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That One Guy

Is Trading Right for Me?

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Read an interesting blog post, from Brett Steenbarger's blog. Talks about emotions in trading. Basically Bret say's just eliminating emotions in your trading won't make you successful. He says, you must be skilled in the markets, establish a solid edge and then trade that with confidence. The emotions, will effect you less, if you have the confidence in your edge. Then I, read another point he made.

 

"Of course, emotions of fear, greed, overconfidence, and anger can skew our decisions and actions. But there are two major reasons these emotions can intrude into trading."

 

"The trader is biologically predisposed to a high degree of negative emotional experience (i.e., the trait of neuroticism) and probably shouldn't be operating in a field with high degrees of risk and uncertainty"

 

This comment got me thinking. I, know for a fact my father is an extremely negative person and my mother often worries a lot. I, started thinking, maybe trading may not be for me based on my parents negative mindsets.

I, took a test online (about 10 questions) and it stated I wasn't a negative thinker. Something to look into for people just getting into trading. Maybe if you are an, extremely negative thinker, you may not dwell into trading. Just some food for thought, any opinions on this subject would be greatly appreciated.

 

The link to the test and brets blog:

 

 

http://www.3smartcubes.com/pages/tests/negative_thinker/negative_thinker_instructions.asp

 

 

http://traderfeed.blogspot.com/2008/07/cross-talk-role-of-emotion-in-trading.html

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I have read that blog post by Dr. Brett and was kind of disappointed by it. I deeply respect Dr Brett and his work but I think he was kind of off target with this one. I agree with what he had said. That the root of all emotional problems is inadequate training or lack of a genuine edge.

 

Heres my take. There are two types of traders. Either competent (possessing a genuine edge) or incompetent (not possessing an edge). Honestly I don't care about incompetent traders and all the reasons why they can't make it in the markets. I personally view myself as competent, I possess a genuine edge, and consistently make money in the markets. However, I have some emotional problems that don't allow me to make the kind of money I deserve to make. Its not the markets, my edge, or any thing else other than my own emotions getting in the way. I'm simply timid with unbooked profits and behave like an ass and can't stop myself no matter how much I try. I cut my winners short and have problems adding to a winning position that simple. If I could only get this matter resolved I would be extremely happy, fulfilled, and at peace with myself. I have tried just about every thing but nothing seems to work my brain is hardwired to cut winners short. It would be nice if Dr. Brett would address the concerns of semi successful traders such as my self instead of just pointing out the obvious that emotional interference stems from no edge. I guess my problem is common in the business among professionals and thats why he is employed at the firm he is at in Chicago. If one requires real help you need to fork out the cash and get a 1 on 1 meeting with a trading psychologist.

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I do think the problem is that Dr. Brett is speaking to a few different auidences in his writings.

Obviously, finding an edge and excuting a legit edge for profit are two very different things.

To me the best excerise you can possibly do to gain confidence in your edge is to try to automate what exactly it is you are doing. Even if you have no interest in auto trading it will sharpen your thoughts and clear out alot of muddled thinking in your trading. The setup is the easy thing to define, the hard part is entry, exits, trade management....If you normally only get in after a pullback, then how do you precisely define what a pullback is? If you don't have that defined then your introducing randomness into your trading.

I think this is another cause of pyschological problems because then your probly not doing the exact same thing on each trade.

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...I'm simply timid with unbooked profits and behave like an ass and can't stop myself no matter how much I try. I cut my winners short and have problems adding to a winning position that simple. If I could only get this matter resolved I would be extremely happy, fulfilled, and at peace with myself...

 

You are describing what is known as the "disposition effect." For traders, it generally means cutting winners short and letting losers run. It was first described by cognitive psychologists in the 1970s. There has been a fair amount of work done on this, especially in behavioral finance, which you can google and find some of it.

 

We actually may be "hard wired" like this. It has to do with risk aversion, though we wind up losing and/or taking on much more risk, despite our intentions. When our emotions (usually some sort of fear) get involved, the disposition effect becomes amplified and it can seem like it can't be solved. This is mainly due to the way the brain functions. When fear is ignited, it rapidly draws blood away from the decision-making center of the brain. We literally lose our ability to think clearly. Normal problem-solving doesn't work with this, so it seems impossible to alter.

 

I think trading is about having an edge and also about changing behavior. As most of us quickly learn, what works in the everyday world doesn't work very well in trading. You really do have to think and behave differently; this is a different kind of edge.

