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One Simple Emotional-Management Tip For Traders

One Simple Emotional-Management Tip For Traders

I don’t know how long you’ve been trading but I’ve been doing it for over 12 years now. After all is said and done, what I’ve noticed is that the endeavor is purely psychological in nature.

For those of you who think that a market edge and a risk management plan have to come first, rest assured… I agree.

A trader needs a system (a market edge coupled with a risk management plan). No question about that.

Without those, there would be no trading, only gambling.

Still, mindset determines whether or not you trade that system the way it wants you to trade; it determines whether or not you control your risk and take your signals when they appear.

Wouldn’t you agree?

So in that sense, mindset has to precede everything else because it is what you bring to the game. You have it or you don’t have it but, in any case, it can be worked upon and developed.

The Seek-to-feel-good Mind.

One major step in this quest to self-mastery is working with emotions. One reason we struggle with them is that, in our lives, we tend to judge some emotions as ‘bad’ or ‘negative’ because they feel unpleasant; they create uncomfortable sensations in our bodies, and so we don’t want them.

And on the other hand, there is what we perceive as ‘good’ or ‘positive’ emotions and we do like these ones because the sensations associated with them are pleasant so, naturally, we want more of them.

You have to think of your mind as an addict; it likes/seeks to feel good. And so, if it judges some emotion to be ‘good’, then it’ll automatically try hard to get more of it. Conversely, if it judges some emotion as ‘bad’, it’ll try even harder to get rid of it.

But, judging, if you haven’t noticed yet, sets you up for a struggle with your feelings which, in turn, sets up a major behavioural problem for us as traders: If we’re constantly craving some feelings while pushing away others, then there’s no way we’ll ever be able to trade our set of rules consistently and reach consistent profitability in the markets.

Because following our rules implies doing uncomfortable things.

No emotion in itself is ‘bad’.

In the Trading Psychology Mastery Course, I encourage you to let go of judging your feelings altogether and to see them for what they are: a stream of nondual, ever-changing sensations and urges, continuously passing through your body.

Because you see, just because some of these sensations and urges are uncomfortable doesn’t mean they’re ‘bad’.

For instance, if you grew up with parents who didn’t openly express feelings like affection and love, then growing up, you may find such feelings uncomfortable. Does that mean they’re ‘bad’?

And isn’t it interesting that many people judge/fear ‘bad’ emotions, yet they’ll often pay good money to watch a horror movie or read a thriller, precisely to experience those very feeling!

Interesting phenomenon, isn’t it?

No emotion in itself is ‘bad’. ‘Bad’ is just a thought — it’s a judgment made by your mind. And if you believe that thought (and fuse with it) —if you literally believe that the feeling is ‘bad’—then, naturally, you’ll struggle with it all the harder. (And we all know where that leads, don’t we?)

The art of detachment.

Great traders – those who are great in behavior — have realized the damage that excessive attachment can do to their trading account and their overall well-being, and, one way or the other, they’ve learned the art of detachment.

Detachment simply means that you are no longer defined by your thoughts and feelings and sensations. It means to distance yourself from those internal occurrences in a way that always grants you freedom of choice and action.

For instance, you’re feeling fearful, your mind is telling you not to initiate a particular trade. On the other hand, your rules say that you should. As uncomfortable as it is, you initiate the trade anyways.

But how do you do that — how do you create space between your thoughts, feelings, sensations and yourself? More simply, how do you detachment yourself?

Labeling the thought.

Suppose your mind says, “I can’t enter this trade because the MACD reading isn’t conclusive [or just insert any other excuses here].”

You could then acknowledge, “I’m having this thought and the feeling in my body is uncomfortable.”

Then, you could reply, “Thank you, Mind, but your judgment/ opinion goes against my plan. I’d rather follow that.”

Labeling the troubled thought allows for a quick acknowledgment that a troubled thought and its associated feelings are arising at the moment and they want to drive your behavior.

Change always starts with this initial awareness.

