Phoenix, I don't understand why you are coming in here with guns blazing over a matter of semantics on which your assertion is ass backwards. Nobody is denying (or at least I am not denying) that emotion can and does have the ability to interfere with rational decision making if not properly controlled. But critical thinking skills are necessary to make rational decisions in the first place. To behave optimally in markets requires at least two things: - critical thinking skills - emotional control If you do not have emotional control, your ability to behave rationally may be (though is not guaranteed to be) impaired or suspended at critical times. But if you do not have critical thinking skills, then a lack of emotional control is secondary to the fact that you were never fully equipped to survive on your own in the first place. To analogize, if emotional control is the braking mechanism on a sports car, then critical thinking skills, essential to rational decision making, are the steering mechanism. It doesn't matter if your 911 turbo has state of the art Bosch brake pads if it doesn't have a steering wheel; without critical thinking skills you can't drive the thing (except maybe on a predetermined groove in someone else's track).
When I know I'm right with absolute certainty I don't feel the need to belabor the issue. PS: No hard feelings I still consider you quite an astute and informed trader.
This is very true and a very good post. Now, you need to just follow up on how to develop emotional control.
Appreciate the candor. I think this also might be the difference between quantitative and discretionary traders - once your decision-making is outsourced to the back-testing/statistical process, your emotional state has far less bearing on your results.
Emotional control and minimized emotional display - having the demeanor of Mr. Spock for instance - are not the same thing. Hallmarks of emotional control are being able to calm one's self at will, having a very clear sense of which emotions are disruptive or destructive and which are not, and intuitively knowing the situations in which emotions are dangerous or undesirable. Emotional control is the ability to be calm in the clutch, or to maintain rational composure even while giving the external appearance of being emotional (though external display is of course optional). Not the same as being largely bloodless and emotionless. As a general rule, I feel what I want to feel, and cultivating occasionally intense bursts of emotion is an enjoyable aesthetic aspect of my overall life experience. Anger, for example, can be a positive manifestation of competitive drive and can actually be fun to express, in the same way it can be fun to get in a fight. The key thing is having control of emotional flow. If you are angry when you choose to be angry, or excited when you choose to be excited, that is one thing (and can be a healthy form of blowing off steam). To lose control, however, is to experience emotions at undesirable times or to undesirable degrees. This is the real problem, not the prima facie presence of emotion itself. Another emotional control trait is the ability to feel or express a brief blast of emotion and then be 'done" with it. This is the ability to be angry for a moment, or otherwise intense in a controlled burst, and then go immediately back to true neutral / true calm. Conversely, a lack of emotional control is when the level change sticks with you, longer than you want it to, and an inability to "let go." (There is a scene in the movie Get Shorty that epitomizes the letting go aspect of emotional control. The gangster Chili Palmer (John Travolta) is in an altercation where he is almost killed. Afterward he is driving with his girlfriend, completely and totally relaxed, as if the danger never happened. She is astonished, asking him, "Aren't you scared?" He looks at her with a half smile and says "I was scared then. It's over. You want me to be scared now?") A curious byproduct of the above is that you cannot tell whether a trader has emotional control or not simply by the degree of emotion they display during the trading day. A trader who shouts profanity at the screen or even smashes phones may simply be engaging in healthy emotional release, with zero risk of breaking his rules or otherwise disrupting his decision making process, because he knows himself and knows exactly what he is doing and what the boundaries of these steam blowoffs should be. A trader who gives the outside appearance of a zen monk, on the other hand, might actually be emotionally roiling on the inside, going on "soft tilt" inside his head, using great amounts of energy to preserve a facade of external emotional control, and be very close to seeing his decision making faculties impeded or degraded because internal emotional uproar is sucking up all his energy. Re, the balanced trader who uses displays of emotion as a constructive aspect of process, a mechanical analogy here is the industrial air conditioner that expels hot air as exhaust in the process of generating cool air. Emotion, when used as fuel by a skilled practitioner, can keep one on the "calm and collected" track in terms of actions, while being visibly expelled as heat exhaust. This is the kind of thing that happens when critical thinking skills and rational decision making faculties are elevated above emotions, as such that emotions become the servant of the executive function, rather than master or disruptor. When most traders talk about emotional control, they are actually talking about reducing emotional swings or blunting the feedback impact - reducing the intensity of emotional output. But there is a better way, a more powerful way. Harnessing emotional flow allows one to cultivate the energy and raw power that comes from emotion - like learning to drive a 400 horsepower car. Emotion is also highly useful in respect to somatic markers and rapid-fire learning experience... but that's another topic.
p.s. As for learning how to develop emotional control, that is a broad and deep topic, on par with asking how to become a good chess player or how to become a good negotiator. It begins with study and contemplation, then advances through the intertwining feedback loops of theory and practice. In seeking to develop emotional control, I would start with basic level studies of the human brain and how it works. By doing this you can gain a rough mental picture of how the mind is structured, with different areas of assignment for executive function and fight or flight survival response. Working with that mental picture, you can then work to rewire the mind via plasticity and self-administered radical cognitive therapy, changing over from "Savannah 1.0" factory installed settings to "Modernity 2.0" enlightened settings. Humans are born into this world with very strong emotional presets and deep-seated emotional response instincts, but with no real critical thinking skills. As a result of this, emotions dominate logic by default in the average individual. The task, if you will, is cultivating and honing one's rational and logical faculties to a degree that the executive function and the rational decision making areas of the brain become dominant - not so that emotions can be short-circuited or minimized, but so they can be harnessed and controlled, like a rider taming and training a wild horse. This process also requires a deep level of self awareness. It is hard to have extensive and profound levels of emotional control if you have not come to intimate terms with who you really are. (Taking the above back to, say, LTCM, consider that LTCM's founders likely had zero self awareness and zero self control in the emotional restraint sense. They were fantastically intelligent, but grossly ignorant of their own psyches, their own personality flaws, their own feedback loops and emotional signaling mechanisms under market stress etcetera. These are largely self awareness issues.) This goes back to the buddhist concept of what meditation is, and the role meditation plays in solving and dissolving problems; instead of running away from life's problems and contradictions, you look at them straightforwardly and head on, sitting with them patiently, until the tension resolves in the presence of awareness, acceptance and understanding (clearing away distractions as such that action plans can be implemented to change what can or should be changed).
Re: Mindfullness This wisdom I found in Rande Howell's Mindful Trading book (may be the best paragraph of the book) and connecting to the topic: âOnce you grasp that you trade your beliefs and hidden assumptions and that you take full responsibility for managing the conversations in the mind that control perception, you have established an effective attitude and motivation for pushing through your fears and self limiting beliefs. From here, you set sail into the adventure of creating a self called âyouâ that engages the market and life from a disciplined, patient, impartial, and courageous state of mind.â
A good starting point, that expresses the heart of eastern philosophy. Zen and other approaches evolved pragmatically, as some of the world's earliest instances of cognitive therapy - learning to deal with life's problems via impartiality and objectivity. Where East can be passive and withdrawn, though, advocating an absence of emotional engagement, West comes in with passionate commitment to excellence and goal-oriented self improvement.