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An Unexpected Benefit Of Befriending Emotions In Trading

an unexpected benefit of befriending emotions in trading

We have been told that emotional trading entails disastrous consequences. It’s been accounted for compromised objectivity, serious trading errors and biased decisions that consume our balance like a hungry, wild animal. We have been advised to practice control over emotions and to exercise the power of our will for that purpose. Indeed, we have tried hard. But then the time comes; sitting in front of the computer screen, exhausted by the effort  to get it right, we may notice that things are not going quite as planned. There are so many things that can go wrong while trading; we may be trading against the trend, or doubting ourselves. We may be remembering our previous losses even though there is nothing indicating that this trade would end up in another loss. We may make hasty moves and open additional trades in order to balance up the loss from a running trade, only to realise that this is eating up our balance further. We may find ourselves into close proximity with a margin call or into unexpected high volatility in the market. The list is long but the conclusion the same: when fear strikes in real-time and we see trouble in front of our very eyes while feeling  it inside our very body, then it’s difficult to be a disciplined emotional master that only thinks in numbers and probabilities.

Emotions can be so engulfing, that rationality weakens. But contrary to common sense, it is not emotions that is the problem. Most of our trouble derives from struggling to avoid unpleasant emotions. This is true for everything in life, including trading.

Think about it. Is it not our need to stop fear & anxiety that makes us risk averse and often leads to be a spectator of the trading day rather than a participant?

Is it not regret avoidance a similar factor in choosing to exit a winning trade sooner or stop a losing trade far too late?

And think of sadness. We hate feeling sad and disappointed. We struggle to eliminate these emotions fast but in essence, we are only trapping ourselves into a deeper hole, simply because emotional control is impossible. Wanting to avoid sadness, we seek fast gratification, that’s why risky trading increases when mood is low. We may overtrade or trade in a highly volatile market. Our behaviour has one main target: Stop feeling sad.

Although it may sound counter-intuitive, befriending difficult emotions, making space for them and observing them non judgmentally, may bring about a powerful change in our trading: it is likely that we will trade more according to our goals and less according to what our emotions dictate.

An example:

When you start to realise that you may be getting anxious, just observe this emotion of anxiety. How strong is it? How is your body responding to it? What is your mind telling you? Is your mind telling you that you shouldn’t be feeling like this? Is it predicting a catastrophe? Is it judging you?

Then take a step back. Name the emotion. “Here is anxiety”. Stop struggling with it and give it space. Try to see if you can stay with this unpleasant emotion for a while.Be willing to allow it to be there. Although it may be unpleasant, it cannot harm you. Struggling with it is more harmful. Struggling with it has only trapped you in the same vicious cycle. Although your mind may be telling you distressing stuff, you don’t have to act upon what it says. You DO NOT have to act upon what it says. Go back to your trading plan and follow it while making  space for the anxiety that this decision entails.

This is perhaps a different approach from what you have taken so far. If your current approach hasn’t helped you, then it’s time for a change. Are you ready?

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