So Close to Being There, But Still Falling Short as a Trader

First Article of a 3-Part Series

This article is the first in a series about the need to bring awareness (mindfulness) to the management of a trade once you are in the trade. It is this potentially turbulent period that continues to vex many traders due to their blindness to their emotional nature. Out of nowhere, their conviction to manage their trade according to plan is blown out of the water.

Despite hard work and long hours of study, this extended moment in the life of a trade remains the hurdle that separates traders from their current breakdown in performance and what they know to be possible for them as a trader. It is the difference between spinning your wheels and getting traction… between making money in the markets and flushing money down the drain. Let’s start by looking at what typically happens when a trader experiences loss of control in the heat of the “moment”.

Ken saw the trade set up. His patience had paid off – the trade came to him, no chasing a phantom. “Sweet,” he said to himself audibly but under his breath. It felt good. Patiently he checked off the criterion from his list. This one met 8 out of 10 of his criterion. It was a go – high probability, low risk. And he was a little excited, but he was practicing calmness. He affirmed again and again –”I am a disciplined trader, I am a disciplined trader”. It was his mantra and he was making it so.

He understood the market structure of this trade from the perspective of his methodology. He knew what to expect from his charts. He could see set-ups and trade structures like these in his sleep and knew with confidence that his predictions were high probability trades, like taking money out of an ATM. People even called him and asked him what he saw. And he was on target. All he had to do was “do it when the money counted”.

All the structure was there for a good ride. He had confidence in that. There was going to be some flux, of course. That was to be expected. But all he had to do was believe in his methodology’s effectiveness and manage the risk as the trade followed its probable course – and hold himself together and keep his emotions at bay. And he kept telling himself that he was a disciplined trader.

All was good. He pulled the trigger without a moment’s hesitation. He was beyond that problem. Order filled, he was now in the trade. He still seemed to be in control. He was going to let this trade ride. He focused on his screens, really watching the trade. Then the trade started going against him. It was in the red. It began flirting with his stop, then it would move again. This was stressful for him to watch. He begin to see red.

Up and down. Down and up. When was it going to trend as his methodology predicted. More bounce. More sweat. More excitement. More fixation on the screen that now seemed to hold his life in its unpredictable hands. How much more could he take? He felt the pressure. He kept thinking, “You’re going to lose” as he sensed his gut tightening.

Then it ticked in his direction. Finally it came out of the red. He saw profit. Thoughts in his mind urged, “Take it now, while you’ve got it. It’ll be gone in a minute. Take the money while it’s there!” The buildup of energy was intoxicating. Now. Now. Now.

He cashed out. And made some money, kinda. Then he watched the trade hit the targets his methodology has predicted. The structure held just like so many other set ups he had seen. Meanwhile, he paid his broker and walked away from the trade with nickels and dimes, with a lot of money left on the table. There he was, a little better than a scratch trader, with his potential “good living” lying on the table. What happened?

The Trader Never Sees the Emotional Hijacking Until After It’s Over – And is Too Late

This is actually a vignette derived from a video taken of a trader trading. What we were able to do was capture what his body was doing as he was caving in to the pressure of managing a trade. Before studying the video, he had no idea how he fell into the “fear of missing out” and exited the trade as soon as the trade was in the black. And, of course, this was a pattern of his that happened nearly every time he traded – and this was the difference between mediocrity and consistently profitable trading.

All he knew was that, while he was managing the trade, “something happened” and he was no longer in his sane mind. He seemed to be instantly possessed by a sense of powerlessness and he went to pieces. But the video showed something different.

In the video the trader could see a process begin to build when his order was filled and he was committed to the trade. Then this emotional energy really accelerated when the trade started going against him. By the time the trade finally started trending in his favor (and profitable), he was no longer a trader with a mind fit for trading. He was already ambushed by his ignorance of emotion and his lack of skills for managing emotions. Instead of managing his emotions, he tried to ignore the very emotions that create the quality of thinking that he needed to bring to trade management.

Observing Emotions Expressed Through the Body

As he did a review of this trade, he brought both his charts and the video of his performance for study. The video was a window into his psychology at any particular moment in the trade. And what he found was not pretty and definitely not something he would want to show a bunch of guys over a beer. It was way too embarrassing.

Everything looked good on the video until the order was filled. Then, surprising things that he had not been aware of began to happen in the video. First, he saw himself become fixated on the chart at the point of order fill. His eyes were bulged and non-blinking – and riveted on the chart. The next thing he noticed (with coaching) was that he was holding his breath. His jaw was locked also. These are signs that the body is revving up an emotion – preparing for fight or flight. Not something you want to be happening at such a moment.

The problem was that he did not know to look for this as part of an overall strategy of emotional regulation. Instead, he succeeded in ignoring the arousal of the emotion. He was so focused on his affirmation, “I’m a disciplined trader”, that he did not see that an emotional hijacking was in the making. But the tell-tale signs were all there, if only he had had the eyes to see. And later, as a much more humbled trader, he learned how to become an observer of his body as a window into his emotional life. Learning emotional awareness pays off handsomely for a trader.

But his videotape gets even more interesting. He starts getting charged up – and tries to will himself into being a disciplined trader. Then the trade starts going against him. Suddenly, on the video, you begin to see a man that looks like he is possessed. The video shows him rapidly rocking in this chair, tapping his pen vigorously, and breathing heavily. Of course, before the video he has no awareness of these unmistakable behaviors. It certainly is not normal for him. But there he is – getting set-up for an emotional hijacking. The video shows the process clearly, but he still does not have awareness of the symptoms of the hijacking.

It is at this point that the emotional hijacking takes over. The emotion of fear of loss is no longer revving up. It is now exploding, as emotional chemistry, in his body and brain. Cortisol levels are now contaminating his capacity to think clearly. Now he is thinking from the emotion of fear of loss.

In the video of his trade, he is now cursing, pleading, and looks like a horse in a burning barn. He now knows that “something has taken over him”. Yet, when a review is made of his charts compared to the video of himself trading, it is easy to see that there were many steps along the process before he became aware of the hijacking.

Fore-warned Is Fore-armed

What the video exercise did for our trader is to show him his tendencies BEFORE HE GOT SUCKED DOWN AN EMOTIONAL VORTEX. Being armed with the emotional knowledge of this potential hijacking allowed him to be prepared for this recurring “moment” that had vexed him for years. He had never seen all the precursors to the emotional ambush he had been experiencing – until now. They had been hidden in plain sight, only he had now developed the eyes to see them. Now he was prepared – his eyes were open. He was able to see what he had been unable to see before.

Now it was time to develop an intervention strategy based on his emerging mindfulness. That next step, developing an intervention strategy based on his new emerging Emotional Intelligence, will be covered in next month’s article. There, our trader friend will learn not only to observe an emerging emotion that he had been blind to before now, but will also learn to regulate it as he develops the skills of an emotionally intelligent trader. Over the next several months, we will drill down into this trader’s problems with trade management deeper and deeper until we get to the core of the problem.

First, he needed to develop a new awareness of emotion that allowed him to make more sense out of what had appeared to him as emotional meltdowns coming out of nowhere. By using a video of himself trading, he became aware that he had been wearing his emotions but had been blind to them. Out of that blindness, he had been caught in a vicious cycle of meltdowns while trading.

In next month’s article, you will see how he learns to manage his emotions and transform the way he performs in the act of managing a trade. Stay tuned.

To learn more from Rande, be sure to check out some of his other articles at TradersStateofMind.com.