Your emotions are one of the main reasons causing you to be unprofitable.
- Lost a trade -> got emotional-> revenge traded ->account blown.
- Saw a good position-> too scared to enter -> missed the trade -> got even more emotional -> revenge traded -> account blown.
- doubling down on losing trades
- cutting winners too early
- overtrading
You’re trapped in the EIA-loop: Emotion -> impulse -> action.
The solution a lot of people will present to you is:
- trade like a robot
- Don’t have emotions
But guess what? You’re not a robot. You’re a human. You have emotions. They will come up, especially in trading. And the moment an emotion hits, the impulse follows. It’s an automatic response.
So how do you control your emotions? The answer is: you don’t.
Which leads us to:
The most valuable skill in trading
The most valuable skill in trading is impulse control – which is the closest thing you get to emotional control.
Emotions lead to an impulse and that impulse is what leads to an action.
For example: you lost a trade which leads to an emotion, that Emotion leads to an Impulse, which is to revenge trade (the Action, caused by the impulse)
The goal here is to control the impulse in order to prevent the unwanted action. It’s not to not feel the emotion. So you want to work on the space between I and A – impulse-> action. This can shift from automatic response to controlled response.
You can try to go the route of not feeling the emotions, but you make this whole thing way harder than it needs to be.
How to control impulses
There are many ways to learn impulse control. Try different things, give them some time and stick to whatever works for you:
Meditation
Every time you sit down to meditate, impulses come up.
- The urge to move
- To check your phone
- To scratch your itchy leg
- To open your eyes and end the session
You feel the impulse but you don’t act on it.
That’s the whole mechanism of meditation, not a side effect.
You are practicing the exact skill you need in the markets. Got an impulse to close the position early? You don’t act on it. Got an impulse to revenge trade? You don’t act on it.
Studies show that regular meditation not only improves impulse control but also lowers cortisol (amazing thing if you trade).
Meditation strengthens the prefrontal cortex, which is the part of the brain that handles executive functions like impulse control as well as decision making and decreases the reactivity of the amygdala, which is the part of the brain that processes emotions. It also increases awareness, which helps you see your bad trading habits more clearly, also an essential thing for a trader.
In addition to that, it trains your brain for delayed gratification by resisting your immediate urges in order to gain the long term reward of mental clarity, calmness and impulse control.
Working out
Working out also strengthens the prefrontal cortex – basically the same mechanism as meditation, a different path to get there.
Pushing through a heavy set or the last minutes of brutal cardio leads your cortisol to spike, your body wants to stop but you keep pushing anyways. You are not only training your nervous system to stay functional under pressure but to control your impulses.
In this case the impulse is to stop, by pushing through it, you control that impulse.
Then there is dopamine, which gets regulated when you work out. This matters a lot because dopamine dis-regulation is the biochemical root for things like revenge trading and reward seeking behavior.
High dopamine spikes can override the logical decision making of the prefrontal cortex. So get your dopamine fixed and get your focus right.
And of course there is the delayed gratification part. You don’t see muscle growth after one session. You do the work now (consistently) and the results show up weeks later.
It’s the same in trading. You don’t make it in trading from one trade. You can’t randomly enter positions every day. The markets don’t work that way. If there is no opportunity, then there are no trades to be taken. Sit on your hands, be patient and reap the rewards later.
When it comes to trading, Impulsive uncontrolled behavior due to chasing instant gratification (but not exclusive to that) can wipe out weeks, months or even years of progress in literal seconds.
And there is this: showing up consistently whether for working out, meditation or both – even when you don’t want to, is the same skill as following your rules even when every ounce in your body urges to deviate.
It’s about following a system over a feeling.
Rest
Stress and poor sleep degrade prefrontal cortex function. Again, that’s the part of the brain you need for impulse control.
When you’re under rested the prefrontal cortex goes offline and the amygdala becomes more reactive.
Then there is the decision fatigue angle. Trading requires repeated and quick decision making while there is literal money on the line, which amplifies stress and emotions. Rest is what keeps the decision quality and it ties directly into cortisol.
Without proper rest, cortisol can spike chronically. So you’re already trading in an elevated baseline stress state before the market even gets the chance to spike up your cortisol levels further.
Trading is very stressful and can lead to burnout quickly and you might not even notice it at first.
Recovering from a stressful day, week or month takes less time than recovering from actual burnout. So take your time to rest. You’re not losing time, you’re not being lazy. You’re improving performance. It’s essential.
And let’s not forget that the whole reason you started this was to achieve freedom. Where is the freedom if you don’t actually use some of your time to enjoy your life?
This article is for informational purposes only and does not constitute financial advice.
