A couple of days ago, I made a mistake…I took a trade and was wrong. Now, that in itself was not the mistake. We all have losing trades. That’s just part of the business. No one wins them all. The mistake that I made was not walking away.
Normally, I do my analysis and plan my trades ahead of time. If I’m wrong and lose a trade, I may walk away or sit it out and wait for a better opportunity. However, not this time. This time, I was stuck on taking a trade so I ended up taking another trade after I thought things had settled down. And I was wrong again. Now I was down two and feeling pretty crappy. Then I saw another opportunity and took it. And this time, I was not only aiming to hit my normal target but trying to recover from the losses. I took more risks and didn’t take the profits that the market presented me with because in my mind, they were not enough! NOT ENOUGH! Can you believe that! Market gave me a gift and I said it wasn’t enough! Have you ever done that?
This is not new to me. I’ve dealt with this problem throughout my trading career. This is my Kryptonite! And this isn’t just an issue in trading. I see this issue manifest in other areas of my life. I play Ultimate Frisbee. It’s a sport I absolutely love! It’s also a sport my husband and I play together on a co-ed team so it gives us an opportunity to spend some quality time together chasing a disk! Did I mention, it’s also a great way to release stress, especially after a tough trading day ;).
Back to the Kryptonite. Ultimate Frisbee is a non-contact sport. However, there are times when people foul or make bad calls. Ultimate Frisbee is an intense game so things like this happen from time to time. No biggie, right? Not so much for me, I tend to get all up-in-arms when something like this happens to me. I get MAD and my play reflects that. Instead of just shaking it off, I try to over-perform by trying really hard to score. Notice the pattern? In reality though, what really happens? I get ticked off and play horribly. Because I’ve lost perspective. I used to do this a lot more when I was younger. Now that I’m wiser (or older ;)) and know myself more, I’ve come up with workarounds for myself. Things that help me get past this quicker and get back in the game.
Likewise, I’ve identified this in my trading and have come up with steps to contain my losses and get back in the game. Here’s what I do (and you can too) to manage my emotions when I come up against my Kryptonite.
1. Identify your Kryptonite
The first step towards fixing an issue is self-awareness. Knowing and most importantly, admitting that there is an issue is the first step towards fixing it. It took me many years to admit to myself that I was a revenge trader. Everyone around me could see it but I was so in it that I just couldn’t. I used to blame the markets, poor strategy, my lack of knowledge or anything else I could find to blame. It was only when I sat down and looked at the patterns that I repeated that I learned that this was my issue.
The easiest way to become self-aware is to keep a trading journal. Make a note of your emotional state, market conditions (anything big going on in the markets making them volatile. Greece situation this week, for example), reasons for your trade etc. Do this for a month and you’ll see patterns emerge. Look at the most prominent pattern. This is your Kryptonite. Now you’re ready for the next step.
2. Develop a Plan
Nothing will change till you do something about it. I sometimes hear people talk about trading without emotions. In my experience that’s not possible (or at-least not for me). As human beings, it is in our innate nature to have emotions. We wouldn’t be able to enjoy life if we didn’t have any emotions.
A better way around this is, managing your emotions. Once you become aware of your problem pattern, work on developing a plan for managing it. Look at how you end up in this issue. Start from the end and work backwards. Get a clear understanding of the sequence of events that led to it. For example, for me, I really wanted to be in the trade. I took the trade where the setup was correct but the market conditions were volatile. There was uncertainty around Greece. I also had an emotional trigger. I had taken this trade in-front of my trading group so I wanted to save face. I have found there are many emotional triggers that can cause us to go down the slippery slope. And it’s not just the negative ones. I’ve found if I’m too buoyed about something, I tend to be over optimistic about the trading opportunities. So too good an emotional state can also have a negative impact on our trading. In both these cases, its best to identify your state and purposefully ground yourself prior to trading so you bring yourself to a neutral state. Then evaluate the trading opportunity from this balanced state.
Your plan should include how you’ll recognize your Kryptonite and then steps you’ll take to reduce its affect. Some things that work for me are grounding myself, walking away from the markets and waiting for a better opportunity, literally going for a walk or just shutting down my computer for the day. Remember it is our job to live to trade another day. Giving in to our emotions will not get us anything.
3. Ask for help
The final step that I’ve found really helpful in this type of a situation is asking for help. There’s a saying that “it’s hard to see the picture when you’re in the frame”. I’ve found that to be true. Sometimes you just need that outside perspective.
I suggest getting an accountability partner or a coach to help you with this. The most successful traders that I’ve known surround themselves with other successful traders. Find another trader who could hold you accountable. Someone who you could go to once you feel yourself going down this slippery slope. Call this person up, skype them, do whatever is necessary once you feel yourself losing your grip.If you don’t know another successful trader, join a group or hire a mentor to help you. The support that you receive can be a difference maker in your trading. You are, of-course, welcome to join my group. I’d love to have you there. However, any high functioning team would work. It’s important that you put yourself in that group.
Now, back to my story…I’m happy to report that I got myself out of this situation without too many cuts. I got bruised, yes, but not too badly. I’m happy to report I’ve had 2 successful trades since then where I identified the opportunity and followed my plan.
Now, your turn. Tell me what’s your Kryptonite and what is your plan to handle the situation when it arises.?