Over the past several weeks, these articles have discussed the general concept of what is trading as well as looking at least some of the reasons why one might trade and some of the reasons why one might refrain from trading. Now, I suggest it might be helpful for you to consider your own personal view of trading. Just what are your views specifically?
Do you feel trading is something you enjoy or does the very thought of trading cause tension? Do you look upon trading as an exciting way to make a lot of money or is it a dangerous, risky thing to do? When you are looking at the possibility of entering a position, how do you feel? What are you thinking? Do you imagine making money? Do you focus on the reward or on the risk? What plans do you have for yourself and for your trade and how, precisely, are you going to execute the plan? Or does that even cross your mind?
How about while you are in the trade -- what are you thinking when the trade is going your way? How do you differ when the position is moving against you? How do you act or react to these thoughts and feelings? Some folks don't even look at their Statements when they know their accounts or positions are down. Others are glued to the computer screen, watching every tick and rejoicing or mourning with every transaction. Where might you fall on that spectrum of thought and emotion?
I suspect that each of us, no matter who we might be, has some emotion connected with the price movement of a position. The critical insight, I believe, is that while we allow ourselves to be aware of and understand that we are experiencing the emotion we may be best served if our actions are not governed by the emotion. A wonderful teacher once told me that great trading is best accomplished on the verge of boredom. I agree. Trading on excitement, on the adrenalin rush, often does not seem to yield such great results. Disciplined trading, on the other hand, seems to give the trader a better chance.
I know of no way to remove the emotions present when trading. However, some things I have learned myself and that I try to impart to coaching students are ways to help remove the emotions from controlling my trading action and to substitute some method of discipline in their place. In any event, when we look at ourselves as traders I believe it can be quite helpful to understand the motivations for our actions and the timing of those actions in entering and exiting positions. What are we saying to ourselves, how are we responding and to what, internally, are we responding?
Answers to those questions may give us some insights that help us take our trading to the next level.
(Incidentally, just to clear up a loose end, it occurred to me that last weekend when I wrote about some of the difficulties of defining trading I didn't mention the IRS' interpretation of trading as it relates to an election to mark to market for tax purposes. That's a matter for you and your tax adviser and is well beyond the scope of these articles. If it may affect you, it definitely requires advice from a knowledgeable tax professional. However, it is probably worth knowing that it at least exists).
by Bill Kraft, Editor
Copyright 2010, Makin' Hay, Inc.
All Rights Reserved
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