Emotions While Trading

[james_gsx 16]

This is mostly based around stocks and trading breakouts, but I think it can carry over to the YM and ES. Anyways, I figured I'd share my thoughts.

 

Yesterday was basically a kick in the ass for my bottom line. Fortunately for me, I've been through those days and I know how crazy a FOMC announcement can be. Unlike a lot of people, I kept my cool and did what I do best - look for potential opportunities. I knew the FOMC announcement would cause volatility, and I knew newbies would be getting killed left and right. My job? Jump in when they think all is over, and steal some more of their money.

 

I quickly reviewed my weekly support and resistance levels for the ES, and watched them closely after the FOMC announcement. In typical FOMC fashion, the ES rallied, followed by a sell off - then another rally. Fortunately, my weekly level of 1330-1335 held it's ground. With the inverted hammer on the 5 min, I opened up my put position. I bought several July $132s & $2.32 a piece. They are now trading over $4 a piece - you do the math.

 

Here is a chart for you savvy traders...

 

 

Why do I post this? Well from time to time I like to read responses to several blogs I find entertaining. One of those blogs happens to http://www.optionaddict.net I like his style - which is very similar to mine - and his tone is entertaining to read. I never read the responses because, well frankly I don't care. I know it's full of newbies asking stupid shit that I've heard a million times on other boards.

 

But today was different, his blog was about keeping to your plan and blablabla. As you've already figured out I didn't do anything yesterday but keep my cool and do what I would do any other day. Positions that no longer worked, I got out. Positions that still worked, I stayed in and weathered the storm, that's part of the job. My job is to manage losing money. Can you do that and stay calm?

 

Here are some of the responses I have read that were interesting. They go running to this guy to hold their hand. If they just looked over their plan, and had a solid risk management system in place, then they wouldn't need someone to hold their hand. I'm willing to bet these people have too much invested in this particular position, and don't have any sort of risk parameters outlined. I would even go as far as to say they don't know why they are in the position...

 

Like this guy...

 

Looking for everyone's thoughts. - Because of my plan, I got stopped out of several things yesterday; a couple at a small profit and several at rather large losses (for me). Do most of you stick closely to your plan with stops on a Fed day, or because of the big swing, do you lax your rules overall? - Had I relaxed my rules yesterday, I'd be sitting alot prettier today.

 

He got stopped out of positions with small gains.. but others with large losses. How does that work? Obviously he doesn't have his risk properly outlined. You should never even consider risking more than you can make. Think that through first. Sometimes things change and you need to exit early, but if you find that you get stopped out with small gains and big losses, something is wrong. It's not the markets fault, it's yours, pal.

 

Nice post Jeff. Just wanted to add a thanks to the other OAs yesterday who stepped in and told everyone to calm down. I was also having an "opposite day" yesterday. Last time I had a day like that I closed a lot of positions at exactly the worst time. Yesterday I turned off thinkorswim, and it turned out a lot better.

 

Been there, done that. I've done more than just turn off my computer and walk away. Sometimes that works, but after over a year and a half of trading I've started to realize that doesn't do anything but clear your head. When you turn off the computer and walk away when the going gets rough, you miss out on some of the best opportunities available to you. For example my ES short from yesterday, if I walked away because I hated seeing the big red number in bold I would have missed that entry. So if you're new, that's fine. Just make sure you exit everything then walk away. Just realize what you could be missing out on.

 

Yesterday was not good for the blood pressure... If BEAV was not down so much yesterday, I might've not made it through the day. Amazing how much "pain" can occur in a day, and be completely gone the next.

 

When I first started, I could really relate to that. Except that the pain wouldn't leave the next day, I'd usually be down another grand because I did something stupid trying to rescue all of my positions.

 

This is a continuation of the post above...

 

I think it's how you deal with days like that that truely tests and measures your character. But it's also a very useful reminder to stick to your rules, and to always look to learn something. I can say I learned a LOT yesterday, and I took the time to look at all of my rules and do some tweaking and learning lessons that should help me a lot more in the long run than I could ever gain or lose in a day.

 

He pretty much hit the nail on the head. When it feels like everything sucks, don't walk away. Instead, review your charts, go over your weekly or daily plan, and figure out what needs to be done. Just like you would any other day. Look for new opportunities. If you walk away you rob yourself from invaluable learning experiences called screen time. The more you see, the more experience you get, the better you will become. You can't make a living out of this if you can't handle the occasional fuck up.

