I deal with stress and doubt by trading rule-based strategies that I don't allow myself to alter during the trading day. If you know your methodology is robust, it reduces anxiety considerably. It does not remove anxiety completely (it's a chronic condition), but can allow an emotional, manual trader, the ability to sit back and let the day unfold, without sweating bullets.
Not everyone is meant to trade discretionarily, and I place myself in that category. Of course one can become better, but there is an innate predisposition to the best discretionary traders that most do not, and will never share. If you struggle greatly with doubt, fear, stress, anxiety, or any combination, give some consideration to the idea of automation, or at minimum, rule-based trading.
The good news is, one can develop rule-based methodolgies that are extremely rewarding.
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@zer0 - thanks for pointing out that the stress of the trade never entirely goes away. I completely agree. Whether automated or discretionary once a trade is on our body reacts. Our heart races and are minds become frantic. We go from being completely rational (what psychologists call the state of being offline) to being online. In other words the you who is in a trade is inherently different than the you who is not. This explains why we will sometimes make completely irrational decisions (like pulling stops, taking early profits) while in the trade and later we examine these actions with complete disbelief.
There is one other bias that affects us as human beings and is hugely influential. We have severe loss aversion. Losing $100 is approximately twice as painful to us as winning $100. Think about that.
The big thing that I've been working on for my own trading is how do I deal with the Dr. Jekyll that I turn into while trading? No amount of contemporizing or rationalizing while in my offline state will change what happens when I place a trade. This is where my suggestion of mantras and mental exercises comes in handy. Try to break the chain of your destructive mindset while trading by distancing yourself from your thoughts.
These tools are excellent long-term catalysts for trading change. However, since trades can and do happen quickly it is important to have a tool to quickly adjust your mindset. Try some belly breathing exercises while you are experiencing stress in your trade (perhaps you are thinking you are not good enough or you are about to pull your stops). These are the same exercises recommended for people who are experiencing a panic attack and from my own experience I would say they are highly effective.
Where innate predisposition ends, learned behavior can begin.
I wrote in another thread how I would/still do catch myself worrying about the trade (in both directions).
You can only beat yourself up so much until you learn to catch what you are doing wrong and put
a stop to it immediately. Some people write notes (Paul Tudor Jones - 'Losers average losers') and
others use a vocal command response (VCR) which originated in Navy Seals training although
it was probably already in use and people didn't even realize it. Other ideas are to put $1 into a
jar every time you catch yourself overly thinking when you should be letting your system do the work.
Rubberband on the wrist is another one. Personally, I catch myself and simply say in my head, "Stop, let
the system do the work". Oddly enough, my brain understands and it works.
The brain should work before the trade and after, but never during IMO.
Of course this isn't easy, but it can be minimized.
I don't think there are any secrets, but I'm just an average dude.
Yes, one can certainly improve, and change is undoubtedly a worthwhile pursuit; so long as expectations are managed as well. Some are naturals, but others must work for it. I know myself, and this forced me to work within my own limits. I do not have the genetic makeup to perform as a calm and collected discretionary trader. I have, however, learned to control my emotions well enough to follow explicit sets of rules of which I have assembled. Knowing that my methodology is robust affords me discipline. That too, however, can still be challenging at times. Anyway, I would encourage anyone to do whatever they must to grasp control. In the end, it is a requirement for anyone at the helm.
My personal belief is that no one is born with the genetic makeup to perform as a calm and collected trader of any kind. The market moves because our natural genetic (and it isn't just humans monkeys do this too) impulse is to trade irrationally. Trading intentionally and doing what is emotionally most difficult is they only way to win as a trader.
If you believe that mechanical trading is the best for you then that's great. But don't tell yourself that you are a mechanical trader because you are a weak person who isn't good enough for discretionary trading. That is a negative mindset that will not advance your trading in any fashion. Tell yourself that you are mechanical trader because you have the discipline to test your systems thoroughly and the trust to let those systems operate without your intervention. And when ultimately that system needs retesting or reoptimizing you do that too - but not out of frustration but because that is what you know makes you a successful trader.
Actually I would say that we ultimately have no control over the markets. The markets do what they want. The only thing we can control is how we react to what the markets are telling us. When I put on a trade as a discretionary trader it is no different than as a mechanical trader. My methodology tells me that this is where I enter. And then from there the market does what it wants to. My methodology tells me when to exit the trade as a winner, my methodology tells me when to exit the trade as a loser. My only intention when putting on a trade is to follow my methodology. Not my ego. Not what I think the market wants to do. Not what I fear. No - only what I have tested and I know has an edge over a series of many trades. There is no mystical difference between discretionary and mechanical trading. As a discretionary trader I push the buttons based on what my system tells me. As a mechanical trader you let the computer push the buttons based on what the system tells you.
The following user says Thank You to eudamonia for this post:
I'm not sure I agree with this assertion. Are some people born with more predisposition for emotion than others? Or does the environment we are raised in have some influence on our emotional state? Based on the research done regarding nature vs. nurture and my own personal observations I would say that emotions are something everyone experiences. How intensely they choose to feel these emotions and how they manage these emotions is largely based on our environment and how we've learned to process these emotions. The key to successful trading isn't to be an unemotional risk taker but to be someone who can feel those emotions and risk and still remain objective while in the trade.
I'm glad to hear you've found what works for you.
What exactly though is this "huge difference" between making decisions on the fly vs. having a computer take the trades? How is it self-evident?
A mechanical trader might develop their system to make decisions based on a repeated historical event. They might then run this through a heuristic process to optimize decision making based on a set of criteria (a fitness function). They would then test this process on out of sample data to ensure that it is non random. Having created and tested the system it is turned on live. The mechanical system then makes real time decisions automatically based on the criteria previously developed.
As a discretionary trader I develop a system through making thousands of observations based on historic or real time data. I run these observations through my own heuristic process to see if I can identify a common pattern in a way that will meet my own trading criteria (essentially a fitness function). Then I test this process in real time (on out of sample data) to ensure that it is non random. Having created and tested the system I go live. I then trade my discretionary system making real time decisions automatically based on the criteria I previously developed.
This is not to say there aren't different skill sets required by these approaches. One requires the ability to understand math, statistics, and programming while the other requires the ability to make quick observations, understand patterns, and execute reflexively.
In any event I totally agree that both approaches are equally legitimate ways to trade assuming you know what you are doing.