Written by Robin Dayne, and affiliate of CFRN.net. Burton Schlichter is a partner and featured broker at CFRN.net.
For the past 26 years I’ve worked as a trader’s coach dealing with every possible trading challenge derived from the business. Everything I’ve learned, seen and experienced personally from the best, confirms, across the board, that emotional mastery is as critical to success, as the best methodology. The best strategy, rules and criteria become useless if the minds fears get in the way of a proper reaction.
In the few special Daniel’s Trading articles I’ll explain how and why the minds thoughts change our reactions in a moment. How the lack of mindful trading can quickly crush a trader’s career, compound frustration and run through capital with the speed of an unpredicted avalanche. Be aware that few strategists will teach, cover or warn the dangers of what will happen emotionally if this part of trading is not mastered.
Traders import to the trading desk, their stored emotional collection of past experiences, and beliefs related to; winning and losing, success and failure, being right or wrong and their relationship to money. All this mixed together with multiple moving parts, prices, techniques, indicators and rules form the perfect storm for errors in the decision process. The mind is on hyper-drive digesting information that is changing second to second.
In the next few articles I’ll explain:
- What causes “chasing”?
- Why trader’s fall prey to their emotions, unknowingly?
- Why do trader’s repeat the same bad patterns?
- How can “hidden” emotional blocks, untreated blocks eventually paralyze the most experienced trader?
Chasing Price
Example: You’re watching the market, price action, indicators and waiting for the “set-up” and time to enter. The planets morph into alignment, but you don’t enter and hesitate. Confidence and certainty are missing, but everything else is in place. So, you wait till price moves in your favor and you try to get in (limit order) but can’t get filled, so you move price up again and still no fill, the indicators are still ok, and so you finally jump in (market order), get filled and price starts to slow, then stops, and begins to reverse. You KNOW you entered too high, so your fears of losing increase and cause emotional panic, it continues to move against you, you are losing so, you close the trade and lose, again and think…. How could I be so stupid? I did the same thing 3x today. Why can’t I stop? Why can’t I pull the trigger when I need to?
Emotional Translation:
You’ve lost in past trades the same exact way. Confidence wasn’t built but apprehension, and uncertainty was. Your past bad experiences have built-up over time. Also, depending on how much you lost in the past trades will determine the intensity of your feelings in your memory storage. If you lost many times over and over or lost one BIG amount you will react with greater fear and uncertainty than if you lost small and controlled loses. In your head you want to get the money back so you “push” and chase fearing you will miss out. While this is a simple example it has complex repercussions on your trading.
Why does this happen? First 70% of your reactions are coming from your sub-conscious memory bank. Bad stuff in, bad reactions out. The bad “feelings”, build-up overtime while creating a new defensive “filter” that will automatically be added to your sub-conscious thought process. So, when the situation re-occurs the mind searches for past experiences, finds the bad stored examples, and filters through it again causing you to react the same exact way.
Each component of trading, entries, management, exits comes with triggers that require you to manage and master trading emotions a mindful way verses going into the auto-pilot of sub-conscious memory. But this takes work and practice the same as the practice for a good strategy. Emotions are 85% of why traders fail and is the least talked about.
In the up-coming scheduled webinar “The Trading Mindset of Pros”, we’ll discuss how to reverse this and re-program the sub-conscious. In the meantime, there are free tools and information on www.RobinDayne.com ……Go to the home page (top right) and take “The Emotional Trading Test” to understand your personal challenges also under “media” tab the free presentations. All the best in your trading!
Subscribe to Capture the Move
Capture the Move - Capture the Move (CTM) was created to give specific and "easy to understand" trade suggestions to both novice and experienced traders.
Capture the Move includes an email newsletter subscription.
Risk Disclosure
This material is conveyed as a solicitation for entering into a derivatives transaction.
This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.
Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.
You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.
