Mirror Mirror; If you can't be honest with your self, who can you trust?

In this entry I want to talk about something that I'm very fascinated about and it's also a subject that often gets overlooked by a lot of newer and beginning traders. Psychology and emotions. Looking inside yourself and finding out how it all correlates to trading.

It is my personal belief that the mental aspect plays at least a 90% role when it comes to trading. Learning the technical analysis and how to read a chart is actually the easy 10% part of the game. A lot of traders say 'trade without emotions', or 'trade like a robot' and you'll have success. These types of statements are just simply contradictory and well far beyond from the truth. The market in it self moves based on emotions.

It's impossible to make rational decisions without emotions. Recent psychological and neuroscientific research has been revealing that emotion and cognition are closely intertwined. Emotion facilitates how we perceive our world and organized our memory in making important decisions.

There is a key personality trait I noticed that all the successful traders I have learned from possess.  That would be the ability to tolerate discomfort in order to control their actions and behavior.  Cognitive flexibility and resilience.  EMOTIONAL CONTROL. This is the trait that helps them avoid breaking trading rules, and making mistakes that would cause them to lose a lot of money in a single trade. Developing emotional control should be a vital progress goal that you set for your self daily.

So, how does one develop such an admirable personality trait? What is emotional control in trading? How do we tolerate the discomfort that is inevitable in this market full of uncertainty when:

• You wait for the chart set up
• When the trade pulls back against you. 
• When you expect immediate resolution but the stock lingers.

Let's start by identifying some of the losing trades that are caused by the lack of emotional control:

1. Fear of missing out(FOMO). This is when the stock is already making the move in the direction that we want but we missed our entry or found the stock late, in turn we jump into the the trade anyways on the emotional urge to catch the train. Often finding ourselves either buying the top or shorting the bottom.  Once we get in, the stock immediately goes against us and we take a big hit.
2. The give back over trade. This happens when a trader who makes a nice profit early in the market hours but continue trading throughout the day only to give back all the profits he had made and eventually losing by the end of the day.
3. The fear of losing, causing the inability to pull the trigger when the opportunity presents it self.

Most traders make promises to themselves, and then beat themselves up after if they break their own rules. There is a huge difference between learning from mistakes, and constantly berating themselves when they do make mistakes.  Relying on will power ALONE is not realistic. Will power is a finite resource. It is not a sustainable form of discipline. Will power is simply your brain sending you signals to do or not do an action, and your brain is dependent on glucose/blood sugar levels to function.  The brain it self is only 2% of your body mass but it consumes 25% of your glucose level. Once your brain use up all that energy supply from glucose, it's bye bye will power.  If you really want to get geeky about it, wiki up the research done by Roy F. Baumeister and his study on Ego Depletion.

I'm not saying will power is not useful, but it needs to be combined with another strategy that I will be introducing to help with controlling your emotions.

Emotions is derived from the information we perceive through our senses. The brain in turn sends us an energy signal on how we are FEELING about the information, and then we act on that based feeling. To put it in short though, motion is caused by energy hence E(energy)-motion.

So, what is this strategy?

It all really boils down to how one would manage their emotions throughout the trading day. Personally, I think of the 3 'A's before I take action:

• Anticipate emotion; Emotion is inevitable and we need to be able to anticipate it. 'How will I feel in the future if I took this action now?' I ask my self out loud essentially literally talking to my self. And why not? We need to talk to somebody smart from time to time. =Þ
• Acknowledge emotion; Once we recognize that emotion is present, we need to acknowledge it and put it into words. We need to be as graphic and vivid as possible. Understanding that it's right here, right now. Ask your self, 'What am I feeling right now?'
• Analyze emotion; When we recognize that the emotion is there, we analyze it. When have I felt this emotion before? What happened in the past when I had this emotion?

I work this strategy daily into a part of my process goals.  Before each trade, during each trade, I constantly ask my self these questions before I take action. With this strategy, one would have to be very very honest with themselves. Being able to identify our own emotions is the key to controlling it. If we are not even capable to be honest with our own self, who else will we trust?

Moving forward, I sincerely hope this entry helped you as much as it did help me when I first learned this technique of managing my own emotions. I also truly hope that all of you out there reading this will work this technique into your daily process goal as we get into year 2018.  Happy new year all!

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