Staying Distant and Objective
When your money is on the line, you can't help but feel a little uneasy. What if you lose? It's hard not to put some of your ego on the line with your money, and when you lose, feel hurt. Winning traders, though, keep cool. They don't ride a rollercoaster ride of emotions, feeling euphoric after a win and beaten after a loss. They take losses in stride, but if you are a novice trader, it's hard to stay objective and completely unemotional.
The perspective you take when you look at a past setback, such as a major financial loss, can dictate how you feel about it, specifically the intensity of the emotions you feel. A study by Dr. Ozlem Ayduk and colleagues shows how the way people look back on, and think about, a past event can influence the emotions they experience (Kross, Ayduk, & Mischel, 2005). Past research studies have shown that if people emotionally distance themselves from past events, they remain relatively unemotional, and are then able to look at events more abstractly and rationally. For example, you could be self-immersed in a past setback by going back in your mind to the specific time and place where the setback took place and relive it as if it were happening all over again. If you try to remember the experience vividly, you are bound to start intensely feeling the same feelings you felt during the original experience. If you thought about how you put a lot of capital on a "sure thing" and lost it all, and how it took you months to recover, you could quickly talk yourself into an upsetting emotional state. In contrast, if you took a self-distanced perspective, you would stay relatively unemotional. How could you distance yourself from the event? You could take a few steps back and move away from your experience. You could watch the event unfold as if it were happening to a "distant you," sort of how you might watch what happens to a character in a movie.
In their experiment, Drs. Ayduk and colleagues asked participants to recall a past setback in which they felt extremely angry. Some participants were asked to recall the event by taking a self-immersed perspective while others took a self-distanced perspective. They were also asked either to take a "what focus" or a "why focus" regarding their emotions. While they thought about their emotions, participants using a "what focus" tried to think about what specific emotions and sensations they felt; they intensely focused on the emotions they experienced at the time. Participants using a "why focus" thought about why they felt what they felt, in other words, the reasons that were behind their emotions.
What's the best way to review a past setback, according to these study findings? First, you don't want to immerse yourself in your emotional past. You want to look at the past from the vantage point of a detached observer. Look at your past as if you are completely indifferent, as if it is merely a fictional character in a book or a movie that you just don't care about. Second, don't focus on what specific emotions you are re-experiencing. Instead, while you look at yourself as a detached observer, focus on the reasons that the "emotionally distant you" is experiencing specific emotions. The worst thing you can do, however, is to become immersed in the past. When people try to relive a past event, they feel upset, regardless of whether they focus on what specific emotions they experience or why they experienced them. In addition, even if you take a detached perspective, focusing on the specific emotions you experienced, instead of focusing on why you experienced them, will make you upset.
Setbacks are commonplace in trading, but you don't have to let a setback upset you. Emotionally remove yourself from the situation. Look at it all from the perspective of a detached observer, and rather than focus on what emotions you are experiencing, focus on the reasons you are experiencing them. If you can stay detached and logical, you'll stay calm. You will take losses in stride, recover quickly, and think of creative solutions to tough, complex problems. And in the end, you'll trade like a winner.