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Controlling your emotions

  • #1
  • First Post: Sep 8, 2010 11:14am Sep 8, 2010 11:14am
Hello Everyone!

I'm starting this thread for anyone to contribute educational material or personal stories on how they've become successful in controlling their emotions whilst trading.

Warm Regards,
Erik
Annoying Precision
  • #2
  • Sep 8, 2010 11:21am Sep 8, 2010 11:21am

Emotions And Trading

The stereotype of the perfect trader (market timer) has many of the same traits as Mr. Spock on "Star Trek." Mr. Spock looks at events logically and objectively, and follows a rational plan when creating a solution to a problem.

In some ways, Mr. Spock would appear to be the ideal trader.

He would carefully formulate a detailed trading strategy, find the market conditions that suggest his strategy will produce a profit, and then and only then, would he execute it.

But, in the end, it is important to realize that Mr. Spock is a fictional character. And even if he were real, he is a Vulcan; he isn't human.

Traders are humans, however. In addition, market participants are humans, and they don't always behave rationally. Indeed, they tend to be driven by fear, hope, and greed, and thus, forecasting market behavior has proven much more difficult than space travel.

In the real world, humans are emotional. Emotions rule everything in the markets. The decision you must make, however, is whether you are going to control your emotions in order to trade decisively and profitably, or let your emotions rule you.

Realistic And Logical

The successful market timer is realistic as well as logical.

It doesn't do you any good to become overly disappointed when have a loss or overly euphoric when you have a big gain.

Extreme pleasant and unpleasant emotions can be very distracting. If you are angry, frustrated, or worried, you won't be able to focus on sticking to the timing strategy. Your attention will be elsewhere, and those negative emotions can cause you to make incorrect, and usually costly, trading decisions. "...it is almost impossible to be emotionless. Humans are emotional by nature. It is difficult to experience absolutely no emotion."

It is essential to keep negative, or unpleasant, emotions at bay.

At the other extreme, it isn't wise to feel too elated or euphoric. Extremely pleasant emotions are usually the flip side of extremely unpleasant emotions. That is, it is usually those timers who experience extremely unpleasant emotions when faced with setbacks who also experience extremely positive, euphoric emotions when suddenly faced with a huge gain.

At moderate levels, pleasant emotions are motivating, but at the extreme, they may be associated with impulsive decisions, such as exiting a position for no good reason or abandoning risk control strategies.

Emotional By Nature

That said, it is almost impossible to be emotionless. Humans are emotional by nature. It is difficult to experience absolutely no emotion. In all likelihood, the closest we could get to an emotionally neutral state is indifference.

So what is the best way to cultivate an optimal emotional state? We know that negative emotions, such as fear, anger, and disappointment can be harmful. And we know that euphoria often leads to over confidence and timing errors.

One possibility is to cultivate emotions that are only moderately positive, emotions that aren't euphoric and prone toward over confidence.

Rather than react to setbacks with frustration or fear, one can approach the setback with a sense of realistic optimism. Losses are part of the game. There is no way around them. Market timers should focus on the goal of generating successful gains over the long term, not the daily or even weekly ups and downs of the markets.

Never underestimate the power of emotions. Extreme optimism or pessimism can interfere with your goals, but by approaching problems with a realistic sense of optimism, you will stay the course, stick to the trading strategy, and generate excellent timing profits over the years.
Annoying Precision
  • #3
  • Sep 8, 2010 11:31am Sep 8, 2010 11:31am
erikte279,

Big ups for starting this thread... and your excellent contribution thus far. This is by far the biggest factor in whether or not you are, not only, successful in markets... but also in life.

Emotions is another way to say "ego". That hidden force within us all that dictates every move we make - knowingly or otherwise. The ego only speaks in two tongues... FEAR AND GREED. Sound familiar?

Having said, I'll step back and will be checking in from time to time. I'm hoping this thread develops into many pages, because it will lead to benefits which far exceed those of other threads here.

The market is never responsible for one's failure to turn a profit.
  • #4
  • Sep 8, 2010 11:40am Sep 8, 2010 11:40am
  •  SwissRaj
  • | Joined Aug 2010 | Status: (¯`·._.· the lonely trader ·._.·´¯) | 109 Posts
Excellent topic

One of my favorites, no doubt.

For those really interested on it, read further on emotional intelligence.

Emotional intelligence (EI) describes the ability, capacity, skill or, in the case of the trait EI model, a self-perceived grand ability to identify, assess, manage and control the emotions of one's self (from wikipedia)

I'm exploring this field and improvements are coming in my life and my trading.

a book: Daniel Goleman's best seller Emotional Intelligence: Why It Can Matter More Than IQ

other books I've read are not available in english

I'll closely watch the thread

Quote
Let me contribute by asking:
How's your relationship with the money?

