible to avoid disappointment, not every trade is going to work. You get stopped out and then see the trade go on to work without you, or you hesitate and miss the move, or you exit early to book profits and watch the move continue without you.  When you think about it, trading involves a lot of disappointment. I cannot think of any other job that involves disappointment on such a regular basis. Even the most successful traders experience this. No way to escape it.

When you experience a lot of disappointment you’re going to experience a high degree of stress. And when stress overwhelms you…and by the way, stress can masquerade as performance anxiety or pressure to succeed, the emotional part of your brain will run right over the logical analytical part of your brain.  You’ll know when that happens because that’s when your rules go out the window or you veer from your plan and you take a revenge trade or an impulse trade or you freeze up and hesitate. (more…)