One of the hardest things for the human mind is too detach itself from the results of an outcome. Winning trade = a job well done; Bad trade = I did something wrong—not necessarily the case in either outcome. For the new trader, you’re going to experience the natural swing of emotion that occurs when learning a new endeavor. You’re going to have your “breakthroughs” and bouts of success—mostly temporary—and you’re going to experience mental blocks and the inevitable loss of money– hopefully mitigated by proper risk management. Throughout this mental and emotional rollercoaster, you must maintain a moderate temperament; not getting too high at your highs, nor too low at your lows. A good rule of thumb that was taught to me that helps me stay grounded: you’re never as good as you think you are—usually referring to when you’re on a hot streak—and never as bad as you may think you are: you’re going to fall somewhere in between. Cultivating this type of mindset is the pursuit of objectivity—a crucial skill at analyzing your participation in the market.
Being a part of a trading community I’ve been able to see this concept in full display. You’ll have your traders who are on cloud 9, experiencing a winning streak of sorts. They start talking more definitively– an aura of pride in their speech. I’ve seen a trader boast how he makes more than certain prestigious professions– which was a blasphemous statement due to the sample size from what he was drawing from: it was laughably small. Because people can’t properly attribute the factor that luck plays into their success, they overrate their abilities, which as a risk taker, is one of the most dangerous places to be mentally. You also have the flip side of the coin, traders who berate themselves. This serves no purpose other than the twisted comfort you get from self-loathing. You’re going to fail a lot in this business. Ok, a trade idea didn’t work? Figure out where you went wrong, if you even went wrong in the first place—whether on the spot or aftermarket hours, as long as your heads clear—and move on! I’m ruthless with the thoughts that I let sit in my mind while trading. If it’s not serving your trading, there is no use for them. The feeling of winning money is elating and ego boosting, while losing money strikes at our insecurities. Take the middle path, the moderate approach, not succumbing to the extreme emotions that pull at us and serve as distractions from refining our process.
I hate it when I hear people say you must have no emotions trading. That phrase right there shows you the persons lack of understanding. We can’t turn our emotions off. We’re participating in an activity that releases a copious amount of chemical reactions in our bodies– good luck stopping that. Rather, what people who spew that phrase are really looking to say is, don’t let your emotions dictate your actions or thinking. Again, that’s something that needs to be addressed away from market hours. I recently spoke with best-selling author and legendary hedge fund trader Turney Duff on the “Confessions of a Market Maker” podcast. He implied one of his edges as a trader came from his inability to feel the highs and lows of life or a trade: a medical condition he has. It’s a condition that I’m sure he’s struggled with in his greater life, but when it came to trading it served him well. Most of us are not in Turney’s position but this really struck home the impediment our emotions present.
Being objective doesn’t come naturally to humans. Being moderate doesn’t come naturally for some: myself included. These are things that must be worked on away from the market. The market will reveal too you who you are and specifically your flaws; if you’re a passive person, it will manifest itself in your execution and tentativeness; if you’re a do first, think second type, it will manifest itself in huge losses, blown up accounts, and high susceptibility to FOMO; if you’re an emotional type, feeling the highs of your success’s—not to mention the pride that accompanies winning which is detrimental—and the gut wrenching pain of your losses will leave you with no emotional capital. These are generalizations and individuals are more nuanced, but I wanted to put an emphasis on how the market will reveal your demons. This endeavor can be mentally and emotionally trying but strive for the middle path and ignore the extremes; whether it be exuberance; self-loathing; pride; depression: focus with unwavering intent on the process. Focus on the results, and you have a trader with a faulty process; Focus on the process, and you have a trader who produces results.
If you’d like to be apart of a pleasant and supportive trading community, trade along side Ray & 20 year market maker turned retail trader, @vwaptrader1 visit www.microefutures.com