 

Everyone sees charts differently, and everyone has a different style of trading. That's why in the long run, running to someone to hold your hand won't work. You have to trade the way you see it, not the way someone else see's it. Of course you can ask them their opinions, but at the end of the day it's what you see that matters. Don't even let me tell you how much money I've lost because of what someone else saw. If you don't see the pattern, or it doesn't fit your style, move on. There are countless opportunities every single day, look for the ones that suite you, not some random guy you've never met.

 

Lesson of the day? Stick to your plan. If you can't handle the stress of your current style of trading, then move onto the next style. There is nothing wrong with that, no loss in dignity.

[traderpsyches 10]

A trader i was talking to referred me to this site and these threads. He had all good things to say so I looked. Seeing the topic of trading psychology and emotions in trading is too much for me to resist.

 

Anything anyone can do that helps them manage their psychological capital is worth doing. In the end, your results are the joint probabilities between your trading strategy and tactics AND your ability to execute. Your ability to execute is going to have everything to do with you how you feel and how you manage the physical energy of feelings... so.... the right answer is different for everyone but I know that if you do what it takes to manage to your physical/emotional state, the trades you take while in front of the screen will turn out much better.

 

imho.

[james_gsx 16]

I agree, I think managing your emotions is the most important aspect of trading.

 

I guess I never really got into a whole lot about trading with emotions in my original post. But I can say that if you're experiencing a lot of emotion it can come down to two things.

 

1 - You haven't learned how to control your emotions yet. And this is something that should be focused on very closely as it will make or break you as a trader.

2 - You simply aren't trading a style of trading that fits your personality.

 

I know for a fact I couldn't hold an ES position for more than 20 minutes. But I can trade aggressive breakouts with options. The difference is one fits my personality better than the other. If you are consistently breaking your rules and seeing emotion, it might be your psychological cue that you are trading the wrong market/time frame and you should maybe experiment with something else. Each trader has their own "niche", and just like with everything else in life you need to figure out what that is.

[traderpsyches 10]

I couldn't agree more with the idea of finding a timeframe and style that suits you. Everyone is different and they need to capitalize on their strengths once they figure out what they are.

 

As to the control your emotions, well that part I disagree with. It isn't necessary to control your emotions - only your actions. In fact, it has been shown that emotions are really just information and motivation and the trick is to use them that way. The challenge to that is we generally haven't been taught to do that so emotions and actions become one.

 

Becoming aware of emotion, understanding it and then choosing which action to take (which may include going off to deal with the emotion itself) works better because our bodies/minds aren't set up to ignore such a fundamental element of who we are. ... or at least this is what I have learned over the years.

[BlowFish 10]

A trader i was talking to referred me to this site and these threads. He had all good things to say so I looked. Seeing the topic of trading psychology and emotions in trading is too much for me to resist.

 

Anything anyone can do that helps them manage their psychological capital is worth doing. In the end, your results are the joint probabilities between your trading strategy and tactics AND your ability to execute. Your ability to execute is going to have everything to do with you how you feel and how you manage the physical energy of feelings... so.... the right answer is different for everyone but I know that if you do what it takes to manage to your physical/emotional state, the trades you take while in front of the screen will turn out much better.

 

imho.

 

Are you a familiar withe Denise Shulls worK? You seem to be on a similar wavelength.

 

EDIT: Oh welcome to the forum btw!

[mister ed 10]

This is mostly based around stocks and trading breakouts, but I think it can carry over to the YM and ES. Anyways, I figured I'd share my thoughts.

 

Outstanding post James.

 

BTW, I saw your post in the candlestick area re this trade too, and I thought that although it was a nice entry it was the ongoing management of the trade that really delivered the numbers for you, this post (above) expanded on why and how you held that winner all the way down, great stuff thanks.

[Kiwi 16]

Actually Blowfish, given the commonality of language I'd say that traderpsyches was Denise. Having recently invested a grand to get her web workshop I'd say my radar was fairly finely tuned.

 

Come on Denise; reveal yourself :shocked:

[Guest forsearch]

Yep, it's her all right.

 

Here's her site: http://traderpsyches.com

 

And a recent paper of hers:

 

http://www.traderpsyches.com/Neurobiology_Freud_Repetition.pdf

 

-fs

[BlowFish 10]

Actually Blowfish, given the commonality of language I'd say that traderpsyches was Denise. Having recently invested a grand to get her web workshop I'd say my radar was fairly finely tuned.

