How do you remove emotion from trading?

[markrmau]

As much as I try to suppress/ignore it I have to admit that I have some feelings of elation (depression) when a stock I have selected goes up (down).

Obviously this is not good for trading. You want to be completely objective and impartial.

How do others deal with this? Is it even possible to eliminate it? Could hypnotherapy help - similar to an alcohol/gambling addiction?

 

[rederob]

Mark
A bex and a good lie down!
What plan do you work to?
What do you want to achieve?

If you trade actively and are emotional, you need to have coping strategies.
If you have no personal trading rules your emotions will get the better of you.
I cannot conceive of an active trader being driven by emotion - you won't be an active trader for long as you will be broke.

I do not trade actively, but have a number of objectives I work to.
Beneath these objectives is an acceptance that from time to time I will sell too early or too late.
If you accept there are only 3 outcomes (profit, loss, or break-even), and each trade will have only one, learn to live with the outcome you decided on and move on.
We all want to dwell on the mistakes, or the massive profits forgone because of poor decisions.
If you are a trader and prefer to dwell on the past, your capacity to trade with an eye to the future is diminished.
I cannot admit that I don't feel emotional about the odd trading decision or two, but I never let it cloud my judgement in future choices.
I don't know how it is possible to learn from only being right.
Many of the world's best winners were once the biggest losers.

 

[tech/a]

I think this is simpler to avercome than most realise.

Just trade in parcel sizes which are small enough not to cause grief if your stock moves against you.
Over trading and trading more than is comfortable is in my view strongly correlated to that roller coaster ride.

Make your million over a few years rather than weeks!

 

[happytrader]

Hi Markmau

Every trader eventually gets to this point. If you find yourself saying "this always happens to me" you need to get help (all counsellors listen for this important warning).The will is so strong that it will recreate these the same case scenarios. You are right about addiction but remember they do and have served a purpose for that person, because at the base of every addiction is a wound. Heal the person and you heal the relationship. (in your case a money relationship).

So next question is, "who is there to help me?"

A student of a well known option trading guru was advised to go to a psychologist for - timeline therapy. The issue was related to being made to feel worthless and underserving as a wee child.

His trading results reflected this as his will subconsciously maintained this identity of undeservedness and worthlessness - possibly in a childs mind, survival was an issue here. Some of you out there may laugh as much as you like, but I see plenty of adults right into old age that still throw tantrums. Toddlers aren't the only ones that regress into baby behaviour when under stress. This behaviour goes across all ages. Also the guru himself is an NLP Master.

See a counsellor, practitioner, psychologist or lifecoach with eclectric treatments such as BSFF, EFT, EMDR for rapid results. You might also like to learn some of these therapies yourself to maintain your mindset. BTW, there are medicare rebates on counselling visits now.

Websites

www.emofree.com
www.bsff.com
www.nlpinfo.com
www.theaca.net.au

Cheers
Happytrader

 

[RichKid]

I think this is simpler to avercome than most realise.

Just trade in parcel sizes which are small enough not to cause grief if your stock moves against you.
Over trading and trading more than is comfortable is in my view strongly correlated to that roller coaster ride.

Make your million over a few years rather than weeks!

Great tip, I find it helps immensely, also keeping the total number of open positions to a no you can cope with also helps.

 

[noirua]

As much as I try to suppress/ignore it I have to admit that I have some feelings of elation (depression) when a stock I have selected goes up (down).

Obviously this is not good for trading. You want to be completely objective and impartial.

How do others deal with this? Is it even possible to eliminate it? Could hypnotherapy help - similar to an alcohol/gambling addiction?

Selling is usually the most difficult part of investing, especially if it involves taking a loss. Set a stop-loss and do not change it, and promise yourself to immediately dump the stock once it hits your sell target. There are no IFS or BUTS, JUST DO IT. ( If only I took my own advice. )

 

[Milk Man]

Radge was seeing a pschologist to better understand his trading mindset I think. Care to enlighten us Dr Nick?

 

[Nick Radge]

Morning Milko and Happy Easter to all ASF'ers.

