There are too many items to keep
track of in the market. The trader must understand that he cannot
"know it all". If you could, you would be the ultimate trading
machine. This being said, we realize that we are imperfect. We have
only 100% of our mental energy to use in any given time frame. Some of
it is used in maintaining our bodies - breathing, walking, talking,
etc. Some is used in keeping track of our lives - what time is it, did
I turn off the coffee pot, and did I pay the phone bill? Most of it is
used in trying to understand the complexity of our world - the sensory
input from our senses and their identification and categorization. In
using this last energy, we tend to trap ourselves into sorting out
signals and identifying them with past similarities, to make things
easier and to conserve on this energy. Unfortunately, this means it is
difficult for us to learn new things clearly and cleanly. A simple
example is the color red. Most of us drive a car; therefore, red
indicates "stop". If we see the color outside of the context of
driving, we still tend to think "stop". Many word association tests
have proven this out. Thus, if red meant something other than "stop"
in a different setting, we may not learn this new meaning quickly or
perhaps if we do; it still has some "shading" of "stop".
Thus, new traders often try to interpret the market using the wrong
context as the market has little to do with their social world
scenario. Thus, the signals that the market is putting out have little
meaning or are, most oft, misinterpreted. The confused trader then
tries to gather more evidence to bolster his misinterpretation,
further compounding the situation. The more he tries to learn via his
old context, the more confusing the data appears to be. As he tries
harder, he burns more and more of the energy that is available.
Because the energy is finite in any specific time frame, the trader
becomes mentally drained, pulling energy from his other needs - life
support, emotional response, logical thinking and rational control. As
these items decrease, certain traits start to take over. The strongest
of these are the violent emotions - anger, sadness, frustration and
Each of these in their turn degrades the trader's ability to understand
the direction of the market. Dazed and confused, he makes another bad
decision based on good information that has not been properly learned
and categorized. This is a downward spiral.
The trader must learn to learn properly. To clear his mind as best as
possible and try to see reality, and then to test it against the
market - not what he already knows. So many see the price going down,
and their "social" education is to sell, while every market indicator
might be screaming "oversold - buy now". Perverse but true.
Emotion is a mental and physical expression of a perceived stimulus.
Some emotions are considered "good", others "bad" - however, this is,
again social thinking. Emotions simply are - neither good nor bad. It
is not good to be euphoric at a tragedy, nor is it bad to be angry
against injustice. However, emotions are energy hogs that drain our
mental capacity quite quickly, and usually, with little benefit in the
Learning Not to Magnify
We have all been guilty of magnifying a situation. A small personal
jibe can bring out a totally out of proportion response. Additionally,
the injured party can then use even more energy to mentally challenge
his aggressor with the "that's what I would have done" and concerning
himself with the possibility the jibe was a capital "T" truth rather
than the small, meaningless mutterings of an inconsiderate person.
What then of trading. Here is an incredibly stressful world, fraught
with fears, personal failures and tremendous mental drains. All
traders have problems with loss; the successful ones have learned not
to magnify the situation. They learn to "let go" of inherent emotions.
None are immune to the natural response, but neither do the profitable
ones worry about that piece of history. There is no room for emotions,
but these are the very stimuli that invoke the strongest ones. The
trader must be ever watchful of his composure as trades go against or
with him. Euphoria or happiness can be just as debilitating as anger
or frustration. You cannot be without emotion, you are not a robot.
You can, however, train yourself to control your emotions by staying
focused on the goal to be achieved, by monitoring yourself for
symptoms of emotional outbreak and by using simple physical stress
relief methods to help keep these animals corralled.
Staying focused is a trained response. A coach once offered me his
philosophy, "If it does not add, it must subtract, there are no
neutrals". His point was whatever you are doing, it must be additive
to your goal. If it does not bring something to the achievement of
that goal, then it is a "subtraction", a distraction. Any distraction,
no matter how small, is not helping you and, therefore, there are no
"neutral" situations. There are pluses or minuses to your goals; you
must try to eliminate the minuses. Trading requires patience at times.
It is not all split second decisions. Trades need to develop, charts
need time to form patterns and traders must focus. This is not easy.
One way is to simply keep going over the plan in detail - why did I
open this trade, where was my entry point, what is my stop loss, where
is my exit, how will I execute, are my trade plan parameters still in
place. Otherwise, the mind wants to wander, to think of far away
places with strange sounding names - a distraction. A trader must love
what he is doing - watching the market move, monitoring price action,
investigating market and technical indication. It is far easier for
this vocation to be successful if it is also your avocation.
You need to understand your normal response pattern. If you do not see
"it" coming, you can not control the emotion or the stress. You need
to inspect yourself. What is normal respiration, what is normal pulse,
what tensions of muscles are natural? Once we can establish this base
line of individual performance, we can then monitor ourselves for
signs that are "subtracting" from our trading goals.
Common symptoms are:
Increased heart rate
Increased blood pressure
Increased muscle tension
Once any of these symptoms of an emotional release, or stress level
breach is identified, the trader must take corrective action
immediately. He must close the trade as he is no longer in control of
the plan. The plan said no emotions, right? His objective thinking is
now being clouded. The next step is to identify the "stressor," the
item or influence that is causing the response. Then the remediation
can begin by limiting that stimulus and using physical techniques to
reduce both the mental and physical reactions. This would include deep
breathing exercises to calm and soothe. It might require physical
exertion to eliminate some of the bio- chemical reactions in the body.
It will certainly mean doing a rigorous inspection of "self" before
going back into the trenches and trying to re-focus.
At the outset of this, I mentioned that there are simply too many
things to keep track of. Thus, we need to develop a plan that "walls
out" extraneous items that do not "add" to our goal. This is called a
"trading system". Having a trading system is the reliance on data that
you can perceive as having a benefit and eliminating distractions that
you have not learned to appreciate. Remember, the market is putting
out all kinds of signals. We have to learn, as we go, to disassociate
our social conditioning so that we might have a better chance of
understanding the market's data. Our trading system must include only
data that we know we have learned in a market context. Beginners often
want to include everything possible, old Pros have adopted the KISS (
Keep It Simple, Sam) principle.
Other outside influences must also be considered. Having the support
of your family and friends is just as important as a good Economic
Indicator. Worrying about what your "significant other" is going to do
or say when all is not going well is certainly a stressor or
distraction. Listening to people who have not done the hard work that
you have, is yet another distraction. Announcements, market calls,
chat room gossip needs to be accounted for, but never followed
blindly. At best, they may be right but they are not working for your
best interests. You must learn to exist on a few pieces of information
that you have tested and understand. Trade with those for awhile and
then add a "piece of the puzzle".