Don't be quick to answer. think twice. It's a tricky question
>>> psychology is more important than technicalities ^_^
  • #5
  • Sep 8, 2010 12:10pm Sep 8, 2010 12:10pm
Quoting SwissRaj
Excellent topic

One of my favorites, no doubt.

For those really interested on it, read further on emotional intelligence.

Emotional intelligence (EI) describes the ability, capacity, skill or, in the case of the trait EI model, a self-perceived grand ability to identify, assess, manage and control the emotions of one's self (from wikipedia)

I'm exploring this field and improvements are coming in my life and my trading.

a book: Daniel Goleman's best seller [i]Emotional...
When I was still working corporate they made us read the EI book... it was mandatory for all managers. It was an interesting read. However, my real lessons came in the form of paying a hefty price in the markets.

Best way to put it. The book is practical concepts...while the market is a very real meat grinder
  • #6
  • Sep 8, 2010 12:39pm Sep 8, 2010 12:39pm
  •  SwissRaj
  • | Joined Aug 2010 | Status: (¯`·._.· the lonely trader ·._.·´¯) | 109 Posts
Quoting mr.marketz
The book is practical concepts...while the market is a very real meat grinder
Of course, that book is not a book on trading :-)

But the concepts are valid for every aspect of the life, including trading.

Let me elaborate: (sorry if i repeat some ideas from erikte279)

There is no situation without attached emotions . Emotions are the marks that you are there. Are the confirmation that you exists. Emotions anchor us to the reality.

The point is avoid to be sensitive to them. From the emotional point of view there is no facts without relevance. Is your mind who give importance to what you feel. Every persons feel different things in the same situation.

Price going up is price going up for everyone. Some feel good and others feel bad (those with short positions), even others feel indifferent if they have no open positions.

To be emotionally intelligent consists of making conscious the process of feeling emotions.

We all are slave of our emotions. Usually we try to hide them. You can't. You can't hide from yourself.

The challenge of become emotionally intelligent is start to recognize what emotions lay under my apparent intentions.

What do you feel while trading?
tricky question again.

An emotion is not the same as a mental expression. We use mental expression in order to hide our emotions. Hiding your real emotions make you an ignorant of your own needs.

Don't fight your emotions. If i feel something is because i think something. You can't get ride of your emotions,but you can mange them by changing your way of thinking.

Just waiting for the situation to change makes you emotionally dependent of it (the market in our case) That's bad.

This topic could be infinitely long, and translating this ideas into english is an energy consuming task, sorry.

Just to focus the thread on some individual idea let me go back to my initial question, closely related to the unconscious process of feeling emotions:

How's your relationship with the money?
>>> psychology is more important than technicalities ^_^
  • #7
  • Sep 8, 2010 12:49pm Sep 8, 2010 12:49pm
Thanks, look foward to your contributions

Quoting mr.marketz
erikte279,

Big ups for starting this thread... and your excellent contribution thus far. This is by far the biggest factor in whether or not you are, not only, successful in markets... but also in life.

Emotions is another way to say "ego". That hidden force within us all that dictates every move we make - knowingly or otherwise. The ego only speaks in two tongues... FEAR AND GREED. Sound familiar?

Having said, I'll step back and will be checking in from time to time. I'm hoping this thread develops into many pages, because it will lead...
Annoying Precision
  • #8
  • Sep 8, 2010 1:03pm Sep 8, 2010 1:03pm
Excellent recommendation, I'll purchase that book tonight .

Regarding money, many things become much more difficult to accomplish without it, especially helping others.
Quoting SwissRaj
Excellent topic

One of my favorites, no doubt.

For those really interested on it, read further on emotional intelligence.

Emotional intelligence (EI) describes the ability, capacity, skill or, in the case of the trait EI model, a self-perceived grand ability to identify, assess, manage and control the emotions of one's self (from wikipedia)

I'm exploring this field and improvements are coming in my life and my trading.

