As traders, we often face major emotions when placing orders in the market. But how many of us really explore the emotional issues that go into day trading? Emotions can, and must be dealt with. One way to deal with the emotions of trading is to have a trading system in place which is used with strict consistency. Admittedly, this is more easily said than done, because the more one learns about charting, and the market in general, the more opportunities one sees. However, not every apparent opportunity to trade should be taken. When any and all possible trades are taken, it begins to look a lot more like gambling than a system finely tuned for positive cash flow.
We traders should model their trading to resemble a cheetah stalking its prey. A cheetah will hide, waiting patiently for its prey. It may see a strong, juicy, potential meal run by and be tempted to jump at it, but, instead, it waits for a weak, sick, or lame animal so that it is almost guaranteed to successfully take down its prey and be able to enjoy a long-awaited meal. The Cheetah innately understands how to take advantage of probability, using its instincts to virtually guarantee a kill rather than risk chasing after prey it is unlikely to capture. It realizes that because it is hungry, it can’t afford to expend unnecessary energy. It disregards the hunger telling it to lunge at the first piece of meat. Trading is no different. If you jump into every possible trade because of the temptation of profit, at some point you will not be able to afford another loss. If you do not have a specific plan – a trading system with rules you follow carefully – at some point your losses will far out-number your wins. Anyone can make “lucky” trades for awhile – and many do – but it isn’t sustainable. That “luck” will run out, and losses will be inevitable – like a great white shark biting at a bass fisherman’s bait.
We believe that the emotional element inherent in trading is what makes it so addicting for so many. As humans we crave things that evoke emotion because it makes us feel alive. Trading elicits an emotional response similar to the way games do, because you are “betting” that the price will move one way or the other – if you are winning the game (price moves as you expected, and your trade is making money) you are excited and happy. If you are losing the game (price moves against you and you are losing money), your stress level can skyrocket. Additionally, the uncertainty inherent in just placing a trade can be a major adrenaline rush.
Recent studies have shown that there is a distinct neurological response from “Facebooking.”, Like taking drugs, Facebook use is a highly addictive activity due, at least in part, to the change in brain chemistry when one sees that someone has added them as a friend, or commented on their status or picture. And why are drugs addicting? Because they provide pleasure that the brain recognizes because it is an amplified version of the pleasure experienced from natural experiences.
At HGT we enjoy staying active – we find sporting activities addicting because of the stress release, and because of the rush of endorphins we experience from good workouts – like a good tennis match, for example. In the same way, we also enjoy the feeling we get when we are winning trades, especially if it is a comeback win from a larger than usual draw down. We need to make sure, though, that just as we take steps to ensure that the negative feelings of losing trades don’t sway us from the rules of our trading system, we must also keep in mind that the thrill of winning trades doesn’t justify trades outside the scope of our system.