A couple of observations

Posted on April 12, 2007
Tags: Day Trading, Personal development |

1. De-coupling. I wish I could find a way to de-couple my overall feeling of well being from my P&L. After almost 3 years of trading close to day in and day out, I still find I have mood swings related to my P&L, sometimes more subtle and sometimes less. The reality is that each individual day -/+R’s have no material effect on my financial well-being or future. I don’t experience large swings in my equity because I trade in small risk %. In addition I have other interests and important things in my life. But still I cannot avoid feeling great and energized when I finish in the green and feeling a bit down when the day is red. I don’t go into euphoria or depression, but it’s evident enough to make me aware of it.

2. Capitalization. Recently I’ve been better capitalized than I ever was. The effect this has had on my trading is quite pronounced. Firstly, related to the point above, I weather mood swings better - but obviously not as well as I would like. Secondly, and maybe more importantly, being better capitalized helps me in better managing trades and facing the fog of battle. Today was a case in point. I felt like I was trading blind in terms of market tone, I couldn’t read what was going on at all. All I knew was that I had 2 candidates that met my criteria. So instead of fussing about what to do and second guessing things while visualizing the impact of each action on my account, I just fired away my trades and let things happen knowing that whatever result comes out of this isn’t going to affect me much even if all goes against me. As it sometimes does. It may sound like previously I was trading too big, but that’s not the case. I’m now using a very similar risk % as I had in the past. The nominal size of $ does make a difference.

At the end of the day both points above are related to trading psychology and emotional control. I (believe I) explored most of the literature and ideas out there about this topic at some point in the past. It’s the application of it that seems like a never ending Sisyphean task. Of course, if someone has some interesting idea or method they’re using I’ll be happy to hear about your experience.

Comments

7 Responses to “A couple of observations”

Carlton on April 13th, 2007 3:16 am

I found the Buddhist approach of Observing as a way for Transforming very useful. Trying to actively push negative emotions, escape such automatic responses, or rationalize why they shouldn’t happen works to a limited extent only; a much more powerful effect comes from neutrally observing those emotions as they happen. Focusing on them, on the sensations they generate in body and mind actually leads to their dissolution, the more you do it the more detached you become from them, they become less “automatic” and you become less of a “robot”. Once you can clearly spot the rising of dissapointment or excitement as Objects separate from yourself, you become less identified with those objects and they have less effect on you. Some space is created between the event and the emotional reaction.

It’s not a matter of theoretical knowledge but more of practice, a short meditation course may not be a bad idea.
eyal on April 13th, 2007 3:51 am

Hi Carlton. Good points. I was actually looking at meditation courses here in Singapore a few months ago. I think it’s something I would find both beneficial and interesting in itself for other aspects of life. The only course I could find though is a 2 week Vipassana one (thru dhamma.org) which is slightly too long for me. Maybe I should make time, like a week or so of vacation and find something in the region outside Singapore. For example, maybe in Thailand ;-) But that means skipping Chang and nam tok muu while there.. hmm tough :-)
Caravaggio on April 13th, 2007 5:31 am

Hi Eyal, I’ve also been on a quest to decouple my emotions from my trading. As an outsider, it pretty much seems that you have your emotions pretty much under control. I wouldn’t seek to become an automoton, however; I think it’s okay to feel a degree of feedback from our trading results, provided they are set in context and kept under control.

I like the meditative approach as a means to cultivate the constructive emotions and weed out the negative emotions. Good luck amigo.
Dave on April 13th, 2007 5:44 am

Eyal, I would argue that you don’t want to de-couple emotions from trading completely. If you were able to separate them completely then I believe performance would suffer - trades wouldn’t matter that much. You would probably overtrade and wouldn’t care.

I think a little emotion (emphasis on little) is important to have since it helps drive you to perform better.
eyal on April 13th, 2007 7:36 am

Thanks for the comments guys.

Caravaggio - my emtions don’t normally overflow. It’ll be tough for most people to be able to tell if I lost or made a few thousands a couple of hours ago. But I’m more concerned about the inner side of things. Yeah I agree I wouldn’t want to become an automaton. Hopefully I’ll be able to give meditation a try, I’ll update how that’s going once I’ve tried it.

Dave - good point as well. I was thinking later after writing the post that maybe my wish to decouple it is both unrealistic and undesireable. Getting the human brain to not have any reaction to gains or losses isn’t natural or necessarily a good idea. I guess I was just venting a bit :-)
Condy on April 13th, 2007 11:12 am

i think if you really follow your system to the dot, emotions wouldn’t come into play at all because everything just becomes automatic and you won’t feel anything because everything has already been thought out beforehand.

emotions come out during trading because our inner self still does not “expect” the result (profit or loss). if you have drawn up clearly what your system does and its loss and profit routes during trading, then emotion shouldn’t come into play at all. it just becomes like driving.

or maybe you are just a sensitive guy ;-)
eyal on April 13th, 2007 11:20 am

Hi Condy (Rice?? ;-) ), as a discretionary trader it is almost impossible to “follow the system to the dot” in an automated way. There’s always going to be some evaluation and decision making on the fly.

Also those emotions are hardly ever present when I’m in the midst of trading. They come once the final P&L for the day is known and I either closed the day making money or losing it.

You sound like you’re a trader, not blogging (yet)? :-)