Yes I saw a therapist for quite some time. 1-session once a week for about 8-months if I remember. In my opinion psychology is the make or break of a trader and the easiest way around the conscious side of your mind is:

(1) trade a method/style/instruement that suits YOU. You need to feel comfortable and you need to understand why it can make money over the longer term. If you intuitively understand why it will make money and you're comfy executing the plan, then you will have a higher chance of making it.

(2) As tech/a rightly says, trade small enough that it just doesn't matter if its a win or a loss. Think of trading as controling the losses and simply forget about the profits. If they come, they come. You can also up the ante when you get better prepared. When times get tough there are two actions to take (a) trade small and then even smaller, so it doesn't even hurt. (b) use wider stops so daily market noise will not take you on a roller coaster.

The above is the simple CONSCIOUS side. These types of things are what you will get when you attend a seminar on psychology, although I don't beleive these are value at all and would avoid them. I have strong opinion sabout these types of seminars, mainly because of what I'm about to say below.

The second side of th mind - and the part that smacked me between the eye's when I saw the therapist - is that most of the major issues are sub-conscious. These, I beleive, cannot be seen or solved in some kind of seminar. These are the things that are deep down and driving you. You cannot see these traits yourself because you hide them away. They exist because of your upbringing and your sub-consious values and beliefs. Its these one's that do the major damage, not only to your trading but to your life in general.

The one thing that I realised is that I'm not aware of my sub-conscious personality traits. Everything you do in your life, trading or otherwise, will come from these sub-conscious issues and if you cannot recognise them (or should I say want to recognise them, then you will, over time, defeat yourself in any endeavor you pursue - trading included. I wrote an article a few years ago on the conflict of a smoker who plays the pokies. Perhaps on another thread we can discuss that then I'll provide the answer. Whilst its not trading related in its basis, its is directly related to trading, as is all these sub-conscious issues.

My personality traits had implications on my trading without a doubt. To not deal with these would've, eventually, destroyed my trading but more importantly my family relationships.

The only way to get the real sub-conscious answers is to have one-to-one sessions. There is absolutely no way that a seminar or course can delve into your sub-conscious.

One source of highly recommended information can be found here:

www.brettsteenbarger.com

The other source is Mark Douglas' Trading In The Zone. But don't just read this book. I've read it some 20 or 30 times (I actually have the pre-book manuscript) and I can recite it verbatim. I think the large difference comes from really understanding, not just reading.

Nick

 

[Milk Man]

Excellent reply (and quick too do you keep checking back to see how much I plug your book or something? ).

A couple more questions 1) can/has your subconcious been changed by using a psychologist, and 2) how much does it cost (generally). It probably wouldn't be worth it until you get big enough that the cost isnt that significant, huh?
Cheers.

 

[ice]

I find taking my loss in advance is the easiest way.

I run an excel spreadsheet of my trading finances.
When I open a trade I enter the position in the spreadsheet and immediately enter the 'sold' column at my stoploss. That way the 'loss' is already acknowledged and I can manage the trade without stress.

i.e if I have $100k in my trading account and take a $10k position with a 10% stoploss I enter $9000 in the 'close' column and the total adjusts to $99k. Thus I have already accepted that as a loss and don't feel pressured if it occurs.

Of course doing that doesn't guarantee I'll only lose $1000 but that's a separate issue.


ice

 

[Julia]

Morning Milko and Happy Easter to all ASF'ers.

Yes I saw a therapist for quite some time. 1-session once a week for about 8-months if I remember. In my opinion psychology is the make or break of a trader and the easiest way around the conscious side of your mind is:

(1) trade a method/style/instruement that suits YOU. You need to feel comfortable and you need to understand why it can make money over the longer term. If you intuitively understand why it will make money and you're comfy executing the plan, then you will have a higher chance of making it.

(2) As tech/a rightly says, trade small enough that it just doesn't matter if its a win or a loss. Think of trading as controling the losses and simply forget about the profits. If they come, they come. You can also up the ante when you get better prepared. When times get tough there are two actions to take (a) trade small and then even smaller, so it doesn't even hurt. (b) use wider stops so daily market noise will not take you on a roller coaster.

The above is the simple CONSCIOUS side. These types of things are what you will get when you attend a seminar on psychology, although I don't beleive these are value at all and would avoid them. I have strong opinion sabout these types of seminars, mainly because of what I'm about to say below.

