In trading we talk about odds, risk and being consistent. We see ourselves go on winning and losing streaks where we feel like “I finally have it now” and “Oh man I am doomed – I will never be consistent!“? Many traders see-saw back and forth between the two states and then find themselves at the end of the month, quarter or year making substantially less than they could have if they hadn’t spent the downside time on the teeter totter.
In pursuit of becoming more consistently profitable, typically traders will either tweak their system (Oh if I just look at the market this way) or read a book. Trader faves when it comes to books can run the gamut from sports psychology to the current Deep Survival. Nobly, everyone is trying to understand the market and their reaction to it. In fact, many traders work harder at trading than they have ever worked at anything.
Nevertheless, there are a couple of secrets lurking out there that aren’t well publicized…
#1) The first impulse trade you take is meaningless. In other words, you can totally #&$*)@ -up, ONCE and it means almost nothing to your end of the month.
#2) It is what you do next that makes all the difference.
#3) The most profitable action you can next take is to resolve the immediate emotional/feeling dilemma. If you made a really stupid mistake, you are in BIKB – or but I know better…. and you are likely to punish yourself with more losing trades. You are mad at yourself without putting that feeling into words, you will act it out but taking it out in your account.
#4) The least profitable thing you can do at this point is to intellectualize or intentionally try to control your emotions or feelings.
How can this be? Doesn’t every book on the shelf say “control the emotion” and take ALL your signals. Yes I think almost every book does. (I don’t read them anymore but this is what people tell me).
See here is the real secret, no one can say for sure how we make a risk decision (despite books like How We Decide) but the contours appear to look something like this. If it isn’t LITERALLY mathematically precise – if you can’t solve for X, then our brains use context, senses, and feelings to evaluate what action should be taken. No one can tell you exactly how the brain uses context, senses, and feelings to assess, but the experimental evidence is mounting to the point that top neuro-researchers are willing to say “It is not enough to know what should be done, one must also feel it.” (Camerer, et. al. Journal Economic Literature)
If you turn that around it means that every single thing you do has a feeling associated with it.
Where does this leave us in relationship to consistently good trading decisions? The simple (but not easy) answer is all you need to do is understand the feelings – preferably both macro level (what you expect of yourself and echoes from your past) and micro or in the moment reactions to the result of a trade or price movement.
Every time you truly understand what you feel in the moment – you will make a better trading decision. The feelings may be ugly, they most likely are at least a bit uncomfortable but if you research and analyze them, well… as the Men’s Wearhouse hawker on local NYC TV says, “I guarantee it, you are going to like how you look“.
PS You will also automaticaly know when you feel clear and calm enough to venture back into the jungle of uncertainty that is trading.