Negative Emotions To Avoid
When Not to Trade
So at The Ticker EDU, deciding how to help you improve your investing and trading skills isn’t just a macroeconomic, fundamental and technical endeavor. There’s more than meets the eye; quite frankly it’s between your ears which is why we’ve put Part II of our Investing & Trading Psychology series together. Given this section is lengthy it was best to augment the text with a Camtasia / Yahoo video. I’m a rookie at doing this so thanks for bearing with me.
Negative Emotions
Trading psychology integrates emotions and the human mind into financial markets. Discipline yourself, your psychology is fundamental to being successful investing and trading. There are several detrimental emotions that can “drive you to drink”, best to avoid these feelings at all costs. Here are a couple to keep your eye on when they raise their heads:
● Boredom
● Depression
● Doubt
● Fear
● Anger
● Anxiety
● Greed
Boredom
Boredom is a feeling of disinterest or lack of engagement with one's surroundings or activities. It is characterized by a sense of restlessness, apathy and a general lack of motivation. Boredom is often described as a feeling of emptiness or monotony often accompanied by feelings of frustration or dissatisfaction. Boredom can be caused by a variety of factors including the lack of stimulation, repetition or lack of challenge. It can also be caused by a lack of meaning or purpose in one's activities complimented by a lack of connection to others.
Boredom is a normal and common experience affecting personal and professional situations. It is not a “mental illness” but chronic boredom will have an affect on one's overall well-being and lead to other mental health issues such as depression, anxiety and even substance abuse. To reduce boredom people will often search for activities and hobbies that interest them. They socialize more with others, set goals and try new things. Balance between leisure and work is important as is taking good care of your physical and emotional well being.
If you invest or trade to avoid being bored chances are you’ll take risks that aren't worth the gamble. Simple advice, if you think you are going to be able to make a full-time living being a day, swing or scalp trader, and boredom is going to get in the way . . . do something else.
Life is short. Make every moment count. Boredom is too often related to an inability to be patient. "I know it was a really stupid trade, I got bored" . . . these words should not be in your vocabulary or your investing or trading plan. Learn how to be patient, like those who identify as position traders. Second rule, patience needs to be practiced daily, in your routine as well as in life. Give it a try; it works.
One can avoid boredom by stepping away from the screen, taking a walk, watching a video; anything except entering another trade. In most cases, investing or trading while feeling bored is based upon the words we seek to avoid; “feel, guess, hope, pray and even think”. The word that your plan should rely upon is "know". I "know" that if you trade while you are bored you're probably going to lose. Remember not having a position "is a position" and one that's never going to harm you. FOMO, the "fear of missing out", often associated with boredom, is a trait one finds in the plans of losers. There will always be another opportunity; step away from the screen and wait for the word "know" to reappear.
Depression
Depression is a “mental health” disorder often characterized by personal feelings of sadness, hopelessness and the overall loss of interest in activities. It often manifests itself in physical symptoms such as fatigue, appetite changes, sleep disorders and difficulty concentrating. People seek treatment for depression typically involving a combination of therapy and medication. Cognitive behavioral therapy (CBT), a type of "talk therapy" is used to help individuals understand and change negative thought patterns and behaviors contributing to depression. Antidepressant medications can be prescribed to help alleviate its symptoms. Exercise, physical activity, meditation, yoga and support groups are often recommended and beneficial as well.
Seriously, depression is not just a serious emotional challenge, it's a disease but it's treatable. There are several sound approaches to avoid depression but first, take the time to better understand how you became "depressed" in the first place.
Investors and traders are affected by more than just what's exhibited before their eyes on a daily basis. It's a real world out there and often personal matters encompassed in your life should be triggers not to act. People think "investing and trading" will take their minds off of other "problems" in their lives. The only real response to this plan is "are you kidding me". It's tough enough to make sense of today’s financial markets let alone adding in another layer of doubt and grief from these extraneous sources. Step back, take some time off, address these added-on burdens and settle unrelated issues in your life before you start investing and trading again. You’ll be happy you did.
When you return start where a loss is not really going to bother you; make sure the total capital at risk is less than 3% of your account. Quite often the real cause of your depression is you’re not making money. Maybe you are depressed because you're not doing as well as all those social media posters who not only never lose; they're making 50%, 100% on every day. Ask yourself, if they are doing so well why the hell are they taking the time to post. The answer is simple; they’re not . . . maybe they're just bored.
