Sunday, June 16, 2024

Feeling the Next Trade

What role does emotion play in helping you trade well?

What role does emotion play in disrupting your trading?

How does your trading process harness the intuitive feeling that comes from long exposure to markets and their patterns?

Two weeks ago I wrote about the trading psychology texts I was reading and what I was learning from those.  What I found was that reading multiple books on a given topic opened the door to unique insights.  An important theme from the books I read was that, in some ways, we are wired in ways that prevent us from succeeding at trading.  If we simply go with our natural instincts, we'll sell when things are weak, buy when they're strong, and fall prey to choppy, trendless markets.

Since then, I have scoured texts by Jason Williams, Denise Shull, Mike Bellafiore, Ari Kiev, Eve Boboch and Kathy Donnelly, and Mark Douglas--and there's more to come!

A number of these authors highlight that emotion is a common source of failed trading but point out that our feelings--our gut instincts--often help us identify opportunity.  Denise Shull makes the valuable distinction between trying to figure out what others don't know versus figuring out what people are soon going to know.  In shorter-term trading particularly, we can anticipate how the crowd will respond to various scenarios and position ourselves to take advantage of that.  A good example is seeing short-term volume expand as we move to the edge of a range, setting up a valuable breakout trade.  We often can feel the momentum of such a move long before it's obvious on a chart.

We need a process for staying connected to what others are feeling.  That is called empathy.  

The challenge is that the ability to feel what others are going to do comes from long hours of observation and experience.  It is not unlike the psychologist's ability to sense an important issue from the stream of conversation with a client.  Access to that empathic intuition requires focus and the ability to absorb ourselves in the moment.  That openminded ability can be trained.  It's when we're filled with efforts to predict the market that we're most likely to fail to identify what the market is actually doing and fall prey to the emotions of frustration, fear, and greed.  

Further Reading:

How We Can Improve Our Access To Intuition

The Role of Intuition in Trading Decisions

Trading With Emotional Intelligence - Part One, Part Two