The Empowered Trader by Mark Fechner

Learning to Respond to the Market, not just React

Archive for the ‘Fear’ Category

Series: A Trader’s Diary on Fear 3

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In the previous posting, I talked about the role of emotions in our decision making process. The feeling that we are making the ‘right’ decision is part of who we are as humans and really can’t be separated from the cognitive process.  The use of those feelings, that feeling of making the ‘right’ decision, is what I’d like to expand on in this posting.

One way of making a decision that feels ‘right’ is to have a clear concept of a greater value that you’re using as a standard. When we begin to feel anxious, fearful, hesitant, our body is saying that something is amiss.  We’re making a decision that is in conflict with something that we hold of a greater value.

Now where a lot of new traders get into trouble is that they take readings of these feelings and think that something is ‘wrong.’ Let’s begin a new conversation about what feelings are telling us.  One that can help us rather than drive us crazy.

Feelings are neither right nor wrong.  They are just a way of receiving information.  Placing a judgement on your feelings is a rationalization and that’s in your head.  Feelings are in your body.  They come up as the butterflies in the stomach, tightness in the neck or a pressure in the chest.  The beginning of understanding  feelings is to first be aware of them.

Next, feelings are often experiential.  Being anxious about pulling the trigger could be based on something that happened in the past.  I had one client that had great difficulty in placing a trade because it never looked ‘perfect.’  Turns out, through our coaching sessions, he discovered he had a mild form of ADD and would obsess about many decisions, not just trading, before making the ‘right’ decision.

This is where the adage “trader know thyself” comes in handy.  Our cognitive process doesn’t happen in a vacuum and isn’t dictated by a trading methodology.  Just because someone says that a trading method is the next best thing since sliced bread doesn’t necessarily make it so.

Understanding what is driving our decisions can help us decide what we want to place as a value.  In the case of my ADD client, we came to the conclusion that short term trading was not the answer.  Since there is very seldom a ‘perfect’ setup on an intraday chart, taking the longer view of his trading decisions was the best way for him to execute trades. By examining his emotions, we were able to find the values that could formulate a trading strategy for him.

What are your feelings that come up when you trade?  What might those feeling be telling you about yourself and your cognitive process?  Where do they reside in your body?  How might that understanding help you make better trading decisions?  In our next posting, a discussion about creating a higher value.

Mark
eTradingCoach

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Written by etradingcoach

March 20, 2012 at 8:00 am

Series: A Trader’s Diary on Fear 2

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So when last we spoke about Fear we were in the water with the shark from Jaws hoping to hear the theme song. But do we really need to have a theme song? Don’t we already have internal indicators that take care of that? Before we get into a discussion about Fear, I think we need to lay some ground work.

As humans we are ingrained with the need to have an emotional commitment to all our decisions. For example, deciding what to eat for breakfast is going to require an emotional commitment. Hence, if you are rushed and need to get out the door, the decision to grab something quick can be as “right” a decision as the leisurely Sunday afternoon brunch. If we were to reverse those two decisions, the leisurely breakfast with the quick one, given the same circumstances, we wouldn’t be nearly as happy with our decisions.

The reason the decision feels “right” is because there is something of a greater value that we’re holding up as a standard. Perhaps the quick breakfast is chosen because we need to get to work or we have an important appointment to keep. That holds the greater value and hence we feel good about the decision.

Same can be said for the Sunday brunch. The desire to take some time for ourselves, perhaps spend it with friends and family, or we’re simply tired of too many quick breakfasts, is the greater value that we are holding dear. Either way, each decision has the feel of being “right” and we’re happy we made it.

Now I grant you the emotional weight of breakfast is not the same as investing in the market. What we can take away from our breakfast dilemma is an understanding of what is important in our lives and making choices that are in tune with those values. I’ve talked to hundreds of traders over the years and a common theme is the quest for the holy grail of trading. That “thing” (replace “thing” with indicator, software, course, advisory), outside of themselves, that will answer their trading woes. These searches, although profitable for some, typically yield poor results for the individual leaving the trader to take up a new quest in search of a new “thing” (more on that in a future posting.)

My ‘a ha’ moment as a trader came when my focus turned inward on my trading decisions. That the battle for success lies between my decisions and values that I either don’t understand or can’t acknowledge. Our feelings are a gateway to that understanding and acknowledgement.  Being aware of those feeling is the first step.

In the next installment, I share my insights about the use of those emotions.

Mark
eTradingCoach

Written by etradingcoach

February 20, 2012 at 12:08 pm

Series: A Trader’s Diary on Fear

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I must admit, I have a love/hate relationship with trading. When it goes in my favor, it’s the best thing since sliced bread. When it doesn’t, well let’s say the thoughts aren’t as kind. Those days when the challenge of trading seems to be more work than it’s worth, I have blamed the charts, the broker, the indicators, the market itself. But the unfortunate hard truth is it is that it’s about me. I’m the one who is executing the trades and I’m the one who stays in too long or gets out too early depending upon what I’m feeling at that moment.

Now there are some of you that may be thinking,” doesn’t he have a plan?” Absolutely! And I’ll tell you that I practiced my method for 4 months before deciding to commitment real money to it. I know that the method works. I’ve tested it out, ran it through its paces and I’m very comfortable with the results. But as they say, trading live is very different. But why is that?

Well, in the end, trading isn’t about what method we’re using. It’s about the thought process and what we’re feeling when we are making trading decisions. What I mean by feeling isn’t some new, Gestalt theory of trading but the actual chatter that might be going on in the back of our minds when we’re sitting in front of our computer screens. The things we say to ourselves knowing that no one else is listening in.

For example, my household has always been a two income family. When my wife was laid-off from her teaching position, the pressure to make good trading decisions was exaggerated. At the time, I didn’t realized what the unspoken pressure was doing to my trading. All I know is that the impulse to take the next trade was greatly influenced by the need to make the mortgage payment, pay tuition, and put food on the table.

What I discovered is that the pressure to make the next trade is based in fear. I’m afraid that I’ll lose the capital to trade, I’ll lose the respect of my family for not being a good provider, I’ll lose my earthly possessions, I’ll lose, I’ll lose, I’ll lose. You can lose your mind in this process.

And here’s the rub. Fear is individual and has thousands of manifestations. Fear doesn’t fit into a nice neat package. It doesn’t show up in the same fashion to all traders in the same manner. We can diagnose the symptoms of fear but there is no ‘fix’ for fear. Frankly, we don’t want to fix fear. We want it to show its ugly head and reveal itself. Fear is a warning sign of impending danger. Warning signs are good. They help keep us safe.

It would be nice if fear was as overt as the ominous sound track to the movie JAWS. All we need do is listen for the telltale sound “da dum”. “da dum”. “da dum”. Or police chief Brody at our side screaming, “GET OUT OF THE WATER!” That would make this trading thing go much smoother. But our warning system is what our gut, feelings, tingle at the back of our neck, pain in the small of the back, (insert your version here) is telling us at that moment. It’s built in; factory installed and has had millions of years to develop. Fear won’t be controlled, eliminated or ignored.

So what do we do? Stay tuned for the next installment.

Mark
eTradingCoach

Written by etradingcoach

January 29, 2012 at 4:12 pm

Posted in Decisions, Emotions, Fear

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