The second side of th mind - and the part that smacked me between the eye's when I saw the therapist - is that most of the major issues are sub-conscious. These, I beleive, cannot be seen or solved in some kind of seminar. These are the things that are deep down and driving you. You cannot see these traits yourself because you hide them away. They exist because of your upbringing and your sub-consious values and beliefs. Its these one's that do the major damage, not only to your trading but to your life in general.

The one thing that I realised is that I'm not aware of my sub-conscious personality traits. Everything you do in your life, trading or otherwise, will come from these sub-conscious issues and if you cannot recognise them (or should I say want to recognise them, then you will, over time, defeat yourself in any endeavor you pursue - trading included. I wrote an article a few years ago on the conflict of a smoker who plays the pokies. Perhaps on another thread we can discuss that then I'll provide the answer. Whilst its not trading related in its basis, its is directly related to trading, as is all these sub-conscious issues.

My personality traits had implications on my trading without a doubt. To not deal with these would've, eventually, destroyed my trading but more importantly my family relationships.

The only way to get the real sub-conscious answers is to have one-to-one sessions. There is absolutely no way that a seminar or course can delve into your sub-conscious.

One source of highly recommended information can be found here:

www.brettsteenbarger.com

The other source is Mark Douglas' Trading In The Zone. But don't just read this book. I've read it some 20 or 30 times (I actually have the pre-book manuscript) and I can recite it verbatim. I think the large difference comes from really understanding, not just reading.

Nick

Nick

Great comments. I, for one, would be really interested in hearing more about the smoking/pokies conflict. Can you start this thread off?

Thanks
Julia

 

[David123]

hi, i just stick to plan, no emotion in it... buy here... sell here... so dont change rules... just stick to plan...simple!


cheers

 

[Porper]

hi, i just stick to plan, no emotion in it... buy here... sell here... so dont change rules... just stick to plan...simple!


cheers

I doubt that it as easy as that David123, maybe for a tiny percentage of people it is.Plus it depends how much your starting fund is.If I was trading with pocket money I wouldn't have a problem with losses.However when getting more serious and investing a lot of hard earned savings, maybe even thinking about trading/investing full time, then this is where it shows, the stress levels rise substantially when a few losses stream in together.

I understand what tech said, and it is true, trade small enough parcels and it will be a lot easier, that said, it isn't the most profitable way (from what I have experienced).Finding a happy medium I feel is the key to start, but this is just scratching the surface of this whole issue, and I believe a lot of traders/investers struggle with the emotional side of things and don't address the issue.

I am finding issues with my own trading now I have started trading cfd's.Having drawdown of 30% in a few weeks isn't fun, even if the raging Bull market comes and turns it round for you in a few days.Of course that isn't just an emotional issue but a method issue.

In the end though it is our methods that cause us to have the emotion.

 

[ducati916]

You will never eliminate *emotion* from trading/investing.
Emotion is, and always will be a basic human experience. What you can do is learn, and understand how emotion and all other psychological components can be utilized effectively, to augment, rather than detract from the goal.

Emotion, and emotional responses are located in the oldest genetic areas of our central nervous system, the *limbic system*. Detailed anatomical knowledge is not a prerequisite, however understanding the *function* is useful, and with understanding, you can learn to manipulate the *state* of your *sub-conscious*

In no particular order, the areas that must be addressed;
Motivation
Goal-setting
Vizualization
Training and warm-up
Arousal
Concentration & Relaxation
Competition (Trading & Timeframes)
Attribution (testing, systems, records)
Teamwork (team sport, or individual endeavour?)

As can be surmised, trading, and particularly trading in short time frames has a very close link with professional sports, and prepping for competition.
However many of the issues cross all timeframes, with some having stronger links into the longer time frames.

I actually wrote about this subject some three years ago on Reef, but have some new thoughts to the subject, and so will post the revised edition if you will.

Just returning however to the conscious contrasted with the sub-conscious.
As an easy example;

When you first learn a skill, in this case a motor skill, you learn via the cognitive centres in the brain, viz. the cerebral cortex.
Once you have learned the skill, it becomes second nature, or reflexive, and is shifted from the cortex to the sub-conscious areas........Thalamus, Pons, Cerebelleum, etc.

