How do you control your emotion high and low during trading.

[dbphoenix]

To all traders who trade for a living and those who trade in a big way.

1. How do you control your emotions. If you win big or lose big. How do you control your emotion.

2.If you had say 5 consecutive losing days. Does it affect your confidence at all so that next trade you lower your stakes than normal or you keep it the same. Also when you had 5 consecutive winning days, Does your confidence increase and your play with a little more stakes than normal or your keep it same.

Your contribution is much appreciated.

You've received a number of replies that are close to the mark, though wasp pretty much nails it (which, not surprisingly, is a contributing factor to the success of his journal). If you've carefully developed and thoroughly tested your strategy, then emotions should not be an issue. In reference to your original question, for example, if your testing showed that your longest string of consecutive losses was five, then six consecutive losses would send you a message. But you'd then pull out the pad and pencil, not fall into a tailspin.

If the individual gets emotional about a flat tire or waiting in line or undercooked chicken, then the emotional tangle in which he finds himself when trading likely has nothing to do with trading. Under normal circumstances, however, the focus is not control or suppression or denial or redefinition of emotions but what to do in order to fix the problem. Emotions are no more relevant than they would be with regard to a choice between a hammer and a screwdriver.

As for losing days, Vad Graifer offered a number of "mantras", some of which have to do with losing.

3. Morning Tune-up after a Losing Day

Today is a separate day, which has nothing in common with yesterday. Today’s performance is fresh. It is I who have the power to do the right things. The stock market has no power over me. It’s not after me. It has no memory of yesterday, and neither do I. I remember how I feel when I win. I am going to remember this feeling of victory. I can identify and execute winning trades.

4. Recovery after a Losing Streak or a Heavy Loss

I am starting fresh. I know what to do to win. I am doing the right things right now, and not trying to get back my money. I am not taking revenge—there is no one to fight with. I am taking it slowly until I get a good feeling. I am not complaining about my loss. I paid money for the lesson. Now I am applying my new knowledge to my trading. I am taking only trades that match my set of rules. There is no memory of money lost—my trading account is not money. It’s a tool for making money. I am rebuilding my confidence with many small wins. They let me feel the taste of winning. I don’t let events control me. I am in control of myself. I am going to remember the feeling of every win.

There are also several having to do with winning and winning streaks.

7. Letting Winners Run

I don’t have to be right all the time. I don’t have to take a profit as soon as my position shows one. I have to sell when my system generates a selling signal, not when I have a profit. My goal is to play within a set of rules, not to make money. Things once set in motion tend to remain in motion. I want to ride them while they move. I just trail my stop until the stock proves that it has reversed or until a sell signal is generated. My system is profit-oriented. I am going to let it generate profits.

As for how to go about developing the strategy in the first place, see Trading Journals below my signature.

Db

 

[SOCRATES]

You've received a number of replies that are close to the mark, though wasp pretty much nails it (which, not surprisingly, is a contributing factor to the success of his journal). If you've carefully developed and thoroughly tested your strategy, then emotions should not be an issue. In reference to your original question, for example, if your testing showed that your longest string of consecutive losses was five, then six consecutive losses would send you a message. But you'd then pull out the pad and pencil, not fall into a tailspin.

If the individual gets emotional about a flat tire or waiting in line or undercooked chicken, then the emotional tangle in which he finds himself when trading likely has nothing to do with trading. Under normal circumstances, however, the focus is not control or suppression or denial or redefinition of emotions but what to do in order to fix the problem. Emotions are no more relevant than they would be with regard to a choice between a hammer and a screwdriver.

As for losing days, Vad Graifer offered a number of "mantras", some of which have to do with losing.

3. Morning Tune-up after a Losing Day

Today is a separate day, which has nothing in common with yesterday. Today’s performance is fresh. It is I who have the power to do the right things. The stock market has no power over me. It’s not after me. It has no memory of yesterday, and neither do I. I remember how I feel when I win. I am going to remember this feeling of victory. I can identify and execute winning trades.

4. Recovery after a Losing Streak or a Heavy Loss

I am starting fresh. I know what to do to win. I am doing the right things right now, and not trying to get back my money. I am not taking revenge—there is no one to fight with. I am taking it slowly until I get a good feeling. I am not complaining about my loss. I paid money for the lesson. Now I am applying my new knowledge to my trading. I am taking only trades that match my set of rules. There is no memory of money lost—my trading account is not money. It’s a tool for making money. I am rebuilding my confidence with many small wins. They let me feel the taste of winning. I don’t let events control me. I am in control of myself. I am going to remember the feeling of every win.

There are also several having to do with winning and winning streaks.