 

Come on Denise; reveal yourself :shocked:

 

Yeah I recently got the workshop too. Though I still haven't got my finger out of my a**e and tackled the exercises with vigour. Rather telling in itself. I wonder why its so hard to do things when you know that at worse they will do no harm and at best could be very beneficial? Is it simple laziness? Or maybe resistance to change? Or perhaps even some sort of self sabotage - those inner demons not wanting to relinquish control?

 

Edit: Oh and an extra special welcome if it is.

[vladv 10]

What's the most dangerous emotion when trading?Fear or Greed??

[bootstrap 47]

both....Fear makes you hesitate when you should be bold and greed makes you take to much risk and/or over trade. Bulls make money, Bears make money, Sheep and Pigs get slaughtered.

[traderpsyches 10]

Yep it's me. One of my coaching clients mentioned this site... and I figured with my screen name I wasn't really hiding it .... thanks for the welcome. ... as for the workshop, I am a bit reluctant to talk about it as I don't want to inadvertently be selling it. The truth is I am writing a book and sometimes need a diversion - so have a new site to chat on is a good one.

 

As for which emotion is more dangerous - I don't think you can say. ... and I do think that if you learn to think of emotions as information - and not as destructive or dangerous but just a signal of something... then you can manage into separating them from the auto-trade (separate them from actions) and end up with a better bottom line.

[james_gsx 16]

What's the most dangerous emotion when trading?Fear or Greed??

 

Like Denise said, it's really only information and it has more to do with how you act with those emotions (if you do anything).

 

I also think that greed has a different meaning to different people. For example I drove a Porsche yesterday, and now my goal is walk into the dealership and buy one before the end of next year. To some, that drive for something materialistic may seem greedy since I'm not even 21. To me, it's just something I've wanted my entire life and I have a drive to get it. If that's what helps me focus on my job as a trader, then so be it.

[Guest forsearch]

Yep it's me. One of my coaching clients mentioned this site... and I figured with my screen name I wasn't really hiding it .... thanks for the welcome. ... as for the workshop, I am a bit reluctant to talk about it as I don't want to inadvertently be selling it. The truth is I am writing a book and sometimes need a diversion - so have a new site to chat on is a good one.

 

Janice Dorn was previously the psychologist-in-residence here, but she couldn't find the time with her obligations to fully participate in TL land on an ongoing basis.

 

I'm sure if you can, the site admin, James (aka Soultrader), wouldn't mind having you here as the board psychotherapist, assuming you can spare some time to answer questions that may appear from time to time here.

 

Welcome aboard!

 

-fs

[traderpsyches 10]

As long as my own intra-day trading is primarily on hiatus (which is at least for the summer and maybe for the better part of 2008), I am happy to participate as much as you all would like.

 

There is a great article in the WSJ Science blog today about how we make decisions 10 seconds before we are conscious of them. To that end, I think it pays to work at being conscious of all the things we think, feel and sense. ...

 

http://online.wsj.com/article/SB121450609076407973.html?mod=rss_Science_Journal

 

It is another testament to how the over-emphasis on rationality actually leads us astray. ... Being aware helps us avert our unconscious biases.

 

DKS

[JBWTrader 10]

All good stuff to think about......Thanks James for starting this one...

 

In my opinion the most dangerous emotion is the one we are not aware of, ie unconscious to. Emotions are very important In my trading I feel and more importantly in Life ! the two go hand in hand in fact. The goal is to integrate them as consciously as possible....this brings forth higher functioning...its not just the "bad" stuff but also the "good" stuff. We all have shadows...the idea is to get a feedback loop to them to "see" ourselves more in the here and now...The more we are present the more we can move about and hence change. I guess if we turn to trading for a second…one thing that has been drummed into me is the fact we need to keep accurate trading records and trade the plan. Why ? well these are the feedback loops or mirrors upon which we get the opportunity to change ourselves… However there is a catch….the catch is people don’t really like or know how to change…sure one can change ones car, house or even partner (not always easy by the way ! lo..) however when it comes to real change…well…more on that later…..

 

I believe Fear and Greed can be broken down even more...eg Fear of what exactly...? the automatic response is fear of loss eg money.. or even fear of identifying with the loser image that one has of oneself if one loses....I would say it goes even deeper...Fear further down are about feeling states that start to bring about a sort of disintegration of ones own self structure...now that is scary when one begins to experience this...usually we shut ourselves off to these lower states by getting angry or start to blame ie project onto the outer world... Sometimes the anger is good as it motivates us into further change or knowledge...

