Today is one of those market days when the price goes basically one way.

For some, these days can be their best money makers – they know how to push the pedal to the metal when the time is right. For others, they tend to be their worst days – the think they have missed it, they fade the move (it will revert right?) and then give up and go with it – at the exact wrong moment.

So for many traders, it is a day of frustration. For some, it is a day that induces them to prove how smart they are by 1) finding the turn 2) finding the turn again. This usually ends up with their largest loss of the month.

Want to be the pedal to the metal trader? First you have to curtail the need to be right, to be contrary or give in to feeling you missed the move. How do you do that?

Ask yourself – what am I feeling? If I am really honest with myself, what do I WANT? Don’t tell yourself not to want it and don’t try to deny it. Let yourself feel and express whatever you feel. THEN look at that and ask yourself if you want to act on that feeling, if it will make money to act on that feeling. Once you have that answer, make a decision about what to do in the market.

Then repeat the sequence –

In the past few days, as the markets have swung wildly from the proverbial trees, I have had the occasion to be interviewed by a number of journalists. The questions underscore how much the general public has yet to learn about what the experts know about the brain. For example.

1) Your brain will NOT make a decision without emotion and  2) Emotion signals meaning – even to your eyesight.

These facts leave us with no choice but to get better at using our emotions as data. They tend to be the communicator between the unconscious (where according to some 95% of the activity takes place) and the conscious. So… why wouldn’t you want access to the parts of your brain where 95% of the thinking is being done?

I know it isn’t easy to do but the strategy should be to re-orient your perspective to one anchored in understanding your feelings and emotions. This is palpably different than using your intellect to try to override or change how you feel.

It also is NOT about just acting on how you feel. That is confusing actions with feelings and emotions.

Knowing your own emotional (social) context is your risk management key and predicting the emotional (social) context of key influencers (Central bankers on at least two continents as well as operating M.O of HFT traders (IE what is everyone else doing?) is a key to market predicting. Work with the first and the second becomes easier.

While we wait for me to finish my book – check out The Social Animal by David Brooks.

As we get ready to watch markets on the other side of the globe open, it might be helpful to think about how we think. Our brains use both the social and emotional context of a situation to decipher its true meaning. But what happens when something completely new happens?

For all practical purposes, no one really knows what a downgrade of US debt means. We might be able to say it means higher interest payments or certain entities having to sell US debt but in reality, because this hasn’t happened before (at least not in any recent institutional memory), we can’t have that context that is so important to judgment calls under uncertainty. This might mean that nothing much will happen on the opening in a few hours – everyone will be looking around to see how other people perceive it.

Of course, the knee jerk reaction is to think the markets will sell-off. I hate to go out on a limb …. but …. I suspect that at first at least (i.e. the first 12-24 hours) won’t be /that/ clear. The context – both social and emotional – has yet to be created.

First, you start out with the fact that all incoming information of markets amounts to an ambiguous soup. In other words, no matter what you do, you can’t escape the ambient uncertainty… yet many researchers and thinkers (Keynes and Ellsberg for two) have shown that we shy away from ambiguity and uncertainty…

Next, when you get in the market, your position either starts to work – or it doesn’t. The latter is actually easier – a loss is a loss and you know it. Oh sure maybe it will turn around but… it is clear. And of course, it doesn’t feel that great.

Relatively however it generally feels better than a winner. WHAT? you say?

Well think about it – when a position starts to work you are faced with an impossible decision scenario – wait for more but risk reversal, get out now but risk not getting more …or put a trailing stop – which means by definition you will get less than you could have had.

None of us can change the fundamental uncertainty of trading – no matter how many clever combo’s we put on our charts and no matter how many experts we work with. So to give yourself the psychological leverage that can set you apart … get used to the anxiety of ambiguity. (see posts below for some help).

To learn how to handle the very real frustration and disappointment of winners – expect it. Winning is going to tap into “anticipated regret” or more properly stated  -  the avoidance of anticipated regret.  But the bottom line… the vagaries of the market induce regret almost no matter which way you turn.

If you know that going in, you have an edge vis a vis those who don’t. And what percentage of those you are trading against do you suppose do not know – or accept – this? … See… there you go.

THIS JUST CAME IN AN EMAIL TO ME…. makes me livid. For now I have removed the header…. is it just the relentless rain?

1) Turn on the computer in the morning (9:15 AM EST)

2) Place an order at the “Bounce Line”

3) Make money

4) Turn off computer at 11:00 AM EST

5) Do what ever the heck you want to do for the rest of the day

>

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> Many do, and they are no better than you… they simply have an

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Fortunately or unfortunately, I am old enough to remember this song. Unfortunately or fortunately, my memory however isn’t completely sure whether it was Karen Carpenter or not….

But in any event, the point I want to make is that Mondays and particularly Mondays after a holiday sit within one of the many special contexts of markets. In this case you have not only the Monday after a long Spring Break but the Monday before the Fed pulls a totally new move that everyone (at least in the media) is talking about.

