Everyone knows what they /SHOULD/ do… and everyone has trouble doing it. Why? Lots of reasons -

Market ambiguity compels you to make impulsive judgments … . Not enough sleep… . I can go on and on and on… and talk to you about your emotional architectures and using emotion analytics to better manage your risk as well as better deduce opportunity.

But here is a little “emotion analytics” trick -

Ask yourself – as you are contemplating entering or exiting a position “How will I feel if…. ?” … and then play out the scenarios, #1) the trade continues in my direction, #2) it pulls back and takes away some of my money, #3) it ….

By putting yourself into your potential future emotional contexts, you can make better “risk” judgments in the here and now.

(And oh yes, I know to some of you this sounds absurd…that is OK. Everyone that I have taught to do it, makes more money than when they just tried to use so-called discipline to intellectually overpower their desires to get in or out or… in and out … or ….)

Last New Year’s eve I was on CNBC with Mark Haines and I had prepared some truisms for the new year … “The Trend is your friend” being one of them. Mark exclaimed but “C’mon Denise, you haven’t told me anything I didn’t already know!” …Well yes Mark … but I am not talking to you I am talking to your listeners… and they tend to forget.

Never short a dull market is the same. Traders get bored. They like to be short (for a variety of reasons but mostly having to do with the rush I think)…. so when they are bored they think “what the hell – it can’t go up so I will get short.” Then what happens …. usually a vicious, quick short squeeze just before it drops right through the floor.

Why? Most day-traders put their stops too tight – so all you need is one too tight stop market order and it kicks off the one above it and the one above that and so on and so forth… THEN … those buy orders (and their counterparts that were formerly BELOW the market) are gone… and to the day’s floor we go.

So… boredom usually means the market will make a quick trip up before it goes down! … USUALLY.

When I first found short-term trading, before the internet and before the term day-trader was invented, I was hooked. I was on my way to a PhD and said “skip that”. So… I have no room to talk when I ask the question with maybe a hint of perjorativeness…. but then again maybe I do.

Back then, in 1993 – 1994, it wasn’t easy to be a short-term trader. I mean very few people had access to quotes or commission rates that would make it remotely possible. Hardly anyone outside of the neighborhood of LaSalle and VanBuren in Chicago even remotely knew what I was talking about. Almost everyone I was trading with had been on the floor of the exchange. In fact, that was really the only way into any kind of short term trading for a living. It was a small and relatively privileged group.

Enter the internet and brokers and traders who want to make some money off of teaching other people supposedly how to trade and now way too many people say “All I want to be is a day-trader”.

It isn’t for the money. The vast majority lose. So what is it?

I believe I know the answer – and it isn’t the lip-service ideas about gambling or thrill. It might be not having a boss or employees but I think it goes deeper than that… What do you think?

Here are some of the things I’ve been thinking about:

The two areas in trading that separate the men from the boys (so to speak) are:

1.) The ability to divide environmental perceptions in half and process them separately. First I ask myself what I am feeling and in doing so I acknowledge and honor the feelings so that they don’t cry out for expression on the chart. Then and only then I ask the market what it is telling me. (I used to combine these two observations; I used to subconsciously deny how I was feeling because I knew it was wrong to let my feelings dictate a trade and so the feelings were bleeding into my technical observations because I had not acknowledged them and honored them.)

2.) The ability to execute according to #1 as if I am even or in the black when I am in the red. If during my 90 minutes of trading (09:30 -
11:00), I’m in the red, usually the feeling is something like “I’m afraid! I want to be in the market! I want to be in a trade!”

re A.N.N.A.:

I realized it’s not enough to intellectually understand ANNA. I had to write my own version of the ANNA software for my own internal hardware. When I learned to ride a bike, even though I’d observed someone else doing it and they told me how, I still had to write the program in my own head about how to balance and pedal. It couldn’t be just an intellectual understanding.

re trading plan rules:

I think that if you need strict rules, you’re not ready to trade cash. Strict rules mean that you’re not in control of your emotional feedback
in a live market. I’m not tape reading and I have general ideas about where I get in a trade (ideally the pullback at the end of a trend) but
I don’t have strict rules because it seems trading is an art not a science.