 

Greed on the other hand can be seen to be closely linked to fulfilling a deeper need. What do I mean by that ? Its like trying to get out of a situation what one thinks he/she wants more of eg more money will reaffirm ones image of being a "success" etc ,however for a lot of people this goes deeper again like fulfilling a need that has never been met before. This can have a destructive influence as one can become stuck to the object , even dependent. What happens next most of us have experienced….a compulsive acting out and in some cases a very strong identification with those very nice feelings states. Alas we all know the result a hubris results because we are identified with these nice feeling states and bang …Icarus drops from the sky….!

 

So to conclude both these typical states that are commonly talked about in the trading world eg fear and greed I believe are more complex than one might at first imagine . You would be surprised how much one disppears or gets distracted when one doesnt want to integrate feeling states. in fact more than you will ever know..!!

It would be very interesting to hear from traders how they have developed strategies to work through/past them and what that meant for their trading plan and style..…

Again these are my thoughts/opinions/experiences. I would love to hear from others on these also. James , I am not sure if this is the right place to even talk about it. My apologies if it isn’t. Please feel free to move this where you see fit.

 

Best

John

[mea 10]

If a trader has a truely COMPLETE trading plan. Then, there is no emotion involved at all in trading and discipline aspect is taken care of as well.

[Kiwi 16]

A statement often seen on boards.

 

I have never seen it made by one who has traded long and trades their own money at a significant size relative to their equity. So far, all of the examples I've seen have either been made by a clear newbie or someone who has been later show to be deceiving us for some reason. Often there seems to be a touch of "supporting ones own opinions" to avoid cognitive dissonance or a rigidity of opinion.

 

Perhaps this is not the case here. Never having met an emotion free trader I am genuinely curious. Feel free to give a little history that would support your expertise Mea.

[mea 10]

A statement often seen on boards.

 

I have never seen it made by one who has traded long and trades their own money at a significant size relative to their equity. So far, all of the examples I've seen have either been made by a clear newbie or someone who has been later show to be deceiving us for some reason. Often there seems to be a touch of "supporting ones own opinions" to avoid cognitive dissonance or a rigidity of opinion.

 

Perhaps this is not the case here. Never having met an emotion free trader I am genuinely curious. Feel free to give a little history that would support your expertise Mea.

 

One of the main reasons trader's fail is the fact they trade opinions, possibilities and degrees of probability. Instead of trading FACTS and the exploitation thereof.

[BlowFish 10]

Good post JBW, particularly about emotions often being more complex than simple 'fear of loss'. In my case fear of failure is closer to the mark. This results in a couple of re-occurring execution errors . Funnily enough these do not manifest themselves as fear in 'real time', I am pretty relaxed when I trade. Its just the primal instincts doing it's stuff even though it's misplaced in trading. What I am saying is that the fearful even can occur in the past and the stuff that's going on trade to trade is quite calm, it just might limit your trading potential rather than blow you out of the water. I think its often more complex than people think.

 

Mea do you stick to your plan 100%? You are a rare trader if you do, and probably one I could learn from! I know a couple of fully automated (retail) traders and even they interfere with there systems! A complete plan is a starting point (OK maybe the first or second hurdle) not the finishing line imo. Having said that of course the more trust you have in your plan the more likely you will follow it come hell or high water.

Edited July 1, 2008 by BlowFish

[firewalker 10]

Mea do you stick to your plan 100%? You are a rare trader if you do, and probably one I could learn from! I know a couple of fully automated (retail) traders and even they interfere with there systems! A complete plan is a starting point (OK maybe the first or second hurdle) not the finishing line imo. Having said that of course the more trust you have in your plan the more likely you will follow it come hell or high water.

 

I'm not sure it's necessarily a bad thing to deviate from your plan.

I wouldn't encourage it, because first you need to learn how to follow your own rules. But after that, you may discover you have reasons to take pre-emptive action. These actions might lead to elements which you can later add to your plan.

 

For example: suppose your plan says to place your stop at 2 points from your entry. You see price going in the direction direction for 3 points but sharply reversing and heading back towards your stop. The chart tells you it's going to fly through your stop. So do you wait to take a 2 point loss or do you exit with a smaller loss or, if you're quick enough, at break-even?

 

At the end of the day, you can analyze what you did and complement your plan. Obviously, you need to be consistent in these circumstances and have clear rules about what kind of signals would lead to you take this kind of "pre-emptive action". Otherwise you might end up closing a perfectly fine trade and reacting on emotions instead of facts.

