To continue where we left off from the last chapter in our day trading series, we would like to explore the emotional issues that go into day trading. We concluded in the previous article that emotion has to be dealt with, and that one of the ways is through having a trading system that is used with absolute consistency. That is a difficult thing to do, as the more knowledge one acquires about the market and charting, the more opportunities you may see, but it does not mean you should take every apparent opportunity to make a trade for a potential profit. It could begin to resemble a form of gambling instead of a finely tuned system for positive cash flow.
We like to think of trading like a cheetah does its prey, which is how we have modeled our system. A cheetah will sit and hide in a bush waiting patiently for its prey. It may see a strong juicy meal run by and be tempted to jump at it, but instead it waits for a weak, sick, or lame animal to pounce on and guaranteed to enjoy its long awaited meal. The cheetah understands probability innately and uses its instinct to guarantee a kill rather than chance, chasing after something that it may not enjoy the benefits of and expend energy that it cannot afford to lose since it is already hungry. It does not listen to its emotion of feeling hunger and lunging after the first piece of meat. Trading is no different. If you force yourself into the market because of the temptation of making a profit, at some point you will not be able to afford another loss, as you do not have a specific plan with rules that constitute a trading system, there will be more losses than wins eventually. Anyone can get lucky for awhile, and many do, but luck will run out when there is a larger shark biting at your bait.
Our theory is that part of what makes trading so addicting for many is that it is emotional. As humans, we crave things that evoke emotion because it makes us feel alive. Besides the part of trading that is game-like, placing a bet that a price will move one way or the other, trading evokes emotions to an extreme pleasure or stress level, in that you are winning the game (happily making money), that you are losing the game (hating), or the simple flat out rush from the risk of placing a trade without knowing for sure that it is going to go your way. It has been proven, recently, in an experiment regarding the emotions people experience from “Facebooking” that certain emotions cause a release of chemicals in our brains that act like a drug.
Facebook is a highly addictive activity because people unknowingly are getting a release of a pleasurable chemical from seeing that someone has commented on their status, comment, or picture. And why are drugs addicting? Because they make you feel pleasure that the brain is already wired to crave because it already does it naturally. At HGT we are into things like fitness and sports that we find addicting from the natural releases we experience from a good workout or tennis match. 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. The speed at which money can be made or lost in currency is also second to none and that excitement alone is potentially addictive. Trading is an emotional rollercoaster and one that wants to pursue it as a career will learn, often the hard way. We have fine tuned our system to generate low emotion through the use of proprietary software and consistently accurate forecasting of trends. The combination of electronic trading with human guidance and interaction makes for a wonderful combination and one we would recommend for anyone interested in trading. A lot of time needs to be devoted into exploring and possibly creating a system around combining these aspects, but we have found it well worth it.
All of the above is good information, but unless we understand emotion, we will have trouble controlling it and finding ways to deal with the things that evoke emotions whether positive or negative. One of the toughest lessons a trader learns is that it is ok to lose, it is ok to be in a draw down, and until a trader can be satisfied with his or her losses, it is not going to get any easier. Trading day in and day out is a stressful career. That being said, it needs to be handled with outlets to relieve the stress from the days of losing trades or just the periods of being drawn down in the trading account. What we have learned to do at HGT is joke around often in the office while keeping moral up among each other. A key component, not just in day trading but any profession, is to stay positive and know that there are always going to be challenges! Keeping the right attitude does amazing things.
This is a conscious decision just like anything else in life. As a trader you will experience times of disappointment, but it is your job to overcome those experiences quickly and get back on track while not straying from your system. You must remember why you do what you do, and know that those who supported you in your career, whether it is trading millions of dollars or selling hotdogs, did so for a reason. My father always told me, “just find something you enjoy, and get really good at it…success and money will follow.” Fortunately I chose trading before hitting my thirties and it is a career I will stick with and a skill that nobody can take away. Remind yourself of these things, and you can easily overcome bad emotions when faced with them.
About Holland Global Trading: Holland Global Trading is a registered commodity-trading advisor (CTA) with a client base that includes a unique blend of both seasoned Forex veterans and people who are completely new to Forex. Our trading team is dedicated to providing research and technical excellence.
As with any investments we MUST state: Disclaimers and Disclosures – Forex trading carries a high level of risk and may not be suitable for all investors. Trading on leverage magnifies the potential for profit and loss. Before deciding to trade forex, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that this website is not rendering investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. The information and opinions found on this website are for general information use only and are not intended as an offer or solicitation with respect to the purchase of sale of any currency. All opinions and information contained in this website are subject to change without notice. The reports within the website have been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.