Last updated on April 28th, 2020
We all have a logical, thinking being and an emotion based being automatically behaving inside of us.
They are important and are in operation at the same time but just like in trading, the balance of power is not always equal.
When these parts of ourselves are in balance, much like a ranging market, nothing out of the ordinary happens. It’s almost as if we are at peace.
When the storm clouds gather and the emotionally based being overpower the logical one, a chain reaction of destructive and irrational actions can be set off.
For trading, this is not a good thing.
Trading Emotionally Will Kill Your Success
These two internal beings are within us all whether we like it or not. They do vary in their levels of control over each individual’s actions.
While it’s important to recognize the emotional being for what it is and what in any particular case is causing it to become worked up, it’s crucial to your trading that you do not allow this emotional being to decide the course of action you take.
Often times, your emotional being will take action that is the opposite to what your logical self is telling you to do.
The Rise Of The Emotional Being
You can feel your emotional being getting excited when the markets start to move quickly. You can see it acting when you want to double up on a silly position you took, because it “only needs to come back a bit to scratch the trade”.
I’m sure your logical being would agree this is not the sensible course of action .
But in the moment if we let it, our emotional beings can take control even just for a fraction of a second.
But that’s enough for a click of the mouse and an “oh sh##” moment to occur.
It’s not just applicable to the direct action of trading.
It’s also highly noticeable when we are doing all of the supporting work for trading (or not as the case may be).
- Not taking the time to prepare properly
- Failing to go back and assess performance
- Not doing enough to retain a level of physical fitness
- Trading when you know you are tired or under the weather
- Having a few too many beers when you know you are trading the following day
They can all have huge implications on the level of performance you are able to sustain and can lead to knock on emotional effects in your actual trading decisions.
Remove Negative Behaviors – Reinforce Positive Ones
It’s fundamentally important to your progress as a trader to be effective at removing or negating negative behaviors and reinforcing positive behaviors from the two parts of your mind.
Having your logical being remain in control of your actions even when your emotional being is putting you under immense pressure to act differently, is crucial.
Even the very best traders are affected at times.
Paul Tudor Jones
I’m sure many people have seen a certain picture of Paul Tudor Jones before, where he had a note behind him with “LOSERS AVERAGE LOSERS” written on it.
This is a direct reminder from his logical being to not engage with his emotional being when in a losing position. This really illustrates the way to minimize emotional effects: – self-awareness.
He’s thought about the problem, whether or not he’s defined it as an emotional being reaction or not, and then he’s made efforts to remind himself visually so it becomes ingrained.
Identify Your Triggers
You must understand your actions from these two separate beings within and then identify flash points where your emotional being overpowers your logical being. By doing this, you plan to avoid these flash points and you can better recognize early signs before mistakes are made.
If we did all the things which we know we should do in life, in general we’d be better off.
But as trading is an endeavor that not only fails to reward those who don’t do what they really should but often punishes them, not doing what we should can lead to perpetual under performance and ultimately to failure.
Heed your emotions but do not let them take control of your rational, logical mind.