7. Letting Winners Run

I don’t have to be right all the time. I don’t have to take a profit as soon as my position shows one. I have to sell when my system generates a selling signal, not when I have a profit. My goal is to play within a set of rules, not to make money. Things once set in motion tend to remain in motion. I want to ride them while they move. I just trail my stop until the stock proves that it has reversed or until a sell signal is generated. My system is profit-oriented. I am going to let it generate profits.

As for how to go about developing the strategy in the first place, see Trading Journals below my signature.

Db

Again, I do not agree with you at all, nor do I agree you should be saying these thngs to people as they only serve to misdirect them away from the problem.

The problem is EGO

Ego is the fertile ground on which emotions are nurtured, catalysed and made manifest.

Emotions are always present in the human condition, whether at a conscious or a subconscious level.

Therefore EGO and EMOTIONS have to be dealt with first, in advance, and not after.

 

[dbphoenix]

Again, I do not agree with you at all, nor do I agree you should be saying these thngs to people as they only serve to misdirect them away from the problem.

The problem is EGO

Ego is the fertile ground on which emotions are nurtured, catalysed and made manifest.

Emotions are always present in the human condition, whether at a conscious or a subconscious level.

Therefore EGO and EMOTIONS have to be dealt with first, in advance, and not after.

And, again, I don't agree with you, and your insistence that traders deal with "ego" rather than develop a consistently profitable trading strategy only misdirects them from the task at hand and makes them perpetual beginners. Whether or not "emotions are always present in the human condition" is not necessarily material with regard to trading any more than it is material to the choice of what to have for dinner.

 

[Jack o'Clubs]

Interesting thread, and although so much has been said, I thought I'd chuck in my tuppence worth:

Doesn't the relative ease with which one copes with the emotion / psychology also depend on what drew one to trading in the first place?

If you are of the school which sees trading as an intellectual challenge ('money is just a way of keeping score', etc), then these issues are much easier to deal with because you just see set-backs as part of the process towards refining and perfecting your technique and all part of the challenge of moving forward.

On the other hand, some people undoubtedly see trading as a kind of 'get rich quick' opportunity (see the Scammers thread - or many adverts for Win Investing and its ilk - for evidence!), and I think probably find the inevitable losses / bad patches much harder to deal with, particularly if they're playing with money they can't really afford to lose.

While I'm sure it's possible to move up the ladder of psychological robustness (!) whichever camp one falls into, I can't help feeling the first group have an instrinsic advantage over the second, and that some in the second group will never, ever get it before they blow up or give up.

 

[andycan]

I agree and disagree with you both ,
you both make excellent points
but consider that the development of a trader is a joint venture with emotions and a trading plan if you have a trading plan but not the emotional maturity you will fail irrespective how good the system is why? because to know the system you have to implement it and backtesting may give you initial confidence but once money is on the line then its a whole different ball game, a bit like talking about driving and actually driving
on the other hand if you have the emotional maturity to trade but your plan or system is crap you wont last either.
from my perspective the emotional issue was a tougher customer to control
i had the technical skills but did not have the emotional control,i had proven unquestionably via simulation and backtesting i had the ability to read the market
i traded the plan but found the emotions overwhelming at times. eventually it matured
maybe what needs to be taken into consideration is that not everyone is the same i trade with a few friends one is gung ho natured the other is super over cautious
their developments have been very different i have seen it! on one part Socrates is spot on the other dbphoenix is equally right

 

[dbphoenix]

Interesting thread, and although so much has been said, I thought I'd chuck in my tuppence worth:

Doesn't the relative ease with which one copes with the emotion / psychology also depend on what drew one to trading in the first place?

If you are of the school which sees trading as an intellectual challenge ('money is just a way of keeping score', etc), then these issues are much easier to deal with because you just see set-backs as part of the process towards refining and perfecting your technique and all part of the challenge of moving forward.

On the other hand, some people undoubtedly see trading as a kind of 'get rich quick' opportunity (see the Scammers thread - or many adverts for Win Investing and its ilk - for evidence!), and I think probably find the inevitable losses / bad patches much harder to deal with, particularly if they're playing with money they can't really afford to lose.

While I'm sure it's possible to move up the ladder of psychological robustness (!) whichever camp one falls into, I can't help feeling the first group have an instrinsic advantage over the second, and that some in the second group will never, ever get it before they blow up or give up.

However, in the twelve years I've been working with beginners, I have yet to find one of the "get rich quick" contingent who's willing to put in the time and effort to develop a consistently profitable strategy. In fact, the two impulses are mutually incompatible. This is not to say that the process must take years. It can take considerably less than that. But the contemplation of one's navel per se does not accelerate the process.

Db

 

[dbphoenix]

From my 2 years of inexperience I've come to the conclusion that those emotional states such as fear and greed ultimately stem from a lack of understanding... The fear and greed is really a response to the unknown... but if you have a framework where you have an expectation of events to come and understand as things unfold that this expectation will or will not be met, or will be met in another manner, then you have understanding and an illuminated path...

