TraderMind: Get a Mindful Edge in the Markets by Steve Ward

Author:Steve Ward [Ward, Steve]
Language: eng
Format: epub, pdf
Tags: Investments & Securities, Business & Economics, General
ISBN: 9781118316733
Google: GGfIBAAAQBAJ
Publisher: John Wiley & Sons
Published: 2013-01-02T00:00:00+00:00

By being open to your emotions you are also able to avoid the self-defence mechanisms that arise to stop you from feeling emotions such as shame, regret and fear; that reveal themselves through trading behaviours such as risk aversion, selling winners early, holding on to losers and chasing losses.

A greater openness to emotion also provides a key process in regulating and shaping your experience through what is known as the “exposure effect”. By exposing yourself to whatever is present in your field of awareness in the moment, allowing yourself to experience what you are experiencing and refraining from the desire to change it in any way, you are meeting potentially unpleasant experiences and turning towards difficulty rather than away from it. This process, although counterintuitive for many people, results in exposure to such experiences – which in turn conditions your ability to cope with them. Often people notice that in the moment their experience changes as they turn towards what they are noticing, and in the longer run continued exposure to these experiences often results in their reduced activation (extinction) or reduced intensity. This is very similar to exposure therapy – a very effective psychological approach where people are exposed to their fears and, through this exposure, learn to manage the fear more effectively and change their fear response.

One trader I introduced to the concept of being more open to his emotions, and more willing to accept them and work with them, had a significant insight into his current psychological approach. He realised that his attempt to fight back and change or control his so-called negative emotions was actually reducing his attentiveness to the trading screen and also, through the course of the day, was actually tiring him out. This is typical of our experience when we struggle with our emotions, rather than being more open and accepting of them, and working with them. Trying to control or suppress emotions is possible, but it can be a bit like holding a beach ball under the water – you can do it, but it takes a real conscious effort, allows little attention to go elsewhere and eventually the emotions are going to surface with gusto. Suppression of emotion takes your prefrontal cortex (the thinking, planning and control centre) “offline” and is very cognitively expensive; it impacts memory and learning, making it hard to make sense of the changing market environment. When your tiredness and emotions eventually surface, it is often a process that precedes behaviour such as revenge trading, or excessive risk taking. It is often not your emotions or even the intensity of your emotions per se that leads to your unhelpful trading behaviours, but rather your attempts to try to avoid or control these emotions.

In terms of trading decision making the implications of this shift in approach, from avoidance to acceptance, are supported in findings by Fenton-O'Creevy and his team. They found that there was a strong relationship between a trader's emotional regulation strategy, their trading behaviour and their results, with those who used suppression strategies making significantly worse decisions.

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