Written by Robin Dayne, an affiliate of CFRN.net. Burton Schlichter is a partner and featured broker at CFRN.net.
Coaching traders just beginning careers to top professional hedge fund traders at companies like Tudor Investment has proven the importance of mindful trading. Successful traders learn early on to manage their emotions giving way to clear and realistic analysis of their trading. Being honest with one’s abilities takes courage and will also open the minds thinking to refine and make the necessary changes needed to perfect the decision process.
Emotional thinking, on the other hand, masks reality and can give false conclusions polluting the outcome of decisions. Emotions conceal a clear path to creative thinking. But when emotions are removed clear thinking allows a trader to “dig” and really see the markets distinctions in a new light. Finding hidden details, that were there all along increases the possibilities to modify the process to win.
As we covered in the first article, 70% emotional reactions stem from the subconscious memories and not the conscious mindful thought. Compare it to looking thru foggy glasses. If what you’re seeing is not clear and a decision is warranted without ALL the information, your mind will automatically fill in the blanks, the best it can, pulling data from what’s been stored. However, it doesn’t distinguish between using good data or bad data it pulls from where most repetitive reactions have been.
Repeating the Same Bad Trading Mistakes
Example: You’re all set up to trade, everything starts to line up, you become anxious and are compelled to enter the trade too soon. Things slow down and it’s taking longer than expected and the trade goes against you, getting closer to your programmed stop loss, so and you decide to give it more room and move your stop lower, you let it play out and it continues to go in the wrong direction, finally forcing you to close the trade and take an even bigger loss than your rules allowed. But it doesn’t end there, you’re upset with the loss you’re in the emotion and the market sets up again for your entry, anxiety takes over again, and you repeat the same rubberstamp trading mistakes as the first one. You KNOW you shouldn’t enter and attempt to fight the urge but the same exact mistake repeats. Traders will call me and say I think I’m going crazy I keep doing the same exact mistake over and over and I can’t seem to stop myself. Intellectually they know what they should do but the emotions are so overpowering, it’s like an addict trying to stop drugs. If presented with the opportunity they take them. All this is being triggered by the automatic responses of the subconscious mind, not trading as a mindful trader.
Emotional Translation:
you’re watching and waiting for the proper entry. You see it developing the anxiety builds and you’re afraid to miss out, so you enter sooner than expected. Confidence is not strong knowing you entered at the wrong time, uncertainty is very high, and you know you’ve messed up. Prices continue to go in the wrong direction, uncertainty increases and you hold on trying to prove you’ll be right. You may even have some physical reactions coming from the fear, your heart may start to race, fears mount of losing again or losing more money build up to the point where moving the stop provides a slight release but things worsen. Finally, giving into emotional pressure you are forced to exit the trade, taking more heat than you anticipated. The fear of losing again it an overpowering force that translates into an exit. This is your body’s reaction to protecting you from more pain. We have a built-in mechanism that stops us from actions that may cause us pain. Losing at trades gets stored as pain. So, while this amazing innate ability works in our favor most of the time it’s counterproductive when trading. Losing is part of the game. What is your current mindset related to losing?
Why does this happen? Same as in the first article emotions are being pulled from what’s stored in the subconscious memory. You are on autopilot and not in control. Repetitive patterns have been formed in the subconscious like nails drawn to a magnet, and this repeats over and over. Most have no idea why this is happening while trading and very few know how to change it to succeed. Fear and frustration take over and it’s just a matter of time before the emotional breakdown comes.
In the up-coming scheduled webinar “The Trading Mindset of Pros” identifying your blocks is covered. Additionally, how tracking data, if done properly, can produce amazing changes that improve any strategy, increase confidence, certainty and emotional disciplines. 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 view the free presentations. All the best in your trading!
Robin Dayne
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.
