Make Trading Decisions without Emotion
To trade without emotional involvement. It is a necessity, and
yet it is virtually impossible. Certain things in life just
bring out emotion, like making decisions that effect your
financial outlook. There are two things that make this uniquely
harder for traders, than for non-traders. One is, we are likely
to be more involved in our financial well-being than
non-traders. Some people would even say our priorities are out
of whack, and perhaps they are right. But nevertheless, that is
the way we are, and if we weren't that way we wouldn't be
traders. The second factor that makes emotionless trading very
difficult is, this is likely to be our passion. We aren't
singers, humanitarians (hopefully we do share our wealth),
writers, politicians, spiritualists, we are traders, and are
likely to be passionate about it. Many of us to be honest, love
it. Love it like Pittsburgh loves their Steelers, irrational,
all consuming, eats us up inside love it. And yet we know in our
heart of hearts, or more importantly in our logical, rational
part of our persona that we can't be emotional about it. Not be
emotional about that which we love?? It is one of the hardest
things in the world. That is why Doctor's don't treat family
members.
One of the easiest traps to fall in, is to be angry at the
markets. Like a new love, nothing can get your hackles up so
much as that which you love. And when the markets fail you, that
love has disappointed you. And when love disappoints rage can
easily follow, just ask your teenager. It really fires that
special spot in your belly. The problem with becoming angry at
the markets, is you want to get back at it. But to traders the
market is the epitome of unrequited love. The market has no
emotion, you are fighting a losing battle, if you think you are
going to get back at it. Because it doesn't care. The bad thing
about this is that you are likely to trade horribly because of
this emotion, if it goes unchecked. You will override your
systems, you will trade without thought, you will in fact mirror
the very thing you are trying to defeat. Emotion not thought
out, which is what huge market swings are.
The second pitfall of anger is similar to the first, but perhaps
not as devastating. You are not angry so much as you want to
recoup your losses. Like a horse bettor who got skunked at the
track,, and borrows money from Uncle Rich, you increase your
bets, throw out money management principles and press to recoup.
Financially this can be more devastating than anger all on its
own. Often though it is the first step to the anger mentioned in
the previous paragraph. The first curl in a spiraling out of
control, that will likely break you in the end.
Anger isn't he only emotion the markets bring out in us. The
opposite of anger is euphoria, everything has gone your way.
Some trades have gone beyond your wildest expectations. And
ca-ching the money is rolling in. Up go your trades, and you are
on a roll like no other. You have figured it all out, and the
market is yours. She loves you, just you, and will do what you
want. Again out go the principles that got you there, and out
goes your winning streak. And viola you have fallen into the
anger trap. Or at least the recoup trap, you beg forgiveness, if
the market will just return you to where you were before
euphoria made you greedy. You confess your sins and beg for
mercy. But again the market has no mercy, the market cares not
for you.
In my own experience it is after this roller coaster, has cut my
trading funds in half, that I begin again to trade without
emotion. So how did I get to the point, where there never
happens again? Where the market does not elicit anger or
euphoria. Well I don't think you ever do. It is very hard not to
have emotions when you get pummeled or a positions breaks to the
upside wildly. So what do you do?
You admit it, you acknowledge it, you are aware of it. You say
,yes that just ticks me off, why would that trade do that. And
you go form there. You decide what to do, if anything after you
acknowledge your emotions. You stick to your trading rules. You
can then go back and learn from the event. Which is the real
value of mistakes. You can analyze what went wrong, compare it
to what has gone right in the past. Perhaps change your rules,
perhaps accept that things are going to go wrong in the game of
trading. And that is the price you pay for the right trades. But
you NEVER make a trade based on emotion.
You can still love the market, the game of trading. I do, and
then I hate it too. I think about my sailboat beckoning, and
want to bag the whole thing. And that day will come. But the
difference is I love the markets from a distance, from a
reflection, I love it as an accomplishment of man. It has been a
huge part of my adult life, and has shown me every aspect of
human emotion, and has taught me one very, very nice lesson,
patience.