Trading Psychology

I wanted to write my first post on something that has cost me dearly both in time and money over the years. Normally most new traders I connect with have this prevailing thought that trading psychology is holding them back or causing them to underachieve. I once believed this whole-heartedly and went deep down this rabbit hole. I read both of Mark Douglas’ books: Trading in the Zone and The Disciplined Trader; as well as countless other books on the topic. Controlling my emotions was the only hurdle between my trading dream (quitting my job to trade full-time) and staying stuck in my cubicle. I finally mastered my emotions and became stoic (almost monk like). It was almost an empty feeling and very depressing to be fair. But I still sucked at trading and couldn’t make the mortgage payment to save my life. I kept plowing away at my 9 to 5 and suddenly it hit me that maybe I was wrong; probably the most powerful message I have ever learned to grasp as a trader (and human). What if emotions were meaningless and I just sucked at trading? No emotional fortitude could correct a poor strategy. This is what I did not originally realize when down my rabbit hole to trading Zen.

I realized that emotions were pointless and I only need to follow signals that were truly great. If the system was great, I followed it, how could I get upset with my actions? What difference did it make if I wanted to make money today or take this set up if it wasn’t part of my trading plan? The truth of all of this and the main takeaway I am trying to instill is that emotions in trading are meaningless.

This is the major takeaway:

Sure, not controlling emotions can lead to WORSE performance but mastering them will not improve the performance. For example, if a signal can make $100 then good emotions cannot make it earn $110 and yes bad emotions can make it earn $50 or even lose. So controlling emotions only saves you but does not EARN you.

With this being said, I stopped worrying about emotions and tried to remove them which ultimately lead me down the path of searching for holy grail indicators and signals. This is a fooled path as well but will save for the next post. I finally wound up researching mechanical trading and system trading. I now know a rule based approach is much better as it is very simple to remove emotions and avoid mucking up a good trading signal but with rules who cares – follow the rules, get emotional if you want, but if you follow the rules you get what the rules say.

Which still has me concluding that the only way to get better is not to control your emotions but to have better signals or rules. I started to spend more time on finding better signals (and creating rules around them) versus mastering my emotions (save that for the brunch club).