Example;
Learning to drive a car, initially, we concentrate very hard on the mechanical aspects, changing gear, indicators, clutch control etc.

Once we have been driving for a period of time, we concentrate on talking on our mobile phone, doing our make-up on the way to work, finding juniors lunch that he's left at home etc.

When Douglas et al talk about *Trading in the zone* they are referring to trading on automatic pilot, trading sub-consciously.
Professional athletes, talk about the *zone* in exactly the same way. Golfers, Tennis, Racing drivers, Sprinters, all have their optimal performance zone. It is this zone that *professional* traders can also occupy.

The same way that professional athletes increasingly rely on psychological training and coaches to teach them how to achieve that zone consistently, so can traders.

jog on
d998

 

[tech/a]

Dont think emotion can be removed as we cannot be stoic.

But its the swings that people are having trouble with.
When emotion effects a traders ability to make sound judgements and decisions.

 

[Sir Burr]

How about re-mapping the mind using Cognitive Therapy for Traders:

http://www.brettsteenbarger.com/Remapping the Mind.doc

Nick R. what do you think about this doc?

SB

 

[nizar]

You will never eliminate *emotion* from trading/investing.
Emotion is, and always will be a basic human experience. What you can do is learn, and understand how emotion and all other psychological components can be utilized effectively, to augment, rather than detract from the goal.

Emotion, and emotional responses are located in the oldest genetic areas of our central nervous system, the *limbic system*. Detailed anatomical knowledge is not a prerequisite, however understanding the *function* is useful, and with understanding, you can learn to manipulate the *state* of your *sub-conscious*

In no particular order, the areas that must be addressed;
Motivation
Goal-setting
Vizualization
Training and warm-up
Arousal
Concentration & Relaxation
Competition (Trading & Timeframes)
Attribution (testing, systems, records)
Teamwork (team sport, or individual endeavour?)

As can be surmised, trading, and particularly trading in short time frames has a very close link with professional sports, and prepping for competition.
However many of the issues cross all timeframes, with some having stronger links into the longer time frames.

I actually wrote about this subject some three years ago on Reef, but have some new thoughts to the subject, and so will post the revised edition if you will.

Just returning however to the conscious contrasted with the sub-conscious.
As an easy example;

When you first learn a skill, in this case a motor skill, you learn via the cognitive centres in the brain, viz. the cerebral cortex.
Once you have learned the skill, it becomes second nature, or reflexive, and is shifted from the cortex to the sub-conscious areas........Thalamus, Pons, Cerebelleum, etc.

Example;
Learning to drive a car, initially, we concentrate very hard on the mechanical aspects, changing gear, indicators, clutch control etc.

Once we have been driving for a period of time, we concentrate on talking on our mobile phone, doing our make-up on the way to work, finding juniors lunch that he's left at home etc.

When Douglas et al talk about *Trading in the zone* they are referring to trading on automatic pilot, trading sub-consciously.
Professional athletes, talk about the *zone* in exactly the same way. Golfers, Tennis, Racing drivers, Sprinters, all have their optimal performance zone. It is this zone that *professional* traders can also occupy.

The same way that professional athletes increasingly rely on psychological training and coaches to teach them how to achieve that zone consistently, so can traders.

jog on
d998

Excellent post ducati, very well written and explained, thanks for that

 

[Knobby22]

Good stuff Duc.

I would like to add something;
as we intellectually know, a decision made in the spur of the moment is invariably wrong. The problem with the ability to buy or sell over the computer is that it is very easy to do this. In the old days you would ring a broker which caused you to have a good argument for your action and let you think about it.

One rule I follow is to always wait a day after making a decision. I find that it helps most of the time as you are doing the buying or selling without the adrenaline.

 

[tech/a]

I would like to add something;
as we intellectually know, a decision made in the spur of the moment is invariably wrong.

Ah

Knobby similar to the 50/50/90 rule.

If you have a 50% chance of making the correct decision there is a 90% chance you'll get it wrong!

 

[Mofra]

Not to oversimply the issue, but I have found in general that the more mechanical your system, the less emotion is a factor. If emotion is becoming a problem, the increasing automation of the trading process becomes a higher priority.