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

First – I use feelings and emotions as synonyms even though technically that isn’t correct (feel a headache, feel angry …) But for practical purposes, they both are information and motivation that we experience primarily in our bodies versus our brains so ‘feelings’ ususally captures both. The idea of leveraging feelings/emotions begins with recognizing them as information.

Look at your feelings/emotions as data. Research them, seek to understand them in the same way you understand a chart. Now yes, that is a big endeavor as they, like price, are ambiguous but the payoff is at least as big as learning to read charts.

Once you are working with feelings and emotions as data, you then are on the path to being able to tell the difference between unconscious pattern recognition (experiential knowledge) and impulse - which generally can be thought of as the desire to trade something because you either want something to happen or are afraid of something else happening.

In the latter category, impulse. Impulses are feelings laced with the urge to act. Where we get revolutionary is the conventional advice which is to overpower that urge with your intellect and analysis. The problem is that the urge is taller, heavier and has been to the gym for years whereas the intellect is sleek, thin, wiry and doesn’t work out. It is funny though – if you look impulse in the eye, if you allow him to threaten you by actually feeling what he is sending out, he withers like a bat in bright sunlight. (OK I am mixing up my metaphors but…) To mix some more, try thinking of it like the martial arts, in other words, with training, you can use the “opponent’s” strength to the service of your goals.

Now what happens when you do this? By definition, you will take fewer impulsive trades and implicitly this improves your bottom line. This is leveraging emotion as a RISK MANAGEMENT tool first and most definitely includes knowing when to walk away because the impulse can bench press 450 pounds.

Now onto leveraging feeling and emotions as a strategic and tactical tool… as you get used to recognizing impulse and feeling the feelings (research), you will start to be able to recognize the difference between the feeling of impulse driven by the fear that your profits will evaporate and the feeling of instinct that your trade is not going towards your target at which point your can wisely make a judgment call to exit earlier than originally planned.

Now at this moment, the revolution really kicks in. But first, if you are following standard trading psychology you have to feel guilty and like you screwed up because you deviated from your plan. This feeling is always exacerbated by the market’s universal trick for rushing to your target moments after you’ve used your judgment or conversely rushing to your stop if you managed to stick to your original plan. These two phenomena always then reinforce that you should have stuck to the plan and you screwed up. This makes it very hard to feel confidence and it exacerbates the worry and impulse. If however you plan to use your judgment and you make the best call you can make at that point, you don’t’ take the same hit to your psych cap. When you don’t take that hit, you are a much better position to read the next trade (i.e. you FEEL MORE CONFIDENT) and know the difference between your intuition and your impulse.

The more you do this, the more you will feel it when you are really in a sweet spot and the market is about to move hard in your direction – and this Colin, when you press it – or in other words, use PSYCH CAP (feelings/emotions) AS STRATEGIC & TACTICAL TOOLS.

The thing is – all of this requires both a change in perspective and more importantly, putting the same effort into understanding your internal signals as you put into the ones the market is providing! It so happens to also leverage the brain’s reading of ambiguous market data and the fact that we are really only trying to predict other market player’s behaviors NOT where the bar on the chart is going!

DKS aka TP

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(Consider this Part 1. Obviously, revolutionary advanced trading psychology is a complex topic that can’t be covered fully in one blog post. Check out the other key words and also this page if the full course in Psych Cap is of interest)

In short, what I am hearing is more detail surrounding what we already know – the human brain DOES NOT operate like a computer wherein it calculates probabilities and optimal “expected value” and then acts. A whole lot more goes on – with heuristic short-cuts, “feelings”, influence by experts and other practical ideas for a trader making the buy or sell decision.

Everyone I have talked to does seem to agree that humans can make better decisions if they are conscious – or work to be conscious? – of all of the influences on their decisions. To that end, the phenomenon of impulsivity is still in the very early stages of being studied …

One of the questions I get from the PhD students and their professors is how could we work with a group of traders to actually study what they do in their real life … any ideas about that anyone?