If your depression is caused directly by extending your losses when you know "it's not coming back", remember, use stop losses and if profitable, trailing stops. If problems remain, consult a qualified counselor. If you've reached a point where you perceive there’s no way out of feeling depressed; there is, you just have not discovered it yet.
Doubt
Doubts refers to a feeling of uncertainty or lack of conviction about something. It can involve questions or hesitations about truth, reality or the validity of a particular idea, thought, belief or statement. Doubt also refers to a lack of trust, confidence in oneself or others. It is a normal human experience manifesting itself in many different ways and in different degrees. Doubt is beneficial in some situations as it leads to critical thinking and healthy skepticism. It can also be problematic if it prevents people from making decisions or taking action.
Doubt is perhaps the worst emotional characteristic to develop then let fester in any type of investment world. Think about it; you need "faith" in most anything you do to accomplish or even approach your goals. If you don’t have faith in yourself no one ever will. In investing you need to have faith in your (1) method; (2) strategy: (3) system; (4) risk management; but especially (5) yourself. If you don’t have faith "discipline" ceases to exist within your investing and trading plan. That's not good.
To become a profitable investor or trader, one who solely relies upon it as a vocation, you have to develop, then hone that "edge". What is an edge to one often has no basis or bias to another. The basic “edge” you're looking to develop is based upon three primary criteria; your (1) plan; (2) risk management; and above all, your (3) psychology. The first two are rudimentary; everybody has a plan and understands their own risk tolerances. What differentiates a winner possessing a successful edge, from others less fortunate, is an understanding of their underlying psychology. In other words, if you know yourself you're ahead of the curve.
Markets change quickly. The most experienced people experience doubt from time to time. Doubt raises its ugly head more often than not if you're either losing money or not doing as well as you once were. Review your plan; make sure you are following your own rules. Examine those rules, make adjustments if possible, maybe backtest them. Consider another often used rule; don’t second guess yourself, stay on top of the world-at-large and stick with your beliefs. Don’t worry about what could have been or what you could have done differently. Maintain your focus on “what's next” and doubt will disappear, faith will return.
Fear
Fear is an emotional response to a perceived threat or danger. It’s a natural, adaptive response that helps to protect an individual from harm. Fear triggers the body's "fight or flight" mechanism preparing the individual to take action to defend themselves or flee from perceived threats.
Symptoms of fear can include:
● Rapid Heartbeat
● Sweating
● Shaking & Trembling
● Dizziness & Lightheadedness
● Shortness of Breath
● Nausea
● Increased Muscle Tension
There are different types of fear such as:
● Acute Fear: A sudden and intense fear usually associated with immediate threats.
● Chronic Fear: A persistent fear associated with long-term, recurrent threats.
● Phobias: An excessive, irrational fear of specific objects, situations or activities.
● Post Traumatic Stress Disorder (PTSD): A type of chronic fear developing after experiencing or witnessing a traumatic event.
Fear can be treated with many different techniques like cognitive behavioral therapy, exposure therapy and medication. It is important to address one's fear as it can have a negative impact on an individual's physical and mental health if left untreated.
Fear is a two-pronged emotion exhibiting a negative and positive side. With respect to investing or trading, the definition encompasses; (1) being wrong; (2) losing capital, a drawdown perhaps complete financial ruin; (3) fear of missing out "FOMO"; even (4) fear of exiting too soon and "missing the big one". These are the negatives associated with fear but carefully examined they expose a bright side, one you can benefit from.
Fear is always an emotional issue but not just the fear of losing money Losing is the best education you're ever going to get as long as you have a plan to relate the event with. Being afraid to enter the market on the “wrong” side, suggests a basic lack of confidence in your analysis. There is a different way to handle that fear; discover what you are doing wrong. If you have a fear of losing a lot of money, either in an oversized investment or trade or perhaps even entering your order you really don't have a plan. These criteria need to be carefully evaluated and revised before continuing.
In today’s market we see “Fear of Missing Out” ("FOMO") being perhaps the worst event as being a victim exposes a significant defect in your plan. How often have you chased a trade, up or down, simply because you didn’t want to be left out?. You don't have to trade every move; as a matter of fact, if you try it's better if you own a clearing firm as they are the only entities that will prosper from your excessive trading. Fear of exiting too soon is just as bad but at least you’re profitable. Remember the old adage, "you'll never go broke taking a profit". Sure, you're going to have a little less, ego wise, to brag about at the holiday dinner table, but at least you'll have enough money to get there and buy dinner.