 

You can start to help yourself with this by fully understanding what is driving the behavior. What are you thinking (saying to yourself) while in the trade that is affecting your behavior? You need to get very specific with this. Also, what are you feeling? It is likely to be fear of some sort, but everyoone is different and there can be a mix of emotions, so again, specificity is important. Note physical sensations, too. What is happening in your stomach, face, shoulders, legs, etc.

 

Keep a log on this for a week or two. Just as you log your trades, log your thoughts, feelings, sensations, and anything else you notice that is contributing. See what the pattern is. Is there more than one? Once your particular pattern is known, there are many different ways to alter it. But, you must know what you are trying to change before you can change it.

 

Eiger

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Read an interesting blog post, from Brett Steenbarger's blog. Talks about emotions in trading. Basically Bret say's just eliminating emotions in your trading won't make you successful. He says, you must be skilled in the markets, establish a solid edge and then trade that with confidence. The emotions, will effect you less, if you have the confidence in your edge. Then I, read another point he made.

 

"Of course, emotions of fear, greed, overconfidence, and anger can skew our decisions and actions. But there are two major reasons these emotions can intrude into trading."

 

"The trader is biologically predisposed to a high degree of negative emotional experience (i.e., the trait of neuroticism) and probably shouldn't be operating in a field with high degrees of risk and uncertainty"

 

This comment got me thinking. I, know for a fact my father is an extremely negative person and my mother often worries a lot. I, started thinking, maybe trading may not be for me based on my parents negative mindsets.

I, took a test online (about 10 questions) and it stated I wasn't a negative thinker. Something to look into for people just getting into trading. Maybe if you are an, extremely negative thinker, you may not dwell into trading. Just some food for thought, any opinions on this subject would be greatly appreciated.

 

 

Hi JW,

 

As human beings, we never stop having thoughts, emotions and sensations. Current psychological research is showing that trying to turn off thoughts & feelings leads to more problems than it solves, epecially in performance arenas like trading. Those who stay in contact with their emotions (positive, negative, or otherwise) and use the emotion in a useful way (as information, for example), while at the same time stay focused on the task at hand (trading, for example), will typically perform well. This is generally known as Emotional Intelligence. Paradoxically, when we try to inhibit emotions (i.e., try to get rid of the negative emotion in some way) we typically produce the opposite and actually amplify the distress. Naturally, this affects our trading (or whatever else we are doing).

 

Ditto for thoughts. State-of-the-art psychology is finding that it is not the frequency or the intensity of negative thoughts that causes the problem, but whether we take them as a true representation of reality and act on them as such. Jumping on a thought and riding it as truth is what causes problems, not having the negative thoughts.

 

Mindfulness practice is very helpful in this regard. It promotes a mindful response rather than a mindless reacting. Mindfulness also promotes a focus on what is occuring (in the trading environment, for example) rather than a focus internal thoughts and feelings, and thus promotes greater flexibility in how we act and respond.

 

Take the issue of cutting winners short, as an example. Once in a trade that has produced some profit, scary thoughts and feelings may start to emerge. The trader may be saying to him/herself, "If I don't book profits now, the market is likely to turn back and give me a loss." If you mindlessly focus on these thoughts and feelings, you will cut your winning trade short. Why? Because you believe what you are saying to yourself as reality and you believe in your feelings over what the market is doing. Your focus is internal, not on the task at hand (managing the trade). What is worse is that reality is distorted by our thoughts and feelings and we are totally ignoring the market action. We are no longer managing the trade, but trying to manage (i.e., get rid of) our emotions. We cut the trade short and experience immediate relief, which is quite reinforcing. Because it is so reinforcing, the pattern is likely to occur over and over again until the pattern is broken or the trader quits trading.

 

Developing skills in mindfulness would allow us to say, "OK, I feel the anxiety and don't want a loss, but the market is acting well here. It is telling me higher prices are likely. I certainly do feel the anxiety, but I can also stay in this trade a little longer. I just need to be ready to exit if I see trouble." In this way we may still have negative thoughts and feelings, but we are chosing to focus on the task at hand and not to act on the thoughts and feelings.

 

Hope this is helpful,

 

Eiger

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Developing skills in mindfulness would allow us to say, "OK, I feel the anxiety and don't want a loss, but the market is acting well here. It is telling me higher prices are likely. I certainly do feel the anxiety, but I can also stay in this trade a little longer. I just need to be ready to exit if I see trouble." In this way we may still have negative thoughts and feelings, but we are chosing to focus on the task at hand and not to act on the thoughts and feelings.

 

Hope this is helpful,

 

Eiger

 

Thanks Eiger, good stuff.

