In a world steeped in the mantra of “remain positive”, what is a trader or portfolio manager to do when frustration mounts? Winning in the game of markets is hard. It really is hard. Sometimes, or maybe even quite a lot of the time, that fact is going to lead to so-called “negative” feelings.
Even winners lead to negative feelings more often than not. Think about it – most of the time, you either get out too soon or too late. Rarely does the exit of a winning trade “nail it” at the extreme of the move. What feelings result? Some version of how “I could have done better” or put another way, some version of regret.
“Coulda, shoulda, woulda” is a phrase I learned early in trading. Senior traders would laugh-off my laments by repeating those three words like a song. Implicit in their taunt lies the idea that I should just get over it or that I was just being silly by talking about what could have happened.
But I ask you, how do we learn? Do we learn when things go well or do we learn more when we struggle? Do we learn when it’s easy or learn when we are stretched? Furthermore, what motivates the learning? Isn’t it the desire to feel happier about the outcome of a task or assignment?
Think about that for moment – if you know you want to feel better, you must know you feel bad. What happens though if you just try to focus on feeling good? Is it possible that the signal value in your negative feelings gets lost?
A growing body of research is showing that the most efficient way to feel better is to allow ourselves to have our negative feelings. Many of them contain motivational and informational aspects. It’s true that they can be exaggerated by memories of past disappointments and failures but simply trying to feel good as possible, as fast as possible, isn’t going to erase the elements from the past.
It truly can pay – in trading and in attitude – to understand why you feel frustrated or fearful at any given moment. Do you think the trade you are in isn’t going to work because you still feel bad about the exit from an earlier trade? Do you want to get out now to book a profit even though your intuition tells you not to? Deconstructing the worry may indeed improve your exit.
Think of it as turning emotional data into emotional information. The more emotional information you have on yourself, the more likely you will be able to read the emotions of others in the market – a key, maybe /the/ key mental construct in trading.