Imagine you're bombing it back from worthing in the fog and you cant see whats ahead of you? you get pretty scared and worried about whats coming your way next because this 20 year old car hasnt any airbags ... but if you have the lights on the next 100 yards are illuminated and you can see whats ahead no problem...

But thats just me... Who am I? I dont have 27 years experience... maybe you can get away without knowing much at all... maybe paint your walls green and go into a subspace state of biomind remote viewing connectedness with the universal super space harddrive databank and forsee the future without having a clue what the hell you're doing while pretending otherwise...

best wishes,
cheers

This "framework" is largely what Douglas is all about, that our behavior stems from our values which in turn stem from our beliefs. If one agrees with that, and if one agrees with what Douglas calls the "five fundamental truths"*, then the whole process becomes much simpler.

*1. Anything can happen.
2. You don’t need to know what is going to happen next in order to make money.
3. There is a random distribution between wins and losses for any given set of variables that define an edge.
4. An edge is nothing more than an indication of a higher probability of one thing happening over another.
5. Every moment in the market is unique.


On the other hand, if one doesn't agree with any of this, there can be a great many more complications, particularly regarding the "ego".

Db

 

[andycan]

Imagine you're bombing it back from worthing in the fog and you cant see whats ahead of you? you get pretty scared and worried about whats coming your way next because
this 20 year old car hasnt any airbags ... but if you have the lights on the next 100 yards are illuminated and you can see whats ahead no problem...


Not entirely true because we all see the market differently hence why the market is what it is we can assume a scenario but never know for sure if it’s true even the greatest strategy won’t produce perfect wins so in essence we can’t see 100 yards ahead per say but we expect it



Bizmanny as a novice has issues with emotion his emotion is fear related because

1 he lacks the necessary experience and with that his knowledge is still in the early stages
2 he will feel greed when he is on a runner because he lacks the necessary experience

Then once he has acclimatized himself to trading then the ego kicks in his knowledge far superior than before
His ability to read the market is greater suddenly it’s about being right forget the money because


1 he is better and has experience and because he can read the market he expects to be right more times than not

what should be stated clearly that a system trader or a trader that trades on a particular set up in effect can automate his/hers trading and in large can remove the emotional aspect to a degree by passing the human feeling to a more logic approach


A discretionary trader will look at a variety of set ups/indicators no automation, sees the set up if its justified and there is sufficient confirmation will take the trade or not if something does not look right

 

[dbphoenix]

Imagine you're bombing it back from worthing in the fog and you cant see whats ahead of you? you get pretty scared and worried about whats coming your way next because
this 20 year old car hasnt any airbags ... but if you have the lights on the next 100 yards are illuminated and you can see whats ahead no problem...


Not entirely true because we all see the market differently hence why the market is what it is we can assume a scenario but never know for sure if it’s true even the greatest strategy won’t produce perfect wins so in essence we can’t see 100 yards ahead per say but we expect it



Bizmanny as a novice has issues with emotion his emotion is fear related because

1 he lacks the necessary experience and with that his knowledge is still in the early stages
2 he will feel greed when he is on a runner because he lacks the necessary experience

Then once he has acclimatized himself to trading then the ego kicks in his knowledge far superior than before
His ability to read the market is greater suddenly it’s about being right forget the money because


1 he is better and has experience and because he can read the market he expects to be right more times than not

what should be stated clearly that a system trader or a trader that trades on a particular set up in effect can automate his/hers trading and in large can remove the emotional aspect to a degree by passing the human feeling to a more logic approach


A discretionary trader will look at a variety of set ups/indicators no automation, sees the set up if its justified and there is sufficient confirmation will take the trade or not if something does not look right

There is no strategy that provides "perfect wins". If one expects that, then he doesn't understand the nature of trading. But this has nothing to do with ego.

As for bizmanny's "issues", I have no idea what they are, but they may just as easily lie with an ill-defined and untested strategy as with anything having to do with emotion. Nor can one "assume" a scenario, particularly if it's untested. The best he can do is go with the probabilities which have been determined during the testing process.

Db

 

[dbphoenix]

dbphoenix,

#2 on that list, to me anyway, is entirely theoretical and academic... True.. yes... but realistic or practical? not really...

I'm not smart enough to understand what #3 means...

#2 may or may not be realistic or practical depending on your beliefs. If one believes that he must know what happens next in order to make money, then his focus shifts toward being right, and a focus on being right invites all the ego issues which so many beginners talk about.

So, no, one doesn't need to know what's going to happen next in order to make money (see #4).

