The insights derived here are from several trading psychologists: Mark Douglas, Jared Tendler, etc.
Key Points
- Emotions are not inherently bad — they serve a purpose but we need to know how to receive them
- “In the mental game, negative emotions are signals of the hidden flaws that undermine your trading.” — Tendler, The Mental Game of Trading, p.6
- There is a reason you keep repeating the same mistakes, over and over
- “Imagine driving down a road that leads you to consistent returns, a strong feel for the market, and the ability to follow your trading strategy without hesitation. Now, imagine that a thick fog rolls in, you can’t see a thing, and you take a wrong turn without realizing it. To make matters worse, farther down this road a bridge has washed out and you’re about to drive off a cliff. With a map of your patterns, you create an internal GPS that alerts you when you’ve take a wrong turn, so you can quickly make a U-turn and get back on the road to profitability.” Tendler, The Mental Game of Trading, p.17
Fundamentals
Emotional Mapping
Event | Emotion |
Enter a trade with a large position | Nervous, anxious |
Enter a trade with a small position | Confident |
Quickly getting stopped out | |
A trade position quickly goes your way | |
A trade you hesitated to enter suddenly performs amazingly | FOMO |
Tactics
- Meditation → centering yourself and taking deep breaths to come from a calm place
- Massively reducing position sizes → Rather than continuing to play in the NBA playoffs, you realize it’s better to bench yourself and then practice your fundamentals in the gym before entering the game again
Open Items
- How can I truly overcome any accumulated emotions? I may tell myself the next day when I’m starting my trading session “today is a new day” but do you really feel this is the case, or are you carrying the fear (baggage) from yesterday’s performance?
- What is your pre-market warmup and how long does it take to complete?
- Potentially, it could be:
- 10 minutes of meditation
- 5 minutes of reviewing a set of scenarios in the market and I practice my reaction to them
- Reading out my trading principles
- Reading out my trading plan
- Reading out a written set of mantras