The Myth of Emotionless Trading
08/22/2014 6:00 am EST
It may be impossible to shut emotion out of your trading decisions, but you can master the emotions that hinder your profits says Frank Kollar of Fibtimer.com.
The winning market timer is cold, calculating, and unemotional. Sound a bit unreal? Maybe it is, but the reality is that it is important to control your emotions, rather than let them interfere with your trading decisions.
We have written many, many times about fear and greed and how they are the true motives behind market behavior. Fear and greed may control the masses, but if they are allowed to control you, you become one of the millions who can't understand why they cannot make a profit when, supposedly, everyone else is.
There are also other emotions, such as anger and disappointment, that can influence your decisions. Emotions may interfere with discipline and sound decision making. But, they are not "all-powerful." You can master and control them.
Fight Or Flight
It is reasonable to be fearful when your money is on the line. That is why winning market timers protect themselves by trading with a detailed market-timing strategy. Timing strategies are not affected by the emotions of the masses, and they are also designed to manage risk.
When you know your strategy works over time and also is designed to minimize risk, you can execute the buy and sell signals effortlessly and with less fear. You do not fret over the inevitable losing trade.
Instead, you are excited about the next trade. You know that next big winning trend is coming. Whether it begins tomorrow or in several months, you trade with the knowledge that when it begins, "you" will be one of the winners who capitalize on it!
This is why trading with a specific timing strategy is critical. The moment you deviate from the strategy, you become one of the masses. But if you stay with the plan, you use those same masses to your advantage.
Anger and Disappointment
Anger and disappointment are two additional emotions that powerfully influence trading decisions. Both emotions concern expectations about our market timing performance and how we expect the market to behave.
We become angry when things don't go our way. Because we want to win, we hope that the market will behave in a manner consistent with our timing strategy. When we feel that fate, or some unidentified external forces (i.e. news events) have created a situation that thwarts our plans, we become angry. When we think we ruined our own plans because of our incompetence, we feel disappointed.
Regardless, there's a natural inclination to want to control our destiny, and when it comes to market timing, we want to control the market. We may want to impose our will onto the market. The market, however, cannot be controlled. One must accept what the market has to offer. You cannot make the market do what you want it to do.
Acceptance Is Key
If you accept that you are powerless over market action, you will be less angry or disappointed. If you anticipate and truly accept the fact that the market can, and often will, go against your timing strategy, and that it isn't personal, you will not be fazed by it when it happens. You will just accept it, and move on.
If, on the other hand, you expect the market to move in your favor, you will feel angry and disappointed, which often leads to feelings of revenge or despair.
These emotions can be paralyzing. It is better to accept the market for what it is. Accept the results you achieve, good or bad, and just move on to the next trade. A good timing strategy is not profitable on every trade. No strategy is.
But if you quit because you are angry or disappointed, think how you will feel when the next trade is the start of the next big and profitable trend!
Emotions are a natural part of trading. The markets don't always meet our expectations. If you accept this fact, you will be able to minimize the influence of emotions. You will then follow your timing strategy and over time, will achieve the results you desire.
Those who leave never achieve. All they do is chase the promises of supposed market experts who will take their money, but seldom ("never" is a more accurate word) give them the profitable results they desire. There are hundreds of them out there making promises so ridiculous we are embarrassed to even print them.
Stick with the plan and you will succeed.
Frank Kollar can be found at FibTimer.com.