Tuesday, January 15, 2008

Trading With Emotional Intelligence - Part Two

My recent post suggested that traders don't need to eliminate or minimize emotion. Rather, they need to learn to trade with greater emotional intelligence.

But what does it mean to be emotionally intelligent?

In the book Emotion, Disclosure, and Health edited by James W. Pennebaker, a chapter on emotional intelligence research yields some valuable insights--and ways of assessing emotional intelligence. The chapter, written by Peter Salovey and colleagues, describes the Trait Meta-Mood Scale and its development as a research tool.

The authors report that emotional intelligence is composed of several interrelated capacities:

1) Attention - The degree to which people pay attention to their feelings and value them as sources of information;

2) Clarity - The degree to which people accurately identify and understand their feelings;

3) Mood Repair - The degree to which people can control and shift their emotional experience.

In their research, they found that subjects exposed to a stressful event were more likely to maintain a positive mood when they not only attended to their feelings, but had a high degree of clarity about those feelings. When these individuals attended to their feelings but had little clarity about those feelings, they were more likely to ruminate about the stressful event. Clarity about feelings enabled them to move beyond stress and return to a positive emotional state.

Moreover, those with the ability to repair mood tended to experience negative mood less intensely than those without the capacity for repair. The ability to shift mood states appears to have value as a coping mechanism.

This research suggests that it is not enough to pay attention to feelings. Understanding those emotions is important to moving beyond them. Ironically, attempts to dampen and minimize emotions in trading is apt to lead to less clarity, and thus less ability to move beyond the stresses of the moment. It's the ability to think about one's experience--and not get lost within it--that enables people to transcend stressful situations. In my next, and last, post in this series, we'll take a look at how emotional intelligence manifests itself in successful trading.


Somatic Markers and Trading Decisions