Distinguishing Feeling From Emotion

Discussion in 'Psychology' started by Lucias, May 21, 2011.

  1. Lucias


    I use my market feel quite extensively in trading. I use my feelings, my intuition, and value that even over my highly profitable systems. It is important to distinguish the 2 types of emotions:

    1. Productive Feelings and Intuition
    2. Non productive feelings -- excessive or non rational fear or greed.

    I do a lot work to cultivate the first type. The goal to eliminate feeling and trade mechanically is misguided.

    It is important to listen to the feeling or the emotion and see if it worthwhile. Be objective.

    And this is sorta related, discretionary trading requires the development of a more rich cognitive framework then is promoted in books.

    Let me give a real example, I had predicted the market to collapse to X level when I first started trading. Before the market open next day, it dropped like a rock. I bought at X level. Felt terrible for breaking some arbitrary rule I had set for myself ( not trading after hours). And sold out for a loss. The trade would have been a big winner. I had did the homework, market read was good.. should have won on that trade.

    This episode made me realize that I had to rethink my cognitive framework. I had to question everything. An arbitrary rule had cost me. This is when I decided to prefer principles over rules. I also had to check each rule and judge it against reality.

    I mean if you set hard rules, you are saying that you have prepared and can know any situation the market can throw in advance. Sure, worthwhile but realistically way more difficult.

    So, feelings should also be weighed against reality. Keep track of your feelings, don't ignore them, and hold them up against reality. I hope you found this worthwhile. The original idea for holding up feelings to reality came from Dr. Steenbarger's post about how we are all different traders. One part may be very risk conservative,another aggressive. We all have different traders in us. Don't strive to be anything but just listen.

    I find the first type of feeling more often when I don't have money at risk. The second type of feeling occurs after I put a trade on.
  2. If you are on good strategy eg. Long/Short or trade derivatives to pump up Alpha, you basically only have 1 risk and thats market risk.

    With gut feel, (something computer trading cannot do) is to analyse the current market situation based on humans, definitely gut feel is always better, and with market risk = gut feel, because you can "feel" it. Noivices wouldnt be able to do tat... ure doing great !
  3. the human brain will react to what the senses deliver. this can be very detrimental to your career as a trader. this chap has it sussed


    Moral of the story: think. Your gut feeling, that warm glow you feel inside? That's a little idiot. Consider it your baby. Feed it, nurture it, take care of it because it will enrich your life; but don't ever put it in the driver's seat when you're making rational choices.
  4. For 1 thing I run my own quantitative system and I can say no computers can take into account Economic, Fundamentals and P/L and Credit rating cut Event driven news.

    You are have to read it, analyse and understand whats going to happen and predict.

    How else could you predict what the Japan's earth quake will cause in the next 6-12 months of Growth in Asia, manuf.. and etc ? Gut feel or Algo trading ?