Emotional control is the key to success in the market says the market wizard. Control your emotions and half the battle is won says another. Trade with your mind not your heart chants another. And so on and so forth. So what exactly is this emotional ball game? How is it played? What are the rules of this game?
To understand this let us study a few hypothetical examples.
A novice, let’s call him ‘A’ who has never traded before puts in his first trade (everybody had a first time!).The trade ends in a loss. Not the one to accept defeat he puts in another trade which ends in a loss too. Angry and frustrated he tries yet again but lady luck refuses to smile at him and yet again the trade ends in a loss. At this point the traders account size has diminished considerably and is almost negligible. Most of his trading capital has been wiped out. What will be his emotional state? What goes through him? Anger, frustration, dejection, defeat, low self esteem and a sense that the world has come to an end.
At another place another novice, let’s call him ‘B’ who has also never traded before puts in his first trade. The trade is successful and results in a reasonable amount of profit. His confidence boosted he puts in another trade which is an even bigger success. Elated, he puts in another trade which too is profitable. His trading capital has multiplied considerably and ‘B’ is smiling ear to ear with all his teeth visible. What will be his emotional state and what goes through him? Euphoria, confidence, a bloated ego and the question he is asking himself is “Am I God?”
At this stage a third novice, let’s call him ‘C’ comes in and wishes to seek advice about the markets and approaches ‘A’ and ‘B’. It is no matter of surprise that trader ‘A’ will advise him to stay away from the markets as it is a dangerous place where one can get hurt and trader ‘B’ would inform him that it is the best place in the world and that he is wasting his time doing anything else but trading. None the wiser ‘C’ decides to wait and watch for a little while.
After the initial badgering ‘A’ has regained control of himself, taken formal training on the subject, studied a few more techniques and is now ready to try the market again. He places a trade after deep study and contemplation and this time it goes in his favour. He makes a killing and all his earlier losses have been recovered. His trading account also shows a small profit. How does he feel now? All his negative emotions have disappeared and ‘A’ now feels cheerful, confident and completely satisfied with himself and the market.
On the other hand ‘B’ puts in his next trade which is a complete disaster. He has incurred a huge loss so much so that all his earlier gains have now been wiped out and his trading account has become negative. He is flabbergasted and looks at his charts with utter disbelief. How could this have happened to me? How could I be wrong? He is not as concerned about his financial loss as he is about the fact that he was wrong and the market turned against him. Infuriated and with a crushed ego he decides to take a sabbatical from trading and tries to understand what happened.
At this stage if ‘C’ were to approach them for advice ‘A’ would be presenting a different point of view and ‘B’ would probably not be available for comments.
© Pathfinders Trainings