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Hi All
Below may be of interest; if not there is the delete
key.
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"You must learn to trade the market so that there will be
no hope and no fear when you enter the market" (W D Gann)
"Successful trading requires emotionless trading" (apprentice trader).
It is almost a cliché in trading circles - if we can put our
troublesome emotions aside, we will be successful traders.
Ramifications from a recent book leads to the conclusion that
better trading actually mandates a role for our emotions.
Traditionally emotions and reason have been seen as
separate parts of the human psyche. More recently,
we have seen "intelligence" divided into different types.
"Emotional intelligence is said to be involved in
social interactions and empathy while "moral" intelligence
is involved in right or wrong".
In "the Structure of the Mind", S I Green, MD, argues that
all these different abilities are not separate types of
intelligence. Instead they are the result of early
interactions - interactions in which EMOTIONS, not
reason, serve as the primary intellect.
The thesis of Green's book is that "emotions are
in fact the architects of a vast array of cognitive
operations throughout (our) life span. Indeed they
make possible all creative thought". Each time
we have a sensory experience, "we label it both by its
physical properties and by the emotional qualities we
connect with it." Green does not dispute that times
of stress can distort and interfere, with our ability
to regulate our feelings. "Nonetheless we have the
potential to code, store, organize and retrieve information by
virtue of its emotional meaning for us and to analyze
this meaning rationally to make sense of our lives".
Without the dual coding, we are unable to fully utilize
our reason. Without emotion, reason does not have
a base. Without this base, we are unable to fuse various
emotional experiences into a single integrated concept. And,
if we can't do that, we are unable to form abstractions
that are a key component to effective reasoning. If
we are to learn effectively, then, emotions play
a key role.
If we reflect on the conclusions, we find critical new information
for the trader.
We should not and cannot eliminate fear and euphoria from
our trading. As human beings we will inevitably experience both these
emotions. What is important is not that we not experience them -
what is important is we use our reason to filter and learn.
e.g.
we experience fear as the market moves against us.
What is the root of this fear? Is it because:
a) we have failed to place a stop so that our potential
losses have the capacity to threaten out lifestyle?
b) do we see the potential loss too large for us - financially
and/or psychologically?
c) we don't have a trading plan?
etc.
These are good fears - they are warning bells that our
trading needs to change.
On the other hand, if do have a plan that "works" and we are following
it but find the fear is occasioned because of a belief that:
i) I cannot make money from the markets or
ii) I do not deserve to make money from the markets or
iii) The markets are a casino and long term no one can make
money form the markets
Then we have fears that need to be changed if we are to be successful
traders.
My point is emotions are a necessary part of successful trading. We need to
examine their roots and to learn from them - management not denial is the
key to the integration of emotions with our trading armory.
This level of self awareness is easier said than done; nevertheless the
effort expended to be aware for the root causes of our emotions will
more than be amply rewarded.
ray
R Barros
101/25 Market Street
Sydney NSW 2000
Australia
Voice: 61 2 92673470
Fax: 61 2 92673478
E-Mail: rbarros@xxxxxxxxxxxxxxxxxx
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