Thursday Trader's Tip: Emotionally Reset After Each Trade
Thursday Trader's Tip editions offer quick trading psychology advice that can be digested in 5 minutes.
Watch this edition video at the end of the post.
Lots of skills make a great trader. There’s one I think covers a big part of them:
— Managing expectations.
Expectations are a trader's biggest enemy—they show up in multiple forms:
You take profits late because you expect the market will keep going
Expecting a winning day because the preparation was on point
Marrying an initial bias and forcing trades against the trend
Impulsively re-entering a trade forcing a market view
Expectations are what take traders out of the present moment.
There are two realities when trading:
The market reality — price action
The parallel reality — the perception your brain creates based on market information
In essence, there’s no such thing as a reality; we’re all living the reality of our minds with our own perceptions.
However, there is a way to connect more with the market reality and see things as they are.
The true reality of the market is that an up candle is an up candle, and a down candle is a down candle. But our brain has the power to see an up candle as a missed vacation or a hit in self-esteem.
The ultimate trading skill is the ability to not be influenced by the pain of the previous trade or the expectation of a future result.
Ideally, you want to take each trade emotionally isolatedly. But there are certain events that make this task more difficult:
A missed trade can prompt you to feel anxious about the next opportunity
The regret of a mistake affects your view of the market
The pain of a loss makes you oversize
In this sense, a trade’s performance not only has the power to affect your account balance but also the mental state with which you make the next decision.
Sticking to your rules facilitates the goal of taking each trade isolatedly. Disrespecting them automatically puts you in a tough position to do so.
In his book “The Daily Coach,” Brett Steenbarger says:
“A good rule is not only a thought that crosses your mind of what needs to be done; it comes with feelings attached: an awareness of both the consequences of violating the rule and the benefits of following it (…). Whenever you write down the rule, make sure that you are emotionally connected to it.”
What keeps a person away from sugar and sticking to a diet is the despair evoked by the consequences of remaining the same.
What keeps a trader grounded in their rules is the pain evoked by the idea of not achieving trading success.
This involves the ability to vividly recall:
The consequences of disrespecting rules
The benefits of respecting them
It’s by predicting the consequences of the patterns that set you off in the past that you can put a brake on your autopilot mode.
In this sense, your biggest blow-ups can be your best friends if (and only if) you use the pain they brought as a strategy to keep you away from those behaviors.
I leave you with a question: What can you do to make yourself vividly recall past mistake consequences at crucial trading moments?
Peaceful trading,
Sara
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Thank you for this Sara
"I leave you with a question: What can you do to make yourself vividly recall past mistake consequences at crucial trading moments?"
... In the heat of the moment with $ on the line this may be a difficult habit for me to form. In what ways can I start to practice and apply this **vivid recall** ??