Understand Your Instincts
The 4 Deadly Sins of Trading
Your Instincts Are a Problem
In August, I'm going to talk through what I consider to be "The 4 Deadly Sins of Trading " - Fear, Hope, Greed, and Pride.
For the length of my trading career, several of my mentors have stressed to me that I need to remove all emotion from my trading. So I started coming up with ways that would help me to approach life with an almost Mr. Spok-like attitude. Unfortunately, I failed because I just wasn't able to tune out all of my emotions.
Scott O'Neil, who I admire greatly, has a pretty awesome series of videos on this topic. Definitely worth checking out so I'll be embedding them in my posts through this month.
He's one of the proponents of removing all emotion, which I don't 100% agree with but I still recognize that there is a ton of merit in what he's saying. However, I modified things to line up a bit closer with my own personality.
My Alternative
I realized that there had to be a better way for me to do things. A way where I could somehow use these potentially harmful emotions to my advantage! I assumed this would be a risky adventure given that nobody else was talking about it, but I knew I had to pursue this for my own financial well being.
I also knew that my instincts and emotions existed within me for a reason. It's because there's an evolutionary advantage to them! Think about it, fear of risk is a useful tool for survival when you live in a dangerous world, full of animals that consider you to be a part of the food chain. Our greed encouraged us to eat as much as we could in times of plenty which helped us survive through times of need. Instincts helped keep humans alive and have been passed on to every one of us as a result.
The Technique
I decided to start treating my dealings with markets the same way a Cro-Magnon man would deal with a world full of saber tooth tigers. I began to nurture my instincts to limit their negative impacts in my trades.
Training myself to recognize when I'm feeling one of these emotions was the first step. For example, when I recognize that I'm feeling afraid, I force myself to take a deep breath and step back. I wait a few moments for the fear to subside, and with a calmer state of mind I turn my attention to charts and data.
Now, some may say that what I'm doing is actually still eliminating my emotions from trading but I think my unique perspective here gels better with my over all approach to living life. Using my emotions as a trigger to action makes me feel more in control of my trading, and that's a must for me. Incorporating instincts into my process may be one of the smartest things I've ever done.
Wrapping Up
Now that I've gone through a basic introduction to my approach, next week I'll go through the specific dangers of Fear and Hope in trading - and how you can turn both into an asset.
As always, feel free to reach out to me if I can be a resource in your trading education.
Happy Trading!
Amin