a book: Daniel Goleman's best seller [i]Emotional Intelligence:...
Annoying Precision
  • #9
  • Edited Sep 9, 2010 8:44am Sep 8, 2010 1:54pm | Edited Sep 9, 2010 8:44am
Hi, just exploring the interesting topic you put forth.
Quoting SwissRaj
The challenge of become emotionally intelligent is start to recognize what emotions lay under my apparent intentions.
What do you feel while trading?
tricky question again.
An emotion is not the same as a mental expression. We use mental expression in order to hide our emotions. Hiding your real emotions make you an ignorant of your own needs.
Quote
Don't fight your emotions. If i feel something is because i think something. You can't get ride of your emotions,but you can mange them by changing your way of thinking.
Just waiting for the situation to change makes you emotionally dependent of it (the market in our case) That's bad.
a spin off this:
The emotions greed and fear, respectively, may demand of you to use more or less of a chart study than is probabilistically effective. A mismatch of needs, that of the entire trading as a situation vs. some other source for greed or fear to feed on, must have the trader tell one's emotion
-- separate from the situation and considering it only for its results (greed) or consequences (fear), not a natural balance of both within a specific example of the trading situation --
that the specific chart study won't give any more or has much more.

inverse of this spin:
Greed and fear can enter into how one studies the chart, etc., too, as over- or under-studying. A problem I have is that I may be unwilling to do some of the chart study because it has a relatively inefficient work-to-profit ratio,
and so I run one tiny chart study idea into the ground or hold onto all that work I put into a precious, if wrong, chart study, even against intuitively contrary evidence I'm too lazy to follow up on.
Trading being about leverage, not work (even if there is a lot of work involved), it's difficult or too easy to let go.
Perhaps it's a fit of ego, a word the last poster noted, versus a feeling of helplessness, that often decides a chart study's worth in terms of putting in a stop if the trade doesn't progress as planned.
  • #10
  • Sep 8, 2010 2:11pm Sep 8, 2010 2:11pm
Quoting SwissRaj
Of course, that book is not a book on trading :-)

But the concepts are valid for every aspect of the life, including trading.

Let me elaborate: (sorry if i repeat some ideas from erikte279)

There is no situation without attached emotions . Emotions are the marks that you are there. Are the confirmation that you exists. Emotions anchor us to the reality.

The point is avoid to be sensitive to them. From the emotional point of view there is no facts without relevance. Is your mind who give importance to what you feel. Every persons feel...
By all means Raj, please don't missunderstand me. I think it's great that you brought up this book - it absolutely serves a benefit to anyone ready and willing to tackle the issue.

I guess when I read it I was not in an environment where I was ready to embrace some of the concepts. Not only that, but when your boss hands it to you... well, let's just say your emotions get the best of you
  • #11
  • Sep 8, 2010 2:27pm Sep 8, 2010 2:27pm
Ok, I'll throw one in here...

My trading started improving when I quit smoking.

Why?

Because, the same monster (ego) that insisted I go outside every 30 minutes to light one up, was also not very fond of losing. You see, that prick would keep expanding my stop loss limits until accounts would deplete to such severe levels that I could not face myself in the mirror.

Pure and utter psychological and spiritual devastation.

So...

When I was finally able to tell him no with the cigarettes, I felt that there was a possibility of telling him no in other aspects of my life too (i.e. trading).

Conclusion...

To fix trading emotional/disciplinary issues look elsewhere in your life - it's all interrelated anyway... it's always you against the monster.

You can't have two drivers in a single vehicle - if you're constantly breaking your trading rules (i.e. blowing accounts), then it's a fairly safe bet that you're the passenger.
  • #12
  • Sep 8, 2010 3:05pm Sep 8, 2010 3:05pm
I believe emotional trading is also a result of not having the ever elusive concrete trading method. As obvious as it may sound
Annoying Precision
  • #13
  • Sep 8, 2010 3:58pm Sep 8, 2010 3:58pm
Quoting erikte279
Hello Everyone!

I'm starting this thread for anyone to contribute educational material....
Erik
hey erik..... controling your emotions, good subject......


here is something mr marketz posted a few years back..... have read it many times since......

http://www.seykota.com/tribe/TT_Process/index.htm


//-----

btw, have noticed the change.............h
to trade and code, keep both simple... no call to impress....h
  • #14
  • Sep 8, 2010 5:11pm Sep 8, 2010 5:11pm
Hayseed,

Thanks for the refresher. I do recall that seykota link... excellent info in there.
  • #15
  • Sep 9, 2010 4:56am Sep 9, 2010 4:56am
  •  SwissRaj
  • | Joined Aug 2010 | Status: (¯`·._.· the lonely trader ·._.·´¯) | 109 Posts
good link

mr.marketz said:

Quote
"I guess when I read it I was not in an environment where I was ready to embrace some of the concepts. Not only that, but when your boss hands it to you... "

Very good point:

If psychological field is so important in trading... why most of newbies(and experienced) traders seems to get so many problems with it?

Because you need to approach it from a state of mind that allow you to get focused on it and deeply embrace the concepts.

And that is only possible if you get into it by your own motivation.

Conclusion: no one will benefit from this unless he freely decide to get it seriously.

