Learning to understanding my emotions

Many people tend to think that one needs to remove all emotion from trading. From my experience, this is not possible. There are some very old and primal instincts that we are ingrained with that can be challenging to overcome. Removing those primal instincts – and I’m talking about Fear and Greed here – is perhaps possible, but probably not plausible. Therefore I think that learning to control emotion will not only be a lot easier, but will also not turn you into the robot that never smiles and just can’t seem to embrace the concept of dancing.

So to avoid turning into an emotionless void, while also trying to avoid making silly trading mistakes due to bad decisions made under the influence of irrational emotions, I need to teach myself to control my emotions in such a way that it is not to the detriment of my overall mental wellbeing and also to the advantage of my trading.

It may sound a little crazy, but this is a real issue. The argument that you had with your spouse or parent or child can and will influence the way in which you make decisions. The frustration you experience in traffic will overflow and accumulate with the frustration you feel because of that trade that is going against you. The impact that our everyday emotions have on our ability to make rational decisions, and thus good trading decisions, cannot be ignored.

From what I have read and understood, there are a few things one can do in order to achieve emotional control. The four A’s of emotional control, if you will. I don’t think they go in any particular order as the circumstances around the constant stream of decisions that need to be made and the emotional framework in which they need to be made are constantly changing. I do however think that the last one will always be to Act.
The basic idea is that there are 4 steps:

The first step is to Acknowledge the emotion. “I am feeling angry because I didn’t take my stop loss”, or “I am feeling confident because I banked a big winning trade”. There are a variety of them and each has a different effect of you. You need to first understand what emotion you are feeling and most importantly, what is causing it. This should help you deal with the cause of your emotions and bring you back to a rational state in order to make a good decision.

Then you could Anticipate the affects that various possible outcomes of a potential decision would have on your emotional state. “If I took this next trade and I lost my entire month’s gains if it didn’t work out, I would be very angry with myself and feel rather crushed and hopeless”, or “If I take this next trade and it also turns to gold, I will feel extremely confident and feel like nothing can ever go wrong”. This should help you deal with the effects of emotions before they are able to influence your decision making. This way you are creating a road map of your emotions and it should be easier for you to acknowledge them when they crop up.

You then need to Accept these various outcomes and try to understand how these new emotions can influence your decision making. “I am on a hot winning streak and I am feeling supremely confident”, or “I just banked a huge loss and I am feeling very scared of the market”. Again the purpose here is to bring you back to a state of rationality. By accepting the emotion you are feeling, you are taking the power away from it.

The last step would be to Act in a rational manner. You now understand your emotion, what has caused it, what could influence it and how it could change. You also accept the potential impact that this emotion could have on you. Knowing all these things should allow you to sit back and see the bigger picture, if you will, and allow you to make a decision independent of emotional influence.

I have to say here that I am no expert at this and that this concept is rather new to me too. It is something that I will be working on in the months and years to come because I believe that it can be incredibly helpful in all aspects of decision making. The purpose is not to remove emotion, but rather to understand it and counteract it if it is proving detrimental to your own best interest. Seeing as trading is essentially just that, making decisions that are in your own best interest, I believe that mastering this should be one of my highest priorities.

@TraderPetri
28 April 2015

Ignore the noise and trade the charts

Over the past few weeks it feels like the market has become that extra degree more difficult – to me at least - and I have noticed an increase in what I perceive to be market noise. Market noise to me is news-flow in general, but mostly other traders calling tops and bottoms and handing out “I told you so” ‘s like it was free candy.
Sure, the other traders have been right more than I have over the past few weeks and I have no shame in admitting that. But allowing them to influence my way of thinking has never worked out for me in the past and therefore I doubt that it will start working out now. Not because they are wrong, but because my personal trading style differs from every single other person’s out there. I have been in the situation before where I copied the trades of a phenomenally successful trader, lost a ton of money, and watched as he banked profits on the very same trades I stopped out of. This was because his way of trading was vastly different to mine. Therefore I need to stick to my own method and rules and not allow outside influences to have an impact on my trading.