[mea 10]

Good post JBW, particularly about emotions often being more complex than simple 'fear of loss'. In my case fear of failure is closer to the mark. This results in a couple of re-occurring execution errors . Funnily enough these do not manifest themselves as fear in 'real time', I am pretty relaxed when I trade. Its just the primal instincts doing it's stuff even though it's misplaced in trading. What I am saying is that the fearful even can occur in the past and the stuff that's going on trade to trade is quite calm, it just might limit your trading potential rather than blow you out of the water. I think its often more complex than people think.

 

Mea do you stick to your plan 100%? You are a rare trader if you do, and probably one I could learn from! I know a couple of fully automated (retail) traders and even they interfere with there systems! A complete plan is a starting point (OK maybe the first or second hurdle) not the finishing line imo. Having said that of course the more trust you have in your plan the more likely you will follow it come hell or high water.

 

Do I stick to my plan 100% of the time? I don't have a choice but to! As market analysis, when building strategies based upon MARKET FACTS (not opinions, theories, possibilities and degrees of probability) for ALL market conditions one may encounter, has answered EVERY question of ANY possibility which would occur within any given trade. That's what I truly COMPLETE trading plan accomplishes! Which can be accomplished both manually as well as automated. However, with an automated system to accomplish the same, would require not only a Ph.D, but the budget of the NSA as well! LOL

 

You said you know trader's that interfere with their systems. Well, that's a perfect example of an INCOMPLETE trading plan/strategy for a given trade! They haven't answered ALL the questions required for EVERY possibility for a given trade.

 

It appears we are getting off the topic of the original poster. Also, my intent of posting was to "give back". Therefore, I will start a new thread explaining all the details of what a truly complete trading plan/strategy entails, but don't expect it to be completed until the weekend, as since I do COMPLETE trading plan mentally, I'm really burned out by the end of the day!

[Soultrader 12]

Therefore, I will start a new thread explaining all the details of what a truly complete trading plan/strategy entails, but don't expect it to be completed until the weekend, as since I do COMPLETE trading plan mentally, I'm really burned out by the end of the day!

 

very much looking forward to it mea, as I have been wanting to start a thread on it as well. I will add my inputs on the thread also. Thanks.

[BlowFish 10]

Do I stick to my plan 100% of the time? I don't have a choice but to! As market analysis, when building strategies based upon MARKET FACTS (not opinions, theories, possibilities and degrees of probability) for ALL market conditions one may encounter, has answered EVERY question of ANY possibility which would occur within any given trade. That's what I truly COMPLETE trading plan accomplishes! Which can be accomplished both manually as well as automated. However, with an automated system to accomplish the same, would require not only a Ph.D, but the budget of the NSA as well! LOL

 

You said you know trader's that interfere with their systems. Well, that's a perfect example of an INCOMPLETE trading plan/strategy for a given trade! They haven't answered ALL the questions required for EVERY possibility for a given trade.

 

It appears we are getting off the topic of the original poster. Also, my intent of posting was to "give back". Therefore, I will start a new thread explaining all the details of what a truly complete trading plan/strategy entails, but don't expect it to be completed until the weekend, as since I do COMPLETE trading plan mentally, I'm really burned out by the end of the day!

 

I shall look forward to hearing more, reading between the lines it sounds as if you approach the markets in quite a different way to many of the participants here, always good to get some variety going!

 

Going back to automated trading 'systems' one of the oft quoted advantages is that they minimise emotions in trading (usually at the expense of more mediocre results). I just find it interesting that people will sometimes over ride there systems, not because they are incomplete, but because in this instance they feel the signal is wrong. (I can't sell here we have just had 5 straight down days - I'll turn the system off today and back on when we have had a correction - or more likely I am simply going to ignore this signal because i know better than my system/plan).

[Sledge 13]

Since the name of the Topic is Emotions while Trading, I thought I would add a few points in addition to the "fear and greed" vein.

 

Fear and Greed will definately effect your trading and I think it has been well covered. But you must also add these to your checklist as I can speak from experience of it:

 

1. If you are mentally drained (i.e. you have a lot going on in your life)- it is best to take a breather from trading. Right now, as a matter of fact, I have a lot of personal issues going on with my wife and the birth of our daughter. It has been about 2.5 weeks of hospital visits, emergency rooms and doctor appointments. After the crisis mode was over- I mentally am not sharp. As a fellow trader said "I'm not in the Zone" and he is correct. To not get slaughtered in this business you have to be at the top of your game. Trading is tough enough without making stupid mistakes due to sleep deprivation, mental strain, or emotional strain.

 

My .02

Sledge