It unfortunately remains the predominant and conventional wisdom that the best trading occurs from so-called purely rational (read: statistical) and non-emotional analysis. Alas, it’s just not true. In fact, it isn’t even possible for a human being to make a risk-decision devoid of feelings and the most-forward thinking research says it isn’t possible to be rational WITHOUT emotion!
So what are the feelings that traders need to know about? How does a trader begin to go with the brain-based “emotions as information” strategy? It’s surprising to many but interviews with bank traders indicate that such a strategy is the one used by the most highly compensated therefore it makes sense to emulate their approach.
Begin with thinking in terms of feeling categories.
- Intuitive – the ones you want to act on.
- Impulsive – the ones you don’t.
- Irrelevant – also the ones you don’t want to act on and the ones you can relatively easily recognize.
Keep an eye on how you feel physically first – it’s a window into and the foundation for your other feelings. You’ll notice that if you sleep well, don’t drink too much and eat well, you will be more energized and less susceptible to “doing” or acting out impulsive feelings.
Chassy and Gobert (2011) say “intuition lies at the crossroads between perception, knowledge and emotional modulation”. Dane and Pratt (2007) say that “intuition will be more likely to function as an effective component of decision making in performance domains that require significant experience and complex domain-relevant schema.” So indeed knowing the difference between the first “I/eye” feeling and the other two is imperative for true and long-lasting trading success.
Try thinking about it in relationship to sports or other domains. What do you know how to do where you know you have a feel for it? What is the physical experience of that “feel”. Do you ever feel like that while watching the market? In other words, first get the sense of what you are trying to get to by borrowing from other realms.
Next vow to note and deal with feelings that have high energy components. They are NOT intuitive. Any urgency should be viewed as a time to risk-manage yourself. Walk away, write it down… do anything but enter trading orders!
It is not as hard as it sounds.