As for #3, the outcome of any given trade is unknowable since every moment is unique, just as the outcome of any given turn of the wheel is unknowable. However, over a series of trades, or turns of the wheel, the probabilities of a winning trade can work in favor of the trader if he has defined and tested his strategy correctly, just as the probabilities work in favor of the casino.

Db

 

[andycan]

There is no strategy that provides "perfect wins". If one expects that, then he doesn't understand the nature of trading. But this has nothing to do with ego.
Db

Of course there is not but human nature strives for perfection we know we cant be perfect but we bloody well try!!!
take an actor thats achieved what many have failed to achieve some have egos oozing like puss
others are humble
same in trading horses for courses

 

[firewalker99]

Five fundamental truths

I must admit, that from those 5 listed below, it wasn't until I accepted 1 & 2 and moved on that I made any progress. Up to that point, I kept banging my head against the wall wondering why and looking for some reasons. Sometimes there just isn't one. Nowadays I can just say "I don't care".

1. Anything can happen.
2. You don’t need to know what is going to happen next in order to make money.
3. There is a random distribution between wins and losses for any given set of variables that define an edge.
4. An edge is nothing more than an indication of a higher probability of one thing happening over another.
5. Every moment in the market is unique.

 

[dbphoenix]

Of course there is not but human nature strives for perfection we know we cant be perfect but we bloody well try!!!
take an actor thats achieved what many have failed to achieve some have egos oozing like puss
others are humble
same in trading horses for courses

In this context, however, striving for perfection is striving to follow a consistently profitable strategy to the letter. The "win" consists in having done so, regardless of whether or not the trade was profitable.

Db

 

[dbphoenix]

Thank you very much for the explanation dbphoenix...

Myself and Mr Douglas are at odds I'm afraid, because my objective is to infact understand and anticipate direction, not make money per se... crazy I know...

cheers...

Don't assume that Douglas' approach can be summed up in a couple of message board posts. If it is of any interest at all, or if you run into trouble, read him rather than somebody's summary of him.

I should point out that the aforementioned beliefs are not all there is to it. If one subscribes to them, there are then what he calls Seven Principles of Consistency that follow:

1. I objectively identify my edges.
2. I predefine the risk of every trade.
3. I completely accept the risk or I am willing to let go of the trade.
4. I act on my edges without reservation or hesitation.
5. I pay myself as the market makes money available to me.
6. I continually monitor my susceptibility for making errors.
7. I understand the absolute necessity of these principles of consistent success and, therefore, I never violate them.

But, again, this is only a bare-bones summary.

Db

 

[andycan]

I agree with what you say
my initial point was that ego is very much in trading just as there is an attempt to subdue emotions.
my Mentor made his money via trading he can trade 10 lots or a 500 lots and not think anything of it he is a discretionary trader but he does have an ego problem it has made him absolute fortunes and made him huge losses but he is still very wealthy and i think he understands the nature of markets

 

[firewalker99]

In this context, however, striving for perfection is striving to follow a consistently profitable strategy to the letter. The "win" consists in having done so, regardless of whether or not the trade was profitable.

Db

Which I why these days I feel content after a trade that was according to plan, regardless of the outcome. On the other hand, if I have a profitable trade because I did something that wasn't in the plan, than I write it down with the reasons why I took it.

Bizmanny, I'm struggling with discipline and emotions myself, and I've been reading up on some interesting articles, but ultimately I don't think there are any better responses that what wasp has done, i.e. deliver irrefutable proof that your strategy, plan or system (whichever you want to call it) has a positive expectancy and holds profits over time. The only way to proof it to yourself however is to trade it, and only it.

 

[dbphoenix]

I agree with what you say
my initial point was that ego is very much in trading just as there is an attempt to subdue emotions.
my Mentor made his money via trading he can trade 10 lots or a 500 lots and not think anything of it he is a discretionary trader but he does have an ego problem it has made him absolute fortunes and made him huge losses but he is still very wealthy and i think he understands the nature of markets

It is only natural that someone with ego problems who has overcome them or who has succeeded in spite of them believe that everybody has ego problems and that those problems must be dealt with in one way or another in order to achieve success.

However, the task is to focus on developing a consistently profitable trading strategy, not on one's personal problems.

Db

 

[SOCRATES]

And, again, I don't agree with you, and your insistence that traders deal with "ego" rather than develop a consistently profitable trading strategy only misdirects them from the task at hand and makes them perpetual beginners. Whether or not "emotions are always present in the human condition" is not necessarily material with regard to trading any more than it is material to the choice of what to have for dinner.

Please yourself. I am not going to participate in the usual closed loop circular arguments you are so fond of perpetuating. Ego is the killer, period, now you go and do about it what you like.

 

[dbphoenix]

Please yourself. I am not going to participate in the usual closed loop circular arguments you are so fond of perpetuating.

Thank you.

 

[superfly]

my objective is to infact understand and anticipate direction

mine also