-Trader Diagnosis

… and I talked to Jon about that and this is what he said -

(Referring to a specific inquiry)… “but I really encouraged him to do whatever he could to purchase your course since that is what gave me the context to get so much more out of the books that I read, which was literally hundreds.  I read everything you mentioned (articles included) and others books that were connected by topics, but you provided me with an exceptional framework from which to discern what I was reading and how to apply it to myself.  Well, I do hope more people went out to purchase your course  rather than try to read all the books that I read.  It’s part of my own learning style and I have a certain way of processing information.  Also, my wife played a huge role in helping me understand myself.  We don’t own a t.v., so you can imagine how much time we get to talk (that is if our three little boys aren’t wrestling or playing Nerf swords with me).  I guess you better get your book done soon…”

But … having said that, Deborah Bershatsky, one of our most talented and experienced mental coaches, suggested to me yesterday that a terrific place to start is with The Road Less Traveled... a book I read in the early 1980’s! And I agree. After that, Emotional Intelligence by Daniel Goleman is a great start. Descartes’ Error and The Feeling of What Happens by Damasio.

I knew I needed emotional help the day I became so angry that I punched my bedroom door, stomped down the stairs, and kicked over a living room end table—shocking my wife and two boys, and, most of all, myself. I’ve always been known as the “laid back, non-emotional German from Minnesota.” I was furious because I could not follow my trading plan, no matter how sound it was, because my emotions trumped everything I was trying to do. It was in that moment that I remembered coming across someone named Denise Shull who had spoken about trading and emotions.

So, I found your website and purchased Access Your Psychological Capital, which then led me to devour books on emotional intelligence, mindfulness, neuroscience, and sports psychology. During this time of self-reflection, I combined my life experiences, education (Masters of Divinity in Biblical Theology), your workshop and group meetings, and many other resources, and applied them to arrive at a greater self-awareness. I’d like to share the journey of becoming acquainted with my echo with you—a journey that has led me to greater emotional understanding, less impulse trades, and no more door punching.

Your E-Learning Course introduced me to another stage of trading development: what is going on inside of me. For the first time I took responsibility for what was happening while I was trading. I realized who the enemy was—me. Why do I do the things I do? I’m a mess. Where do I start according to what Denise teaches?

I began by focusing on my body before, during, and after a trade with no self-judgment. Before getting in a trade I felt anxious, sat on the edge of my chair, and breathed heavily. After I finally pulled the trigger, I was in the trade at a less than ideal location and trying desperately to seek new information to reassess the trade. During the trade, my chest felt heavy, I clenched my thumbs, making a fist, and prayed I wouldn’t get stopped out. At this point I had no idea what other traders were doing—I was completely consumed with myself. Then, sure enough, I would get stopped out on a pull back or exit after only a couple of ticks, afraid that it would come back and I would lose what little profit I had. Even two ticks profit felt like a loss to me especially after watching it march on without me, reminding me with every tick that I just lost an opportunity. . . DAMN IT, SHIT, I lost!

I was so angry that I got upset at a simple question from my wife or the noises my kids were making, blaming them for my bad trade—as if I had lost because they were distracting me. Well, after experiencing this a number of times, I knew I had issues. It was not my wife’s or my kids’ fault, and after apologizing to them, I admitted to myself that I was afraid to lose, and didn’t want my family to think I was a failure.

But I noticed my fear of failure was just as strong when I risked only $50 as when I risked $200. So I asked myself: “What do I feel and believe about myself when facing risk?” I turned my focus from my physical response to my emotional response, for emotions reveal my true beliefs about who I am and how I relate to the world around me and, in particular, how I relate to the market.