A few years ago someone told me that I should “trade with my eyes”. What this means is that you need to trade what you see in your charts and ignore whatever the news and other people are saying. If you have levels that you are trading, stick to them. Do not let the fear or confidence of others influence the way that you make decisions.

If you have been watching a setup develop over a few days or hours or whatever timeframe you trade in, do not allow the comments of others or what is being said on the TV make you either; enter your trade before you get a valid entry signal or, abandon the trade before it has confirmed a failure. Stick to your rules and trade the setup that you saw. Equally as important is that if you are in a trade, do not let others influence you to close early or, not close when you reach your target.

As a practical example; I was short ACL (Arcelor Mittal) with a target of R19.00 and I closed it early because I allowed myself to be influenced by someone else. I can’t blame anyone for this other than myself and therefore must take responsibility for it and learn the lesson made available from the experience.
Trade the charts, ignore the rest.

@TraderPetri
15 April 2015

Three Magic Words

Trading is a paradox. Everything about it goes against what we have been taught in school and by society. Concepts like “it’s wrong to be wrong”, for example, don’t apply to trading. Trading is also, I am told, one of the most difficult skills to master. In fact, the most successful traders in history often said that the only reason they were successful to start off with, is because they were willing to keep learning and improving.
By now, I am sure that most readers understand that doing better analysis and gaining more knowledge is not the answer to consistently successful trading. There are three major concepts though, that will help traders achieve the success they are striving for. These are Time, Patience and Perseverance.

Time

Time is our most precious commodity. Once gone, it is gone forever. We often take the meaning of time for granted though because we know that, given time, all things can be accomplished. So even though time is constantly working against us, it is only by applying ourselves over a long period of time that we can achieve any true measure of success. We need to teach ourselves to worry less about tomorrow and focus more on the present moment. In trading you need to make a decision now and thus your focus needs to be in the now. At the same time, the journey to becoming a successful trader is going to take a long time and we must accept this fact.

Patience

In a sense this ties in with time very closely. It also means that sometimes we have to be incredibly patient with a trade. The best traders are often identified by being those traders who are patient enough to wait for the right setup or the right trade to materialise before taking action. This is the patience to sit around and wait, and do nothing, for days, while you wait for the right opportunity to take a trade. We are taught that if we are not working we are not productive, and thus believe that if we are not actively trading in and out the market all the time we are not working. The truth is actually that most of this game is waiting for the right opportunity before doing anything. In reality this means that we often have to show a tremendous amount of restraint to not take trades and exercise a tremendous amount of patience to wait for the right moment or predetermined set of circumstances to take action.

Perseverance

The ability to hold a course of action, belief or purpose without giving way to the forces of fear. I cannot stress enough how important perseverance is. 90% of new traders fail. The reason is that those 90% of traders give up after having a lost more than what they can bear. I cannot tell you how much money I have lost in my pursuit to become a trader, or how many times I literally cried over how much money I’d lost and wondered why I ever chose this particular dream. I can however tell you how grateful I am to my friends and family who allowed me to live on their couches while I kept trying to make this trading thing work. People ask how to become a trader and the answer is very simple. Do not give up. It will take a long time, it will make you question your priorities, and it will make you question everything about life and yourself. If you stay true to the course though, I assure you that it will reward you. “Persistent people begin their success where others end in failure.”

Perseverance, patiently applied over time will make you successful. Not just in trading, but in all aspects of life. There is no easy road to becoming a successful trader. School fees have to be paid and single minded focus needs to be applied. Perhaps not what a lot of people want to hear, but the cold hard truth. Personally, in my own development, I still have a lot to learn and a long, long road ahead. I am by no means as good as I could be and only by being cognisant of these three concepts will I have any hope of getting to where I aim to be.

@TraderPetri
1 April 2015