Now you may try to trade pure chart patterns… but the big boys trade charts and context (social context really – or trading other people). Given that they do, they will be paying attention to this NYC Rainy Monday and the context within which it sits. For the independent who thinks they can’t  or won’t or shouldn’t do that – it will still pay to take an extra patience pill as the markets open up.

I know everyone likes to get back to trading… but the payoffs aren’t worth it. Let the big boys take the lead and make something happen. Then jump on their coattails. Otherwise, you will have a few small losers – or scratches – and you will have debited your psychological capital to the point that when the game really starts – late today or not until after Tuesday – you will be spent.

Generally traders, analysts and expert commentators focus purely on numbers when it comes to markets. Rarely do they /really/ look at why they do. Take the news numbers – like consumer sentiment or housing starts… why does anyone care? Well because it gives a glimpse into what people are feeling or doing right?

What if we stopped and asked ourselves the people question first? What if we said, what will different time frame players be feeling/doing today? Next month? What if instead going straight to the numbers we started with the over-arching question we really wanted to know – will someone sell this asset for less in the future if I short it now.

Why bother you might say? Aren’t the numbers enough?

Well no – first of all does any number in the market really have any meaning? Aren’t they all relative to the numbers that came before? So in other words, all market numbers have meaning only in context.

Well that is a funny thing because the latest neuroscience shows that /everything/ we do only has any meaning in context. Particularly when we have to judge uncertainty – which is about all of life except algebra – we use context. We pull data that we aren’t even conscious of ….

What could happen if we consciously set out to put our brain to work in the context that it is really working – predicting other people (theory of mind) and using numbers just a tool – understanding them only as the language being communicated across the electrons?

The other day a trader wrote me and his letter is published here on the previous blog post… the following is the very end of that letter.

“I’m curious about something. How is it that for thousands of traders, each of whom has his or her own personality, childhood traumas, cultural background, hang-ups, etc, all these things come out in the same few ways in trading? This may not be 100% true, but it certainly seems like most traders have the same few problems: impulse entries, exiting winners too soon out of fear, hoping losers will turn around, and hesitancy to enter a planned trade.  This can’t be coincidental. What is your take on it? I mean, how is it that a trader in Singapore and a trader in Argentina or Kansas have echoes which produce the same trading mistakes?“

The answer to this is the reality that we take a fractalized version of our own basic psychology and apply it (usually unconsciously) to the markets. The markets become past authority figures – and we fight them, hear their voice and react out of the past not the present. In psycho-dynamic speak, this is called “transference” and “the compulsion to repeat”. We actually come to a situation, perceive that situation and react to it with no reference to real-time. Our neurons are firing as they were wired. The FEELINGS we have therefore come mostly from the past… and our unconsciouses will work hard to keep us in that same template of feelings.

This needs to be analyzed for each trader MORE than the market needs analyzed … that is if they want to be consistently and reliably more successful overtime, It even applies to avoiding blowups for the already spectacularly successful.

On the surface, it is a fear to fear spectrum. Greed doesn’t even really exist – once you understand the whole concept of the context of feelings. And it is that – what I like to call the “fC” – and the “fC-E” – the feelings context and the feelings context echo that answers the aforementioned trader’s question. Figure out how it plays in your perceptions and reactions and … out… and you are almost “home free”.

(*Note to the “emotional finance” duo and to  Mr. Howell … you all know this is NOT YOUR intellectual property. Please keep that in mind.)

It’s not black, it’s not white, I can’t even fight

I hate it !

I hate it !

I hate it !

My stomach crawls & rumbles

My palms sweaty,

A rat caught in the eyes of a snake,

I begin to shake,

So many wrong choices, only one right,

Hindsight laughs in my face.

Does she love me ?

Or just need me more vulnerable?

The pitch & roll of my gut,

Oh, how I long for the safety of the rut,

But then, that dreaded mock,

As my ship heads straight for the jagged rock

A slave,

or brave?

To Trade or Not to Trade

Hey I took a trade today

I sit and watch it with dismay

Will the plan follow as I have laid?

Away you indefinite penny arcade

The stench of fear invades my being

Wondering if what I am seeing

Is solid as I think it is

Confirmed or antithesis

Time to jump out its changing it tune

For that trade is not following the phase of the moon

How can I be an entrepreneur?

If I am uncertain and never am sure?

I just sit and watch and waiting for it

To be perfect and beyond just a base hit

How many days of innings I miss

As I avoid being unsure and live in abyss Like looking up from a valley decided and convinced That I will find that place of sureness Without having to wince

As I stay attached to playing a sure thing I will not be trading, instead I am aging With bare knuckle grip that certainty is there And waiting forever for a trade with no repair

All I have done starts with a goal

And I finish it with confidence and control But with trading the idea of working hard And not getting paid has left me scarred

The art of being, not doing, really works well In that moment all is possible, then I trade well The fight within me needs to let go And feel my feelings with knowledge that I won’t know What’s going to happen and go with the flow Not knowing is trusting that I can follow the road With the pleasure of being with presence that bodes