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Emotional Sabotage In Day Trading

Emotional Sabotage In Day Trading

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It's a funny thing really. We spend our entire childhood and adolescence learning to control and develop suitable responses to our emotions, especially strong emotions.

We learn from our parents, our teachers, our peer group and our idols by observation and comparison. I would think that most people when they enter into trading would believe that they have some sort of handle on themselves in this respect. So why is it that when we enter the trading arena, so many of us struggle with our emotions getting out of control? There are clearly going to be a plethora of reasons which may vary from trader to trader. I'll suggest three for you to deliberate.

Unresolved Personal Issues

This is a big thing. Its one of the main reasons for why I always say that trading is a path of self-discovery and not just learning the markets. Any issues which you have either suppressed from your past or even are unaware of due to situations never persistently arising previously, you can guarantee trading will churn them up. Whats more, until you identify and face them, theyll crop up time and time again. A fairly common scenario is of a trader consistently profiting over a period and then giving it all back in a fraction of the time.


Simple but dangerous. Its a vicious circle which often starts with failure to properly prepare for trading each day and prepare for trading generally. You dont prepare-you do something dumb and avoidable-youre angry in the moment of the trade-you beat yourself up about it afterwards-you lose confidence in your ability-you fail to prepare for next time. Trading is about cumulative effort and results, not just one trade or one day. Negative emotions can not only be demoralizing and demotivating, they can be mentally and physically draining.

Immediacy Effect

When you are trading and are required to take some sort of action, often its the strongest emotions which come to bear right before the execution of a trade (entry or exit). This is perhaps the most difficult aspect to overcome without effective strategies to deal with it. When we suddenly have a rush of emotion of any kind, we are hardwired to act based on it. The trouble is, markets dont care and in fact trade in a way which often compounds the issue. Emotions will distort the reality of what is going on and urge us to act in a way which is often counter-productive.

There are three routes which you can follow in your attempts to deal with your emotions. However, you must think carefully before deciding which might suit you best.

Emotion Harnessing

This one is a struggle for me personally, yet I do know of people who are good at it. Anger and fear and greed make them focus so well that they come out on top. Actually, they tend to not perform well until they become emotional. Kind of like the way some fighters psych themselves up before entering the ring. If you are really good at reading the market, it can also be a strong indication that somethings amiss. Like the adage says though, you dont need to be right to make money.

Emotion Moderation

For many people, perhaps this is the one that they will want to try. When emotions appear, you recognize them and bring yourself back to balance. All people will have some emotions at some point is the argument. Ideally, the emotion should be recognized before it is a problem, in the building up stage- negative or positive emotions. Failure to do so means that you will only be likely to see the emotion fully, when you are in a position which requires action. Bringing yourself back to a state of emotional balance can take time and this is increased with the level of which the emotion is exhibited.

Emotionless Trading

When I first heard of this idea it was early on in my career. Trade like a robot was the suggestion. I found that at times it was easy and other times it was not. There are some people who are brilliant at it and some who are not so great. I disagree with the notion that emotions are always useful to a trader and in trading in an automaton-like way a discretionary trader loses an edge. There are some people who can only function in this way and they do a very good job when doing so.

The key to your choice is really about what you are like as a person. I feel this requires a high degree of self-honesty. The really important idea is to be aware of the type of emotions you will often exhibit and have awareness of when and why they precipitate.

What works for me

For my own trading, like so many other things in trading, I use a hybrid of methods. Emotion moderation is certainly the way for me when things arent going well. Without it, trading can easily degenerate into something which isnt pretty! At this point, its imperative to ask why I am getting emotional. Is it the market, is it my own execution or perhaps have I not fully prepared before starting to trade?

The answers to these and other questions will increase my chances of pulling it back. When Im really trading superbly and in the zone, Im definitely doing things almost without thinking about them. Its a seamless integration of preparation and method, where emotions just dont come into it. Its not like this is the case all the time though!!

What can you do to improve things?

Firstly, you have to understand yourself to some degree. Know the kind of emotions you have when things tend to get out of control and write them down.

Note the sorts of market conditions when they appear and look for patterns. This is a great reason to keep a journal if not for anything else.

A really useful exercise is visualization. Professional athletes often use this technique and it can be quite powerful if used in the right manner. Practice can be for both positive and negative scenarios which are likely to get your heart pumping!

A more and more common idea not just in trading but also in broader circles of society, is the practice of mindfulness. Simply put, it is the practice of awareness of the now. Self-observation is a particularly useful aspect of this in controlling wayward emotions. It takes time and effort but is also well worth it.

Anyone who has ever had issues with controlling emotions while trading, not necessarily on a day-to-day basis, I would urge to think carefully about this subject. As skilled a technician as the trader may be and as quick they are to spot opportunities to exploit, raw human emotion can overwhelm anyone given the chance. Its up to us as traders to prepare ourselves to deal with these emotions as effectively as we possibly can in order to stay in the game in the long run.

by: John Jay
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