Today, I plan to share the investment insights Benjamin Graham, Warren Buffet’s mentor, gleane...
A Very Hard Thing To Do in Trading
07/07/2014 6:00 am EST
Anna Coulling of AnnaCoulling.com offers several answers to a question she was recently asked about how to manage and control emotions like fear when trading.
Hi Anna, First off, great book! I've been an aspiring trader (mostly futures, some commodities (oil, gold, NG), some stocks, dabbled in Forex) the last seven to eight years, 17, or so, if you take “equities” in general into account. I'm going to guess I'm roughly break even over those seven to eight years in my active 'learning/trading' account (as opposed to my longer-term 'investing' account. Maybe very slightly up. Most of this is because I suffer from not following a plan and from aversion to loss. That aversion to loss does things like make me take a $4 gain in (TSLA) from $35 to $39 on my 1000 shares when I plainly bought it as a long-term hold…today it's at $200. Sigh. I'm good at avoiding loss, but not good at holding. Historically, I'm usually pretty good on entry, but really, really bad on exit. I've always subscribed to “price action + volume” being the only true way to understand the markets, not gobs of indicators and other such nonsense. Your Volume Price Analysis book was one of the first trading books I've read (and I've read a LOT) that really struck a chord with me. Anyways, on to what I wanted to ask. Do you do any online seminars or mentoring? Learning from a book is all good, however, talking to someone, getting feedback, mentoring, etc. is a whole different level. I unfortunately cannot do this full-time right now as I have too lucrative and enjoyable of a career to walk away from, but at some point in my life I'd certainly like to enable my dream of trading for a living. Finding a suitable mentor and/or teacher who embraces the ways I want to trade (VPA, VAP) is important and you are the first person who I've really seen be genuine and informative about this. If not, completely understandable, you seem like you have a full plate already :) Do you have any suggestions as to other people I could talk to and/or any other books you could suggest reading? Thoughts? Thanks so much.
Hi—thank you so much for your email and very kind words. They are very much appreciated. Thank you also for taking the time to write to me about your experiences as a trader/investor, and for your honesty. Simply being able to recognize your own weaknesses is a very important first step to becoming successful in this business. Not being able to stay with a trade or trend is probably the most difficult aspect of trading to master, and the fear of missing out on a profit can literally overwhelm us.
The reason for this fear is understandable and rooted in our evolution. For example, would our early hunter-gather ancestors have passed on taking an easy rabbit if they thought a bison could be around the corner? I think not, because life then was deeply uncertain, short and brutal. Fast forward to today and we replay the same scenario as traders. Simply substitute rabbit for TSLA (or any other stock, market, or instrument) and our brain (the limbic part) triggers exactly the same response. It does not recognize we no longer need to roam the plains in search of food, it is simply firing our innate survival mechanism if it sees a profitable position melting away.
This response is so powerful it can overwhelm the rational/logical part of the brain. What is interesting is that to succeed, pit traders have to use the limbic system in order to succeed—lots of adrenaline and noise. They need to smell the fear and greed of the market. A good example of this is another trader friend of mine, Rich Friesen who spent many years as a pit trader himself before becoming a psychologist and developing his own unique course to help traders overcome the emotional problems we all face as traders. He gives a unique insight into these emotions and teaches you how to manage, control, and overcome these obstacles when they appear.
But—we are not pit traders. So how to deal with this, which is one of the hardest aspects. The first general point is that intra day trading/scalping increases this pressure dramatically—so zooming out from the market will help. Second, use multiple time frames to provide perspective (both upstream and downstream). Third, ensure that your stop loss management gets you into riskless trades as quickly as possible, which will then give you a 'worse case' scenario, and help you to stop worrying about the loss, which, in turn, will force you to focus on managing the position.
By Anna Coulling, Professional Trader & Blogger, AnnaCoulling.com
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