I realized that when facing risk, I feel fear, and my earliest memory of fear happened at four years old. I was sitting on my Mom’s lap in the front seat of the car while my Dad clutched the steering wheel and peered through windshield wipers that were frantically trying to clear the window of the indefatigable rain. Lighting bolts were everywhere. Thunder crashed around us. I cried and held my blankie tight. My Dad yelled some disparaging remark about my being a baby. I felt embarrassed and ashamed.

Sitting with this memory and the emotions of it, I realize I have heretofore associated fear with being a baby and losing the affection of my dad. Looking back, I see that whenever I hurt physically or emotionally, I tried to prove to myself that I wasn’t a “baby” by rebelling against my instinct to cry and instead doing dare-devilish stunts on four-wheelers and snowmobiles, tight narrowly escaping paralysis and even death a number of times. I now know I was trying to prove to myself and others that I was fearless. Early in my trading days, I took some crazy, risky trades. I won a few and lost a bunch. It didn’t take long before the losing trades hurt, and I knew I couldn’t control the market like a motor vehicle. In front of my computer screen, I started to experience real fear, and I was angry because it reminded me of feeling like a baby, as if the market was my dad saying: “What’s wrong? Are you scared? You must be a baby!” My response didn’t help; I’d make another impulse trade, another trade out of regret and another loss. Another failed attempt to prove, to my father or myself or whomever, I’m somebody.

I realized then that part of my echo was, “I can’t have what I want because I’m not as talented or strong as everyone else”—I’m just a scared baby. I was afraid of screwing up a trade because losing meant I wasn’t strong enough or talented enough to deserve acceptance or love from those closest to me. When trading, I felt like a timid kid playing against confident giants, so I had a tendency to get out after only a couple ticks because I felt as though it wouldn’t work out. I was sure I wasn’t going to get what I want, so I better get out NOW.

This feeling of “I can’t have what I want,” was further reinforced by 1) my parents pessimistic view of adversity in life—you will never win, everyone else will come out on top, because they are stronger/more talented than you are—and 2) my parents frequently complimented other kids who were talented musically or academically, yet rarely paid me compliments about my talent in sports. Since I felt my parents were always comparing me with others and there was an absence of affirmation towards me, I felt that I had to perform in order for them to be proud of me.

I think my fear of not gaining the affirmation of my parents was most strongly imprinted on my mind when I quit taking piano lessons in 9th grade. I hated piano and, as my wife will testify, I am basically tone deaf. Yet, because the children of my mom’s friends were talented musicians, I HAD to take piano. The day I told her “I quit,” my mom blew up, cried and then tried to convince me that playing piano was “good for me,” regardless of the fact that I hated it and wanted to put my time into athletics. Her reaction communicated to me that in order to gain her acceptance and love, I had to do what SHE wanted me to do. I was only acceptable if I played piano, which was pure misery for me; therefore, I believed I couldn’t have what I wanted—success, love and acceptance in something that I wanted.

From that moment on, I feared that pursing things I enjoyed meant risking my parents’ acceptance and approval. So, I put pressure on myself to perform perfectly in basketball and football, thinking that maybe then they would accept and love me for me. I thought: “if they see how good I am at sports, piano [or whatever else] won’t matter so much.” Then when my performance wasn’t perfect, I blamed myself for BOTH my poor performance AND the fact that my parents didn’t love or accept me. This line of thinking led me to believe that their lack of love and acceptance was “my fault.”

Interestingly enough, any time I pursued something, my parents said, “Well, if it doesn’t work out. . . . ” As a kid, I interpreted that statement to mean my pursuit will fail because I’m not good enough, which will result in failing to gain my parents’ acceptance. Consequently, the fact that they don’t accept me is MY fault. . . . If only I’d just worked a little bit harder. . . .