I've been reading "watch out your emotions" for years in forums and books. It was useless until the day I decided to take it seriously.

Great benefits in trading and life since then.
>>> psychology is more important than technicalities ^_^
  • #16
  • Sep 9, 2010 5:08am Sep 9, 2010 5:08am
I thought I'd chime in with my feelings on this subject.

I set myself some pretty hard and fast rules that force me to quash my emotions and fear in trades, and to be fair most discussion around discipline and planning are true to this.

However sticking to a plan doesn't have to mean hard and fast rules for every move you make, I do believe however it's crucial you have hard and fast rules for your comfort levels relating to trade frequency and risk. Those two elements are the only emotion factor in trading, the rest of what we do should be mechanical and therefore setting rules for your risk and frequency moves them closer to being just another mechanical process in your method.

I limit my emotional impact on trades by only ever risking up to 5% of my capital on a trade, I also make sure my target is twice that of my risk and I also track my win ratio.

With such a simple risk to reward of 2:1 all I need to see is my win ratio above 50% because I then have the confidence that any loss will be swallowed by the reward.

If your win ratio starts to drop then you simply adjust down your risk until it falls in line with your expectations.

I've lost in the region of $70,000 this year, but based on my 2:1 reward and accuracy of around 70% my gains far outweigh the drawdown.

Once a trader gets past the emotion of losing, fully accepts it's part of the job and that they're not going to win all the time, it becomes second nature to close off a bad trade.

It's one thing saying 'I accept losers' but it's another thing to actually be completed underwhelmed by them and brush them off as second nature; can you watch $5,000 negative and then close it off because your plan says so? Can you happily and without question close out a trade when its running $15,000 in your favour but greed is begging you to hang on?

If the answer is no, I'd suggest you're training for the wrong job.

Keep it simple, keep it neat, keep mechanical.

Track every trade, work out your win to loss ratios, develop a *staged/tiered risk system that suits you, stick to it and constantly refer to it. The rest falls in to place.

*have a look at my trading journal for an example of how powerful (and emotionally safe) this kind of system can be.
"I made all my money by selling too soon"
  • #17
  • Sep 9, 2010 5:34am Sep 9, 2010 5:34am
I think to control your emotions, you first need strong confidence in a strategy/method of trading that you truly believe in, which comes from experience and proving it to yourself that in fact, you have an edge where you can exploit the market for it's inefficiencies. You know when, how, what and where to trade.

Once you have strong confidence in your method and strategy of trading, then it's just based on comfort levels. What are you comfortable losing for a trade? Maybe that's static, maybe it dynamic based on the trade. It is known before going in. You have to have this second nature like others have said, and have no hesitation to cut a loss the second it proves to be a loser, because you know when that is, as your rules tell you this. It gives you confidence to cut the loss. You have to be as mechanical about that as possible.

You know what your comfort level is, emotions have to end there. You know when it's a loss, you take the loss with no emotion cause it's the rules that were predefined. The method and it's rules are laid out so that no matter your losses, in the end you're on top. So unless there is something wrong with your strategy or trading method, then you're good aren't you?

My method is completely discretionary.
  • #18
  • Sep 9, 2010 6:18am Sep 9, 2010 6:18am
  •  SwissRaj
  • | Joined Aug 2010 | Status: (¯`·._.· the lonely trader ·._.·´¯) | 109 Posts
Quoting Monroe
I think to control your emotions, you first need strong confidence in a strategy/method of trading that you truly believe in, which comes from experience
absolutely!

that's why i said before that beginners in emotions-field have troubles.

When you feel confident in your system then you naturally begin to get interested in "comfort levels".

If you are still looking for a method, those readings on emotional factors become difficult to apply or just nonsense.

The more mechanical your system, easier to grab and deploy psychological concepts.

Even if you are completely discretionary, your method is mechanical at some extent.
>>> psychology is more important than technicalities ^_^
  • #19
  • Sep 9, 2010 6:24am Sep 9, 2010 6:24am
Quoting SwissRaj
absolutely!

that's why i said before that beginners in emotions-field have troubles.

When you feel confident in your system then you naturally begin to get interested in "comfort levels".

If you are still looking for a method, those readings on emotional factors become difficult to apply or just nonsense.

The more mechanical your system, easier to grab and deploy psychological concepts.

Even if you are completely discretionary, your method is mechanical at some extent.
Yes, right on SwissRaj.. yes, per trade is discretionary but mechanical in some factors yes.
  • #20
  • Sep 9, 2010 7:06am Sep 9, 2010 7:06am
Thanks, Erik.

I am learning to be more patience recently by trading less and less... thus hope to loss fewer and fewer... but profit more and more

Cheers
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