I am 14 months into working on my new book, The Intellectual Investor, which is far from being finis...
Pressure Points: Trading with Discomfort
07/03/2014 6:00 am EST
Most traders, if they're being honest, will admit that they are almost always uncomfortable to some degree while trading and Andrew Menaker, PhD of AndrewMenaker.com explains why this is normal, how it works, and what to do about it.
Pressure points. Think about this for a moment, and be completely honest: Trading makes you feel uncomfortable the majority of the time (even when making money). I sometimes refer to these moments as pressure points.
Your response to the discomfort, your reaction (the decision and behavior you take) in response to the discomfort defines you as a trader. This includes your reaction to losing and making money and to missing out. It affects every trader regardless of account size or sophistication.
Read on to see how this works.
There is the obvious discomfort we experience around a loss, or the pressure we feel when we miss a move. The pressure of waiting for the right entry is also commonly very uncomfortable. Many traders experience the pressure of putting on a trade and freezing up.
And, of course, there's the discomfort of holding onto a trade that is working, the anxiety of holding it and wondering if it will continue to move in your favor.
There is an inherent dilemma involved in winning a trade. When we hold it we risk giving back profits or when we take profits we risk leaving money on the table. When you think about it, winning trades have the potential to make you feel lousy most of the time. I talk more about this phenomenon in other newsletters.
Unless it was the perfect trade where it goes directly without pulling back from your entry point to your target and reverses immediately after you close the trade, you will most likely experience some discomfort and the proverbial after-thought of "I could have made more!"
Unless you are new to trading, you know that perfect trades are extremely rare. It is extremely rare to have a perfect trade where you don't experience some discomfort at some point, around the entry, during trade management, or when you exit, or post exit. For many traders, it is common to feel discomfort along the entire sequence of a trade.
Even when you feel good after making money, what happens next is very common, the 'ggiveback.' I'll address the all-to-common giveback phenomenon in a future newsletter.
The point I'm trying to make is how you respond to the various types of discomfort in trading will define you as a trader. Trading will always involve discomfort. Traders who learn how to tolerate discomfort will make better decisions and control their actions and will perform much better over time. Trading 'In the zone' is nice, and there are ways to increase the time you are in the zone, but most of the time 'the zone' is elusive. And that's okay, as long as you also learn how to control your actions to tolerate discomfort.
By Andrew Menaker, PhD, AndrewMenaker.com
Related Articles on STRATEGIES
In my experience there is no such thing as a single indicator that catches exact bottoms and tops in...
Using our proprietary dividend screener, I found hat nearly 1,100 individual equities offer yields a...
History is a stern taskmaster and provides ample evidence that not only do corrections occur, bear m...