So, when I trade, my self-worth is dependent on whether I make it or not. When I take a bad trade, I realize my full echo is, “I can’t have what I want because I’m not as talented or strong as all the other traders out there, and, the fact that I’m not as talented and strong is ALL MY FAULT!” If I don’t make it, I risk losing the love and acceptance of those I care about because I project my parents’ line of thinking onto them. The greatest revelation came one day, when after three bad trades, I just started saying, “I’m sorry, I’m sorry.” At first, I had no idea to whom I was apologizing. I was apologizing for having failed and disappointed everyone important to me. I was telling them that I was sorry for not being “good enough” and, ultimately for not making it as a trader. That is a reality I dread.

After walking, wallowing, and writing, I am finally able to name my hindering emotions: fear that I can’t have what I want because I’m “a baby,” anger and regret over the fact that I’m not “good enough,” and despair over the fact that this is all my fault. Now that I’ve named my emotions and beliefs, I’m free to channel my psychological capital towards what other traders are doing by using market profile and order flow. I have finally given myself permission to succeed and I am confident when I trade.

I am about to give a talk on what I call “emotion analytics”…. because to me, I really don’t see any reason that we can’t get as systematic and effective about analyzing our feelings and emotions as we are about analyzing markets or anything else.

But what is simple to me… doesn’t necessarily come easily to people who are much better at differential equations than I am. In fact, it came to my attention that a listener to a recent talk I gave on DEALING WITH UNCERTAINTY, kept typing into the chat “this is really confusing for a numbers guy”.

Well first I am literally talking about CONSCIOUSNESS. Second – I am talking about PERCEPTION. Now both topics have been debated at least since the days of the Romans and I feel fairly comfortable betting on the subjects being discussed for as long as man has had language… So granted, it isn’t easy.

But is there any game in the whole world that is more a game of perception than markets? I honestly don’t so …

Therefore, it would seem that be best way to play this game better is to get better at understanding our own perceptions.

Last week an author named Fowler made the comment “Almost everything we think, do or feel is a result of our social networks”. He is a professed at UC-San Diego and he has a point. We here call it the “social/emotional context”. To make the social emotional context explicit – even in trading (hec always in trading) sets us up to make better decisions.

Call it the human condition – under risk.

1. Was it purposeful?

2. Were specific orders entered that would “sweep the book” in PG, MMM and Accenture? Why those stocks?

3. Why 2:40 pm? Isn’t that a suspicious time in terms of margin calls from clearing houses and expiration of limit down rules @ NYSE?

4. What kind of requirements should there be to be an exchange of any kind – major or dark pool? 50 – do we really need 50 different marketplaces? Isn’t that asking for trouble (see #1).

The SEC isn’t known for its immunity to the perceptual biases known from behavioral finance. In fact, they are known for the opposite.

Congress isn’t known for its prescient thinking …

Who is going to ask this stuff?

….oops add one more #5) Some high frequency firms supposedly pulled their orders… maybe the cause was a LACK of high frequency or at least a sudden shock to the balance. Given that there were apparently no bids in the three aforementioned stocks… that makes MORE sense!

… well I feel rather obligated to go through with my bullish ITM put spread but honestly, since I didn’t manage to get it on, I also feel a personality change in the market. For me, I sense these things through speed and rhythm and the s/r of yesterday and this morning, is striking my “UPR” (unconscious pattern recognition) as a change.

I can’t yet go so far as to want a bearish call spread… and I think I will still take the opportunity to put on the bullish put spread today …. but as much for the learning experience as for the conviction in the trade.

Well between the margarita’s and the great NYC weather (and the garden and the dogs and …), I have yet to learn tos analytics… so my trade isn’t on. But… it is about to be (or at least I am dedicating the rest of the afternoon to the analytics part)!

Yes I should be writing … but geez, a girl has to trade sometime doesn’t she?

While I am at it… might take a look at some $GS options too!

(ahhh… it didn’t happen… man even THIS is hard with all the phone ringing!)