Trading & Emotions: so, What is the Problem?

How many times have you entered a trade and then gotten that strange feeling in your gut; you know there’s something wrong but you just don’t know what it is?

You go over and over the trade in your head, examining then re-examining why you are feeling like this but you just cannot come up with an answer.

What do you do? How do you go about fixing something when you don’t know what the problem is?

Trading can get emotional at times and when you are faced with a situation just described, the best thing to do is to define the problem. Before you can solve the problem you have got to know what the problem is. Although this sounds obvious, it can be quite a complex task. And complex tasks are best dealt with using a step-by-step approach.

The first step is to Recognise the problem and define it. The best way to do this is to ask a question. “What is the problem I am dealing with?”

It is important to remember to begin each question with the word what. Do not start with why. If you ask “why” you will get twenty different answers and they will all be correct.

By structuring a question that begins with the word what implies a specific response and that is exactly what you are looking for, something specific.

Try it and see the results for yourself.

So how does this apply to a trader?

Over the last few weeks I have been coaching a number of traders and when I am told that they want assistance in their trading my question is “What’s the problem?” Usually the answer is along the lines of “I have been having a series of losing trades and I don’t know why. Every time I enter a trade it goes against me. It’s as if the market knows that I have just come in and it wants to punish me.”

Does this sound familiar? Yes, we have all been there. So what is the next step?

Rather than blaming the market, you need to look at the reason for your entry. In other words there is something specific that happened before you put your trade on. Now this could be a number of reasons such as you are following advice from a newsletter or a broker recommendation, maybe you saw a chart pattern that you recognised. It’s also possible that you’re trading on your sentiment.

Whatever the reason is you need to now Acknowledge that the method you are using which gets you into consistent losing trades is simply not working.

Now we go onto the next step which is hard – Acceptance. To accept there is a problem can be difficult for most people. Instead they will go into denial. This is critical to understand because once you can accept that there is a problem, you can now seek solutions to rectify the situation.

Before we can start to Resolve the problem we need to examine the components that are related to the problem. In this case is it that the market you are trading is one that you do not understand enough about or is the method you are using not suited to you personally? Is your trade size to large for your comfort? Maybe the method does work but has a large drawdown where you would have to accept a string of losses before you gain a large win.

By going through the process described, we have now got to the root of the problem where we can start to find solutions. The solutions for this particular example are many and something that is covered in my trading education seminars.

Although this is quite an in-depth subject, hopefully this has provided you with some food for thought when faced with a problem in trading.

Happy trading.

Sandy Jadeja | Chief Market Strategist

sjadeja@odlmarkets.co.uk