Sloppy Trades Come After Euphoric Moments

[Soultrader 12]

Hi Janice and fellow traders,

 

I wanted to dedicate a thread to euphoria after a string of winning trades or perhaps a big trade. One of the things I have noticed is that whenever I get into this euphoric stage, I tend to trade extremely sloppy. I have overcome this by adjusting my position size to 1/4 of the typical size whenever I realize I am in this mode.

 

Dr. Janice, have you encountered traders that go through a similar state of mind? If so, what sort of recommendations do you offer traders?

 

Not trading is one of the obvious reasons but under my current situation, this is not an option. Therefore, after reaching this euphoric state of mind I resort to small sized scalp trades so I can minimize my losses.

 

I think our big fat ego's take a hold of us until the market slaps us back to reality again. Today, it took me 3 out of 4 scalp losses to wake me back up and refrain from sloppyness after a string of 4 good trades. Any thoughts are appreciated in what traders can do to overcome these moments, yet still focus on trading in the right mind.

[thetradingdoctor 10]

Thanks, James. This behavior occurs with regular frequency. What appears to be happening is the the rat brain goes on a dopamine binge. The euphoria washes over the emotional ( rat) brain and effectively dampens the communication between the rat brain and the higher cognitive centers. It sets off a mechanism of looking for higher highs ( not in positions, rather in brain chemistry). This is what happens with the so-called "high" of addiction to drugs. The addict feels euphoria and loves it. So the addict uses more and more drugs in order to maintain and enhance that euphoria. What really happens is that more the addict uses drugs in this situation, the less euphoric they become. They are unable to replicate the original euphoric high. Nonetheless, they are driven to do so. This is one way that addicts go into "accidental" overdose---the drive for higher highs.

 

This is a self-perpetuating and self-defeating system. The only way to deal with it is to not get euphoric in the first place! Once you are in the euphoria, you will get into a vicious cycle of taking greater and greater risks to maintain and enhance the euphoria. You need a constant "fix."

 

Of course, you feel good about making money. That is natural. You feel not so good when you lose money. That is natural.

 

The extremes--- euphoria or depression are where the dangers lie.

 

The answer, James, is not taking smaller positions or trading less. The answer is mitigiating and dampening down on the euphoria. If you feel it washing over you, you are in rat brain mode, and your rat brain is always out to get you!

 

Use your emotions to trade, of course. But always balance these emotions with your higher thinking functions. It is a delicate balance, but it is entirely possible to master.

 

Thanks!

 

Doctor Janice

[Soultrader 12]

Thank you for the reply Doctor Janice. I must say this is easier said than done. I have been trying to remain as humble as possible under these situations also. It seems like no matter what I do, I do happen to enter this euphoric stage whether it be a light or extreme version.

 

I can sense this as my focus and emotional level becomes shifted into relaxation. I am usually pretty tense but extemely focused while trading due to my nature of short term trading/tape reading. Or my body posture will slightly change after a good trade or a series of wins.

 

Would this method of controlling your own emotional state be classified as part of emotional intelligence? Although I am usually the person who can keep the coolest head in most situations, I have come to agree that trading will forever be emotional no matter how hard I try to control it. Emotional does not necessary mean wreckage. Im a past that stage of letting my emotions affect the way I view a position, or a trade. But it is still slightly affecting the way I view market direction. Which in turn leads to a trade execution on wrong analysis.

 

I have discussed this issue with a fellow trader of mine and one of the points he mentioned was give it some time before executing a second trade. This makes sense as it gives me time to clear my head.

 

Thank you for the input Janice. Im going to have to brainstorm a few techniques to avoid falling into this state of mind.

[thetradingdoctor 10]

You are welcome, James. Euphoria is a brain state caused by release of neurochemicals. It is not a state of mind that you can control by thinking it away. It is real and it is biological.

 

Perhaps it would help if you tell me how and what you feel when you are in this state.

 

Thanks

 

Doctor Janice

[Dogpile 10]

good topic here.

 

not to hijack the thread -- just want to point out a related issue.

 

this seems to happen to me more than it should -- you are trading well and start the day out with multiple winning trades -- you are reading the market well and it just seems so clear. then you enter a position and it does the unexpected and stops you out. now, my first instinct is to either; re-enter because the stop-out was just 'noise' -- or re-enter because you think the stop out represents 'failure' and therefore a position in the opposite direction now makes sense. now you do so and take another position and stop out the second time and have now lost maybe 1/2 or more of your days profit.

 

so its kind of like being on a 'high' -- coming back to earth on the first stop out -- and then trying to get that high back with another trade. This seems to be common and I am not even so sure it is so necessarily bad -- we all face losses at some point -- and after-all, a stop-out does not necessarily mean your next trade MUST be bad. just wanted to share this as this seems to be something I should think about more cause it seems to happen multiple times per week.

 

on the 'failure'/opposite direction trade --- I am trying to make a rule to myself to only enter 1/2 size position because it is not with my original thesis and for this reason, it is likely I just haven't thought it completely through -- the market is moving and you want to catch that days move -- but your mind is BEHIND other market participants -- you haven't deciphered the pattern yet and you are in 'catch back up to the market' mode -- not a good place to be when trading.

[steve46 12]

In my opinion, learning to control one's emotional state is perhaps the most difficult challenge a trader faces. I find it to be a continual problem, one that is more or less manageable as time goes by.

 

I only know of one technique that works for me, and that is a form of meditation that I call "simply sitting". The idea is to sit quietly and observe one's inner dialogue. Specifically, you wait without expectation and you simply notice whatever comes to mind, without being "engaged" by the content. It is like laying on your back on your front lawn and looking at clouds floating by. Certainly thoughts come to mind as to what shapes the clouds are, what color, and how the wind is moving them along. You simply look on as they float by without getting "into it". Sounds easy, but in practice it is not so simple to do.

 

During the trading day, whenever I get filled, I try to put myself into that state of mind by remembering that feeling of detachment. If I start to feel apprehensive for instance, I try to monitor my body, making note of my breathing, my pulse, feelings of muscular tension etc. Although it may sound nutty, I talk to myself, telling "myself" that I am simply going to watch and execute according to my rule set.

 

This is what I have come up with, however I am always interested in the opinion of other skilled participants.

 

Steve