Wednesday, August 17, 2016

Four Keys to Emotionally Intelligent Trading

A worthwhile lens for viewing your trading processes is that of emotional intelligence.  The above graphic depicts four aspects of emotional intelligence that are central to trading:

1)  Self-awareness - Are you able to stand apart from yourself and observe your strengths and vulnerabilities in real time?  Emotional self-awareness means that you observe and understand your emotional responses to market situations, and don't automatically get caught up in those.  Self-awareness also means being fully grounded in one's "edges" as traders and not straying from those.

2)  Self-management - Are you able to channel your thoughts, emotional responses, and behaviors in a constructive manner?  Self-managing traders set goals that guide their activity through the day.  They also behave in a rule-governed manner, whether it is with respect to entry/exit execution or risk management.  Self-managing traders are ones who continuously review performance, learn from it, and place the lessons into subsequent practice.

3)  Social awareness - Are you able to read participation in the marketplace?  Can you pick up cues from volume, volatility, the co-movement of instruments and assets, and responses to news items that tell you whether buyers or sellers are dominant.  The socially aware trader is keenly attuned to market flows, digging beneath the surface to figure out who is in the market, what they're doing, and the price levels at which they're acting.

4)  Relationship management - Are you networking with others to make yourself better?  Successful trading is a team sport, even when the trading is solo.  There is simply too much information relevant to markets to process and stay on top of at all times.  Successful traders filter out noise--the conversations, emails, and messages that contain little value--but actively filter in colleagues who have valuable perspectives.  Very often, fresh inputs from those colleagues lead to fresh insights and trade ideas.  Beneath every great individual performance is a well-functioning team, either real or virtual.

How well are you managing yourself and your trading relationships?  How well are you sustaining a high level of awareness of yourself and of market participants?  It's not a far stretch to imagine giving yourself a daily report card simply on these four dimensions to ensure that you're trading in a truly emotionally intelligent fashion.  Very often, failing to monetize smart trading ideas is the result of a lack of emotional smarts.  The good news is that, with practice, we can learn to be emotionally smarter:  better at sustaining awareness and managing our resources.

Further Reading:  Social Intelligence and Trading