Reminds me of the comments Mark Douglas made on becoming a runner. He said, that when he first started running, he constantly had to fight the negative emotions, til he eventually built up enough discipline to just do it. I, my self am a runner and experienced the same problems. However, over time I was able to fight through those negative emotions and just do it. The negative emotions are still there every run, but I am able to push through it and finish my run completely as planned. The same should be for my trading. If I planned the trade out, and everything still seems fine, I shouldn't run scared because the big bad market might take my hard earned money. If I, gave in every run and quit early, I'd get no where. The same applies in my trading, if I cut profits early out of fear, I will get nothing done and probably lose money, which I have proven to myself before. Trading two accounts in forex with the same Strategy. The one with more dollars at risk I lost money because of cutting winners. The one with minimum risk, I let trade work as planned I made money. It all comes down to confidence in the method and proper money management. Once this is hard wired in my brain, I just need to have the discipline to stop being a bitch and just let it all work.

:o

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IDAX and everyone thanks for sharing....

 

IDAX I have a couple of questions about your honest approach/weakness to cutting winners short...

Have you ever noticed when you are ahead, the head kicks in...I dont want to lose...I dont want to lose...I dont want to give it back...etc one is almost holding their breath when they are about to make the decision...will I cut or wont I etc...

 

Now also ever noticed the feelings that are underneath this thinking or the situation ..? If you delve into it more you will find some chaotic stuff going on....stuff that not many want to acknowledge...(and belive it or not evryone has these levels.........)

 

Instead we cut the trade short of its potential as you have stated...we do this because in the choas we need to grab onto something...anything in fact..best not to experience the choas because we judge it as bad...unfortunately this is often a misconception...real change happens when one is able to dip into this and pull out quickly...This process can have a calming affect even..ie acknowledging or even naming the feeling that is there....alternatively some people suggests methods for thinking to overcome the feelings that lead to the acting out and hence closing the trade. I prefer the former method as I am less of a thinking type...

 

Trading can get quite manic eg having found a trade on the right side to losing it....we get tested a lot here....

 

Now me telling all this isnt going to make it any easier for you or anyone...its like trying to tell someone to swim to shore when they are caught in a rip tide....not easy..

However the more conscious one is around these feelings the better we get and the more we do it the more change occurs....the more we have a thinking mantra or process the better we will be..

 

All good stuff though and by you raising this common issue helps in the process of change..Thanks for that.

 

All the Best

 

John

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This comment got me thinking. I, know for a fact my father is an extremely negative person and my mother often worries a lot. I, started thinking, maybe trading may not be for me based on my parents negative mindsets.

 

Avoid any toxic people who might poison your trading mindset. These include relatives and friends who, based on their own shortcomings, are not attuned to what you are doing.

 

For example, some folks may think that just because they had to "work" in an office 40+ hours a week, you must do so too. Or that if you aren't doing any heavy lifting or manual labor (fill in the blank - you get the picture), you must be doing something wrong with your life.

 

As former real-estate infomercial guru Tom Vu once said, "Forget them. They are losers!"

 

Avoid at all costs....

 

-fs

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I thing I did to avoid cutting short my winners was to add on positions. It sounds stupid for some but give it a thought and possibly try it, a small position at first. This is something I overcame, it forces me to stay in the position and in the same market direction when it signalled the trade I made was a right trade.

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Avoid any toxic people who might poison your trading mindset. These include relatives and friends who, based on their own shortcomings, are not attuned to what you are doing.

 

For example, some folks may think that just because they had to "work" in an office 40+ hours a week, you must do so too. Or that if you aren't doing any heavy lifting or manual labor (fill in the blank - you get the picture), you must be doing something wrong with your life.

 

As former real-estate infomercial guru Tom Vu once said, "Forget them. They are losers!"

 

Avoid at all costs....

 

-fs

 

Its quite interesting.... none of my family supported my trading. As a matter of fact my first 2 years was hell as I was completely surrounded by negativity. I am actually too optimistic by nature which kept me going (plus my drive).

 

I agree that its important to be aware of your own internal thoughts and the external factors that may affect you. My stubborness definitely helped continue learning this game (though it did lead to conflicts while trading). Ahh the mind.... beautiful but yet so complicated.

 

NLP definitely helped overcome negative thoughts and taught me how to control and be aware of them. Takes practice but the mindset can be changed with practice over time. Now, I am so aware of negativity that I can instantly shut them out of my mind. Its interesting too.... cause you can see a persons character and drive just by the way ppl phrase things.

 

Example: Two guys go to a car dealer shop looking at a Ferrari. Person A goes "There is no way I can afford that." Person B goes "How can I afford that?" The difference in mindset is huge.

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As former real-estate infomercial guru Tom Vu once said, "Forget them. They are losers!"

 

-fs

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