ES Friday 8-1-2014 : Hot Topic

In An Objective State of Mind


In An Objective State of Mind


As you trade, have you ever heard a little voice inside talk about only what is going wrong? As the market moves against you, the voice whispers, “My money is on the line. What if I lose? What am I going to do? How will I meet my financial obligations this month? I need to win.” The little voice moves you away from your ongoing, immediate experience to your emotions, what may go wrong in the next minute or next month. But when you focus on emotions, it’s easy for panic to set in. It’s almost impossible to completely forget the personal reasons that we trade. We trade for status, money, and the prestige of winning. When we focus on these personal motives, and evaluate how we’re doing, however, it’s hard to stay objective. When the market moves against you, you cringe a little. When you get catch up in the emotions of an event, it’s vital to return to an objective state of mind.

As you trade, your mind has two different dialogs. One is emotional while the other is objective. It’s useful to separate the emotional mind from the objective mind. When you’re driving or playing sports, you usually focus automatically on your objective state of mind. Unless you are an angry driver, ready to show road rage at the slightest perceived offense, you usually take it easy and maneuver your car away from obstacles. It’s the objective state of mind that you need to cultivate. Suppose you were driving your car along a winding road. Would you want to drive emotionally, or would you want to focus intensely on making each turn? Ideally, you would turn off your emotions and focus on acting astutely and decisively. You would focus on solving any major problem that may come up, such as avoiding an obstruction in the road. It’s useful to take a similar approach to trading. Tune out the emotional voice, and focus intensely on the objective, rational voice.

Turning off the emotional voice isn’t easy, but with practice, you can do it. Practice putting your financial goals out of your mind. You might try saying to yourself, “I’ll think about the consequences later. Right now, I’m going to focus on observing the markets and solving problems.” Take action. Don’t mull over a potential mistake or what should be or might have been. When you shut out the emotional voice, and concentrate intensely on your ongoing, immediate experience, you’ll feel more in control. You’ll find that you trade more calmly and rationally.

If you want to trade objectively, it is essential to develop and trade a detailed trading plan. If you have a detailed trading plan, you can focus your attention narrowly on executing it. When you have a vague trading plan, in contrast, you must do more thinking. And when you think too much during the execution phase of trading, your mind is likely to wander. You are more likely to focus on the emotional consequences of losing, and at that point, you will lose focus and your ability to concentrate fully. A detailed trading plan, in contrast, allows you to focus on the next step, how to solve problems and taking specific action.

Don’t let your emotional mind take over. Winning traders are calm and rational. If you can trade with a detailed trading plan, and concentrate on executing it, you’ll increase your odds of taking home huge profits.