Let’s look at another example. Suppose you have a trade on with open profits. Your mind then says, “I have to close this trade [but your target hasn’t been reached yet].” You could then acknowledge, “My mind is making judgments.”

But what if that particular judgment is useful?

Then you have to adopt a pragmatic approach and ask the question: is this thought helpful? All the while making sure that you do not fuse with the thought, not taking it to be you — you’re just objectively aware of it.

Now, experience with trading your own strategy (and its rules) will tell you whether or not you should close your trade, but using this mental technique makes you aware of the process of judging. So that it’s not an automatic process anymore. You’re aware of it and, because you are, you then have a choice in how much you buy into those judgments.

As you apply this little mental strategy in your life, you’ll come to understand (via your own experience) that the thinking mind and its associated feelings can deceive you.

On the other hand, your trading plan is always right.

By the way, notice that I never told you to try to stop judging. The truth is that you can’t. Your mind is an expert at judging; it’s one of the things it does best and it’ll never stop doing it for as long as it’s alive.

But you can learn to let go of those judgments when they arise; to witness them objectively without creating more judgment about the judgment. And you do that simply by detaching yourself from them, as in the above two examples.

Conclusion.

Suffice it to say, the mind has lots of ways to get us to stray from our trading rules. It does so by either directly intensifying our bad feelings or else to get us to waste a huge amount of time in useless judging/ opinionating.

So, from now on, try as best as you can (make it a firm intention) to catch your mind in the act when it tries to hook you with these judgments and opinions. Then simply refuse to play the game. It can be as simple as that!

Don’t play the damn game and simply thank your mind (in a gentle friendly manner) for trying to waste your time, money, energy and focus.

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Yvan
I've been trading for a living since 2006. By merging mindfulness (an in-depth study of the mind and its tendencies in the present moment), a good trading process, and an efficient business practice, I went from being a losing trader to a consistently profitable one. Through my work here at Trading Composure, I aim at helping you do the same.
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  • Randy Woods

    Helpful. Thank you.

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  • Steve Theroux

    Always very helpful like all of your posts. Thanks! Personally I think I’m getting better at managing fomo, fud, taking profits too soon, panic selling, euphoria (that’s when I now sell), but am still working on fear of loss during dips or potential market moves. Not losing anything which is a already a great step, but that emotion is the one I seem to be struggling with. I’m hindering myself from making good gains at the moment.

    • As always, thanks for reading Steve. The way I see it, you have difficulty accepting losses because somewhere deep inside, you probably think that you can avoid them. You probably can, but the reality is that losses are just part of the game. They’re gonna happen one way or the other.

      You’ve made so much progress already. Just keep trading… you’re only getting better at it. And this time, try to welcome losses. Approach them a different perspective — that of experimentation. Eventually, you’ll understand experientially that they’re just part of the game.

      Complete acceptance only happens when you understand (truly understand, experientially, through feeling and not just thinking) the inevitability of losses.

      When you understand that, you can work more efficiently on managing your risk instead of trying to avoid it.

      I hope this helps 🙂

      Yvan

  • Chi Trader

    “The mind is like an addict… Seeks to feel good” and “tries to get rid of ‘bad'”. This really speaks to me. I dare to say it’s the root of all my trading problems. My interpretation of how this affects me (and please correct me if I’m reading into this wrong): profits make me feel good and losses make me feel bad. If I have lost money on the day, I can’t just walk away because I don’t want to “feel bad”. Therefore I will impulsively trade to make the losses back and not honor stops, to avoid “feeling bad”. Likewise, I’m addicted to feeling good. Profits make me feel good. I just made a profit following my plan. But wait, I want to feel good again, therefore I become impatient and will place trades outside of my plan because I’m in a hurry to feel good!

    At the moment, I need to work on not “feeling bad” when I get stopped out. The chain reaction of this “feeling bad” is disastrous to my psyche (if I don’t act on it) and my trading account (if I do act on it).

    • You’ve nailed it. And this is the first and, one could argue, most important part. It’s acknowledging that there’s a problem, and forming a precise picture of what the problem actually is. Only then can you begin to work on eliminating it.