Hi, how does one fully take out most his emotions with trading? I have had many profitable days based on using hardly any emotion following a systematic procedure. However, when I try to second guess the market, it goes against me. I will stop trying to use my emotions to second guess the market. However, how can I just trade without emotions? I guess the answer is have an automated trading setup. Any other ideas or thoughts? ~TB
Look up mindfulness. This is how a Buddhist will loosen the hold of her conditioning on her daily life. Try it as meditation. Look at how it's applied to anger. Try to apply it while you are trading: be mindful of, label, observe your emotions and the thoughts that are passing through your mind. Don't attack them, just be mindful of them. Cognitive and behavioural tricks can be added on top once the mindfulness helps you observe what is happening.
This is true but almost impossible to do on consistent basis without long,long training of the mind. Average person can observe his thoughts for few seconds at a time (at most) then forgets himself. Under stress it gets even worse.
Second, more anybody is able to observe his "inner life" less chatter there is. Being self-aware is magical in reducing all possible emotions in one's life. What I know today after years of studying Buddhism and practicing concentration, I am convinced if anybody can be 100% self-aware he would have an ability to take any amount of $$ out of markets.
Rather than quants, perhaps Wall Street should be recruiting Buddhists. According to another recent thread, quants are supposedly only in it for the intellectual stimulation. Similarly, think how self-aware and self-actualized the Buddhist hires would become in the markets. It would be the ultimate test of their spiritual mastery over emotional adversity and other human frailties. Plus, orange is a fashionable and stylish color at the moment. Serendipity, baby! Win-win!
You mentioned that you're systematic trades tend to work extremely well (probably something in the 75% - 85% range). The reason for that is you used your intellect to put them together, you did all your thinking when there was no stress and logic and reason were in control. The answer to your question, is this: Do not trade with your emotions (ever) ... but do not trade the market either. Only trade your system ... this is your edge. It will produce the results you want. If it doesn't, simply change it and compensate for its shortcomings, and if it does, work to improve it. But don't step outside of its parameters (because those trades will require luck and will step outside of the established probability of success range of your system trades). If you get bored, create more systems (intraday and position) or trade multiple markets. This will lead you to being consistently profitable. Good trading, Jimmy Jam
There's just no way we're going to get away from these emotions, we're a virtual cauldron of them and it's impossible to fight this physiology (even for the monks, they just sublimate the passions of the mind, they don't remove them) ...
... that's why (I believe) having a systematic methodology across multiple timeframes and trading multiple instruments across those timeframes is the answer to the ultimate traders dilema. Because once you've mastered your emotions, you've mastered trading. Good trading, JJ
Some food for thought: "It is a fact that our brain tends to go for superficial clues when it comes to risk and probability, these clues being largely determined by what emotions they elicit or the ease with which they come to mind. In addition to such problems with the perception of risk, it is also a scientific fact, and a shocking one, that both risk detection and risk avoidance are not mediated in the "thinking" part of the brain but largely in the emotional one (the "risk of feelings" theory). The consequences are not trivial: it means that rational thinking has little, very little, to with risk avoidance." Nassim Taleb in "Fooled by Randomness" p. 38 Also from the same book, p. 222: "The epiphany I had in my career in randomness came when I understood that I was not intelligent enough, nor strong enough, to even try to fight my emotions. Besides, I believe that I need my emotions to formulate my ideas and get the energy to execute them. I am just intelligent enough to understand that I have a predisposition to be fooled by randomness - and to accept the fact that I am rather emotional. . . . No matter how long I study and try to understand probability, my emotions will respond to a different set of calculations, those that my unintelligent genes want me to handle. If my brain can tell the difference between noise and signal, my heart cannot." BK
Cesko, you are correct to point out the difficulty in achieving continuous mindfulness. However, even the attempt engages the forebrain and disengages the emotional brain (to an extent). This helps overcome the issues raised by Taleb as quoted by Bingoking. My personal path to improvement was to increase mindfulness and to remove behavioural cues that had triggered extra invalid trades. To improve mindfulness I had to use traditional Buddhist strategy of slowing my actions down to make it possible for mindfulness to work before emotions had driven reactive entries and exits. To remove cues I changed my charts to remove the triggers for some of the actions I had been taking. Another thing that can engage the forebrain and prevent emotion triggering aberrant actions is to keep asking yourself questions that will focus you on good trading. How can I get on side with the trend here? How could I get an entry that would let me pat myself on the back for following my system? What's the quickest exit I can take that meets my system and gives me full marks? etc. etc. Finally, wearing out any contribution I might make, something posted in another thread by Bob111 ... http://www.youtube.com/watch?v=xiNQSbcOYNQ