There's a very positive side to fear that once identified and addressed will benefit your success. Identifying fear in the markets, by others, suggests to "buy when they sell and sell when they buy''. That's right, based upon the fact that the worst traders "let their losers run and cut their winners short" sets you up to be able to take advantage of the fear exhibited by and affecting others.
Keep these euphemisms in mind as you watch how others react. Nothing "ever goes to the moon" or "heads to zero". When you directly observe other traders exhibiting this type of fear in the markets, be prepared and then react; it works and is one of the best rules we regularly follow being “wick” or “candle” traders
Anger
Anger is an emotional response to a perceived threat, injustice or frustration. It is a natural and normal emotion that varies in intensity from a mild irritation to a full-blown intense rage. Symptoms of anger include:
● Physical sensations, a racing heart, tensed muscles and increased blood pressure
● Yelling, throwing things or even becoming physically aggressive
● Blaming, resentment of others or events coupled with a feeling of injustice
Anger can be caused by a plethora of factors including, but not limited to personal experiences, social conditioning and biological factors. It can also be triggered by specific situations like being disrespected, threatened or mistreated. It's important to note that anger is not always a bad thing. It is a normal emotion and often a healthy response when expressed in an appropriate manner. When anger becomes intense, persistent and uncontrollable, anger can often lead to physical and emotional harm. Uncontrolled anger can lead to relationship problems at home or at work leading to problems with the law. Cognitive behavioral therapy, relaxation types of therapy and mindfulness are proven ways to manage anger.
Think about it, have you ever gained an edge or done something better because you were angry? It takes a lot of emotional energy to get angry, even more to stay angry. Being angry concentrates negatives best left out of your daily emotional tribulations and misdirects them to something else you are doing. If being angry at something else penetrates your investing or trading, unless anger is an integral part of your trading plan, it’s best to step away. No one does that. If anger is part of your decision-making process, you are definitely in the wrong place; perhaps consider taking up wrestling.
Sometimes doubts and fears are confirmed and you have just lost too much money. That type of anger is something to learn from. Take a deep breath, there's nothing you can do about the past except learn from your mistakes. Take a look at your investment or trading plan, your personal risk / reward equation; then reevaluate your philosophy. In short, reestablish your "edge". First however walk, no wait, run away, never trade in anger. Revenge trading, where you believe you can recoup significant losses while you remain angry, doesn’t work. Usually all you do is lose more and that's only going to add levels to your anger never experienced in the past.
Anger is a quality regularly displayed in the social media circuits and is easy to spot. The loudest, most aggressive voices usually come from the bitterness experienced by losers. Not only do you not want to act in this manner, you don't want to become a victim of those who post; tune it out; don't listen to it. Remember good traders usually don't have time to post. As a investor or trader with a solid plan, you should not have the time to read.
Anxiety
Anxiety is a feeling of worry, nervousness or even unease about something with an uncertain outcome. It is a normal and often healthy emotion but anxiety can become overwhelming and debilitating when it occurs frequently or regularly. Anxiety can manifest itself in many ways such as:
● General Anxiety Disorder (GAD): Is characterized by excessive and even unrealistic worry about everyday events and activities.
● Panic Disorder: Sudden, unexpected panic attacks with physical symptoms like heart palpitations, sweating and trembling.
● Social Anxiety Disorder (SAD): Characterized by an intense fear of social situations and being judged or evaluated by others.
● Specific Phobias: Characterized by intense fear of specific objects, situations or activities.
● Post Traumatic Stress Disorder (PTSD): An intense fear, symptoms after experiencing, witnessing a traumatic event.
Anxiety symptoms can include physical symptoms like rapid heartbeat, sweating and trembling coupled with emotional symptoms like worry, fear and the direct avoidance of certain situations. Treatments for anxiety include therapy, medication and lifestyle changes. One effective form of therapy is cognitive behavioral therapy (CBT). It helps individuals identify and alter negative thought patterns and behaviors that contribute to their anxiety. Antidepressants, anti-anxiety medications are prescribed to alleviate anxiety symptoms. Relaxation techniques like deep breathing, yoga, meditation and mindfulness have proven to be effective tools in the management of anxiety as well.
