Turning Emotional Trading Into Informed Trading

Apparently there were some sound quality issues during the latter portion of my webinar presentation yesterday.  For those who missed some of the ideas that I will be covering in the summer workshop in Chicago, I'll sketch those out in two posts.  

The first idea is that many of our patterns of poor trading are themselves triggered by shifts in emotional state.  Among the more common emotional triggers are:

• Overeagerness and overconfidence - Winning can skew our subsequent decision making;
• Frustration and anger - When we lose, our frustration can lead to impulsive decisions;
• Anxiety and uncertainty - Fear of losing can interfere with proper risk taking;
• Negativity and depression - Losing can begin to feel like being a loser 

An important principle is that many, many of these emotional triggers are themselves set off by changes in the marketplace.  When markets change their volatility, trend, etc., the trading patterns that worked at one time no longer work.  Patterns that had not worked now suddenly seem to come to life.  The wise trader entertains the hypothesis that emotional state shifts are potential indications of changing market regimes.  The emotions we feel are information that tell us to step back and reassess market behavior.  

In other words, we can use our emotional awareness to become more emotionally intelligent.  Once we shift states and recognize that a trigger has occurred, we step back from trading and reevaluate our expectations and ideas.  Emotions become a tool for flexibility and adaptability--not a trigger for rigid behavior and poor trading. 

Too often, we treat emotional responses as things to overcome or avoid.  If we are closely attuned to the markets we're trading, how we feel can often provide the first clues as to something different in those markets that we need to pay attention to.

Further Reading:  Trading Emotionally, With Intelligence

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