Emotion: A mental state that arises spontaneously rather than through conscious effort and is often accompanied by physiological changes.

I have been thinking more on this wonderful human thing we call emotion and how it affects our lives as traders. We traders have been taught, or somehow just believe, that we need to control our emotions in order to be successful.

This begs the rather large question, can emotions be controlled?

I would suggest that they cannot. The "Free Dictionary" definition above also suggests this, of course it's free, so you know.

What people learn to control is their reaction to the emotions they are feeling. Or at least we try to control our reaction to these emotions.

Another good question is why can some people do this better than others?

Genetics or is it a learned behavior?

Or both?

As a kid I played sports and I learned that your physical ability goes down if you become angry, if you can control your actions under stress you will do better than those who can’t.

As an adult I watch and coach my kids in sports. I see kids who have trouble controlling their actions in the emotion of the game. Worse than that I see adults who are completely out of control watching their kids. They say and do things that you would not believe could come out of their mouths as our 11 years olds compete.

Emotion is a powerful thing. Those who cannot control their actions during emotional times will have a difficult life no matter what they do. However if they're a trader, well you know the answer.

When it comes to trading I have all emotions known to man, I get as angry, frustrated, and dejected as anyone. Maybe more, I don't have a benchmark to judge this on.

So if we cannot control our emotions but we can control our reaction to these emotions the question becomes how can we do this better.

The pop psychology answer is to talk it out. Do the thing that men love to do, verbally "express our feelings".


I think it may be the only way. If you have done your trading homework you know all the rational reasons to only trade the plan, to keep trading the plan, to only judge your execution of the plan, to not focus on immediate results, or lack of results.

We intellectually know all of this yet when we have a losing trade we have an emotional reaction. We can't help it. We don't want to lose, we want to win.

So the conversation with yourself has to happen, out loud. Talk through the rational for the trade, talk through the trading plan, why you took the trade, tell yourself out loud it was a good trade, you did the right thing, you have an expectancy and it's not 100% winners.

Emotional humans also have the ability to be rational. I used to say the most important psychological battle for a trader was to reverse our fear and greed complex.

I now believe the most important trading battle is between our rational being and our emotional being. The key to success in this battle is not suppressing our emotions, because we can't, the key is using our rational brain to explain our emotions and to control and change our reaction to these emotions.

Think back to my previous post, the three Mondays with three identical financial results. The same financial result yet we all know that we will have three very different emotional reactions to these three days.

Monday #1 we felt angry, Monday #2 we felt frustrated, and Monday #3 we felt pretty good.

Rationally we know that the result at the end of each day was the same, zero. We know this but we still feel different at the end of each day because we got to zero differently each day.

Trading is simple, yet most fail.

Think about that. Why do most fail? We are all emotional beings, those who cannot control their actions to these emotions will fail. That means most of us.

Now think about this some more. Think about it during the next trading day. Talk to yourself, out loud.

Have a good discussion.

Oh by the way, today, I get to eat ice cream. :)


Anonymous said...

MQL4* doesn't get angry.

MQL4 doesn't fear a loss.

MQL4 doesn't steal your ice-cream when you aren't looking, even when it is rum'n'raisin.

* http://docs.mql4.com/

Solfest said...

Funny you should mentioin that LW I have been thinking about complete automation lately.

It can be done in Sierra, or with Sierra and Bracket Trader.

My problem is I'm not sure I have the skills to do it.

I'm watching four time frames and would want the whole thing co- ordinated.

It may be wiser for me to hire someone else to do it for me.

Solfest said...

I have also heard that traders who buy expensive auto trading systems wind up overriding them based on their "feelings". :)

Anonymous said...

It's not that difficult to learn and, like all good traders, you have plenty of time to study!

Sim-trade the automated system in parallel for a few months and compare results whilst mentally preparing yourself for redundancy.

Solfest said...

Yes sir.