It takes time to recover from a bad investment or trade. Events like that come with a dose of reality followed with anxiety; they do happen. It's unrealistic not to experience anxiety every now and then. Just get “back in the saddle and ride that horse again”; that’s as long as the probability of the event happening again is minimized. The best investors and traders minimize these recurring stressors by developing a time-tested, “solid-as-a-rock” plan. Some return to trading on "paper". You're never going to lose money in the "paper" market but you're also not going to experience the stressors of a negative "real" action. When you're ready to get back in the real saddle, start working with low sized volumes and leverage. You will more than likely gain confidence while risking only a small amount of money and remember; let your winners run and cut your losses short.
You can learn how to manage your stress. By definition the alternative to stress is calm. When you experience stress it's best to step away from the screen and examine what's causing it. Reevaluate your investment or trading plan; quit looking for the "big moves" and concentrate on what more often occurs; what the market gives you. That's what your plan tells you to do and if not revise it. Face it, losing money is part of the learning process. If your intent is to make this your lifetime vocation you need to dedicate the proper amount of time to learn from your mistakes; everyone else who is successful has.
Greed
Greed is an intense and selfish desire to acquire more wealth, power or possessions than one needs or can possibly use. It’s a very strong, excessive desire for additional material wealth or gain. It often drives individuals to engage in unethical, even illegal behaviors in order to acquire more. Greed manifests itself in different ways such as:
● Financial Greed: A strong desire for money and material possession through hoarding. overspending or taking advantage of others.
● Power Greed: A strong desire for power and control often characterized by manipulation, exploitation lacking empathy and compassion.
● Possessive Greed: A strong desire to acquire and keep possessions while being unwilling to share with others.
Greed can have negative consequences often leading to one’s financial ruin, social isolation and legal problems. It results in a lack of empathy, compassion and an utter disregard for the well-being of others. To counter greed, develop healthier personal values. Therapy is helpful allowing individuals to better understand the underlying motivations and causes of their greed and to develop compassion and empathy.
My favorite old fashion flipper-based pinball game was the "Addams Family". There wasn't a function I could not control until "G-R-E-E-D" was triggered. There was no rhyme or reason to "G-R-E-E-D". Those silver balls could be moving in one direction, then a second later completely reverse. In an analogous manner when greed takes over a personal emotions, one has no idea what's coming next. Maybe once in ten chances I was able to control "G-R-E-E-D" and win an extra game. In the real world however it only takes one extremely negative and unexpected event to just wipe you out; it’s not a game. I've learned how to avoid "G-R-E-E-D"; you should too.
When determining then evaluating your risk / reward analysis, often a best-case and worst-case scenario will arise. Probability wise, neither are going to regularly occur. New investors or traders looking for a get-rich-quick scheme elevate the possibility of it occurring. If you act this way, you've essentially signed your death warrant. If you truly understood the powers the "big boys" on the street possess, this outcome will become even less likely.
Confidence is a good thing; but too much can lead to “greed”. It is best to work with an amount you are comfortable losing. Economic markets are schizophrenic, no one really knows what the future direction will be. Don't let greed get in the way; risk / reward is an ever present element that must be controlled. Avoid this emotional roller coaster and learn from all of your experiences but remember, invincibility traits are best left for super heroes; investors and traders are human.
There is no easy pathway to “easy” money, not here in learning how to invest or trade or anywhere else in life. Respect how difficult it is to invest or trade in these markets, put the time in and you'll do just fine; it’s a marathon, not a sprint and practicing every day is a pathway to becoming the best damn investor or trader you can be.
Hope you enjoyed this post. I’m just a young 68 years old; my Dad became a broker when I was 13. It’s time for me to ‘give back’ to all of you what’s in my head. It’s not always pretty but it’s based on history . . . and history, unchecked, repeats itself.
Everyone learns at their own pace. If you pick everything up the first time through, great but if not email me at david@thetickeredu.com so we can further help. Thanks again go out to Danny www.mrtopstep.com . . . check him out; he’s worth your “click” and thanks to all of you who have adopted what is being created and presented; we’re humbled by the response and referrals. Again, let me know what you want to learn, I’m all ears.
Have a great weekend and see you tomorrow night for our “Sunday Night Special” . . . it’s going to be a “rant” as Howard Beale said in “Network” . . . “I’m mad as hell and I’m not going to take it anymore”.