Sunday, May 03, 2020

How To Overcome Trading On Tilt

Are you the pilot of your trading, or do markets take you for a ride?

When we go on tilt, we are no longer the pilot.  Our emotions--particularly frustration--get the better of us.  That leads to decisions and actions that we would *never* take in our normal mindset.

That is a key recognition:  Being on tilt--trading out of control--is triggered by our emotional state.  We cannot overcome this problem simply by telling ourselves to be more disciplined, etc.  We need to be able to reprogram our emotional states in real time.

Here's how to do that:

As a first step, please review the most recent Forbes article.  It describes exactly how we can make lasting changes in our thoughts, emotions, and actions, according to psychological research.  What I will explain below will make a lot more sense if you have the background from that article.

To change your state of frustration--or prevent such a state from occurring in the first place--you need to enter a state of mind and body that is incompatible with frustration

So what we do, beginning with practice outside of trading hours, is rehearse a simple relaxation strategy in which we close our eyes, sit very still, listen to peaceful and relaxing music, and slow down and deepen our breathing.  The idea is to focus entirely on the music and breathe slowly and deeply for at least 5 to 10 minutes--until you get yourself into a focused zone.  In the beginning, it may take more time than that.  No problem.  As you practice this exercise (I recommend practice at least twice daily), you will become quite good at getting into your zone.  Eventually, it will only take a matter of seconds for you to close your eyes, adjust your breathing, imagine the music and get yourself calm.

It takes practice, but is very doable.

Once you've gotten the knack of entering your zone, you then want to take a step-by-step, gradual approach to change as the article describes.  You do this by returning to your relaxation exercise, but now while imagining very mildly frustrating trading events.  Perhaps you're imagining getting a price that's not so good or getting out of a portion of your trade a bit too soon.  While you vividly imagine these mildly frustrating events, you're keeping yourself calm and focused with the breathing and the music in the background.  You keep doing the relaxation work until the frustrating scenarios no longer lead to any sense of frustration.  Again, this takes some repetition.

Once you've extinguished the frustration for the mild scenarios, you then create more moderately frustrating ones to rehearse in the same way.  Perhaps you'll imagine missing an opportunity or entering your position incorrectly and losing some money.  Again, you visualize such scenarios vividly while doing your deep breathing and while immersing yourself in the music.  You repeat this until these moderately frustrating situations no longer affect you.

Finally, you'll continue the mental rehearsals but now using very frustrating situations to walk yourself through while listening to the music and keeping your breathing deep and slow.  For example, you might imagine getting stopped out on the day or having a winning trade reverse against you and cause a loss.  Just as before, you keep yourself in your zone while vividly imagining the frustrating scenarios until they no longer evoke any upset.

At that point, you can take your exercises to real time.  While you are trading, you play the music in the background.  The music has been associated with your calm, focused state through the process of anchoring, as explained in the articleOnce you start feeling even a bit frustrated during the trading day, you immediately close your eyes briefly and do your deep breathing.  That places you in a state of mind and body that is incompatible with frustration and the tilt that results.  

For a different exercise that can be used in a similar reprogramming way using your visual field rather than the breathing, check out this article, which was brought to my attention by the ever-alert Tadas Viskanta of Abnormal Returns.  In this case, the visual shift helps place us in a state incompatible with tilt.   

Quite literally, you've retrained your emotional response patterns so that you don't go on tilt when frustrating events occur (as they do for all of us!).

It's all about the practice, repetition, and positive habit-building that make you the pilot and put you in control.  All the writing in journals and reading of superficial tweets about discipline and planning will not reprogram your mind and body.  We can change, but not by doing the same old things and staying locked in our same old states of mind and body!

Further Reading: