Emotions around managing risk

What would, so going back to yesterday’s lesson, what I would do is focus on one of the things that I mentioned, and that was, “what’s the emotional response when you put the risk on?” Is your right foot going at thousand miles an hour as you pump your heel down do you, do you jack up a cigarette or vape or whatever, of course I’m being a little facetious, but you can figure that stereotype out from the adrenaline junkie part of the office, how it applies to you might be in and around trust, right?

So you put the trade on and then what do you do? What actions do you take? What’s the emotion of those actions. Do you become hypervigilant all of a sudden, and you watch it tick by tick and how do your emotions change each and every tick?

Do you label the emotions “X”? “I’m exhilarated” or “I’m dejected” because win or lose everyone gets what they want. So again, my whole thesis was part two of that chapter, which was the goal is to develop a system with which you’re compatible. Is this really what you want to be doing every day? Because when I sit back and look at my early years of doing that, it’s cringeworthy ridiculous. But nonetheless, we all have to learn at our own pace. And that’s what the show’s about. Because I get to relearn things because again, I’m not infallible.

So you’ve got the risk on – you add the risk. What is the anticipation of adding the risk? What is that feeling? Because sometimes what you find out is that these emotions work in perfect compliments or they string together like a complex multi-variable, 4x cubed plus 2x squared, minus nine 9x = 7. And so you have varying degrees of these emotions that all have to line up a certain way in order for this to work for you right now. You might find that within the process, one of them is really important to you. There’s some that you want to avoid. “I don’t like doing research, so I’m going to subscribe to Action Alerts.”

“But once I put the risk on that’s when shit gets real.” Now how you respond to that might behave a lot to do with what you learned about risk: was risk labeled good or would was risk labeled bad by the people that were important to you in your life? How did they handle risk? How did they handle money? How they handle abundance, if they had any? How did they handle financial scarcity, if that was their milieu? Because if you saw that enough, that’s marketing in your very own house coming at you live every day from the people who mean the most to you.

So when you hear the expression “you’re your father’s son.” That can mean a lot of things. And I’m not going to go through the 85 different genders. You get what I’m trying to say here. They’re all important to me, but I’m going to save some time. So at the end of the day, when you put the risk on, that might be what you’re really looking for is I’m going to delegate everything else. You want to put the risk on because you’re an action junkie.

I just saw a tweet where a guy said that his sister was trading trying to scalp for 10 or 20 cents fully levered. And so there’s an emotional system that goes with that without not being judgmental, I’m just saying that’s one emotional model. So then the question becomes trust. You put the risk on, how do you feel about it tick by tick. What’s the benefit of actually seeing it tick by tick from an emotional standpoint. Again, if we’re emotional people, which we all are – systems don’t remove the emotion. How do you feel? What do you win at? How does it feel when you watch it tick by tick? Because there’s the micro and the macro. There’s the whole, I’m watching it tick by tick emotional response. And then there’s the actual feedback on the tick itself. So this stuff gets super deep. Again, it ain’t about charts dude.

This is the stuff that you can study and you can see, okay, this is what makes me tick. Why am I doing this? Because if the goal is to make money right now, you can conjugate your behavior around money and you know, behavior comes from how you feel. So let’s talk again about trust. If you don’t put in protective stops, because you’re watching it. Is it because you don’t like feeling reluctant or maybe you do like feeling reluctant? What’s the emotion around that maybe it’s about not just trust, but the trust is paired with control. “I feel like I’m more in control if I’m watching it tick by tick.” So now you’ve got the overall +/- on your P&L that’s given you an emotional feedback. You’ve got the tick by tick one. That’s given you amplified feedback. Then you’ve got the trust, which is probably the big governing issue overall in that “I can’t not watch it because then I’ll miss out on all these feelings of not watching it tick by tick.”

So if you’re into risk management and you know, you can put in a protective stop and you know that it’s a fallacy that stops get run. Market makers don’t want to buy stuff that’s going down. So stop with the stupid thinking. It’s ridiculous. Nonetheless people say these things that go unchallenged and sooner or later, it’s it becomes folklore. But what is it about the control that makes you want to see it every day or every tick? Whereas putting in a protective stop at the same spot that you would get out on a discretionary basis, what is it that you’re missing out on emotionally?

Because that’s what’s keeping the behavior going. Can you prove that watching it’s going to help you perform better? Because if you bought something at $50 and your stop was at $49.50, do you have to watch 50 $0.01 ticks? Or can you just put your stop in and say, “okay, well it’s the same percent loss.” How does that serve you emotionally? Because if you don’t study the behavior more importantly, if you don’t go to the root of the behavior nothing’s ever going to change that, I promise you. My hunch is – and I can’t be sure is – that if you’re watching it tick by tick, you might be excited about small gains.

But my ethos has always been don’t think of doing this to try to pull down 10 cents or a couple hundred bucks, think about pulling $15k out of a trade, make it audacious, make it more than what your account balance might be. Because if you can’t envision it, it’s not going to happen. And for all the R-based traders out there, you’re smart for certainly having discipline. But if you cut everything off entirely at say plus +3R – “I get stopped at 1R and I sell out at 3R” again, you can’t answer if I put you on the witness stand, “how do you achieve a 5R or a 10R trade, at least on some of the position?”

So this all comes down to how you feel about the risk that you have at varying stages of the process. And there is a combination that’s perfectly – that’s uniquely yours. That’s what I wrote in The Inner Voice of Trading. “I don’t necessarily want to trade like Michael.” I think it was like this. “I don’t want to trade exactly like Michael Marcus, but I want to feel the feelings that he feels when he is trading at his best.” You see?

I’m interested in your thoughts about this because it adds to the lexicon and as far as I know, no, one’s really speaking about all of this, but this is what makes people tick. This is what makes people do what they do around their money. And until you fully understand what the money means to you and why you do what you do around money, right?

I think you’re going to you’ll have an interesting journey that’s for damn sure. God knows I did, but I’ll leave you with this thought. If you could buy passively the S&P and get on average 20% rate of return every year for just sitting on your hands or go through active management and be a trader and get anywhere from say 15 to 20% a year as a trader net of costs and everything, which one would you do? What’s the answer for you? I can’t answer that for you, but a lot of it comes down to how do you get your pleasure and what are you looking to do? Are you looking to make money or are you looking to have fun?

So think about what trust is in your life? Because it’s in your money, it’s in your relationships, it’s in your friendships, it’s in your family, it’s everywhere. And the more you don’t address it, the trust stuff actually is going to grow. And it’s going to envelop you in more and more things in your life that are going to push that trust button until one day you become just so a person who doesn’t trust anyone or anything that you’re very, very hard to be around.

So anyway, I’m interested in your thoughts, please consider subscribing. We get some great data that helps me create new shows that are going to be worth your while and alsoI know this is important for you. So you’ve noticed that these episodes are also a little bit longer. I don’t want to be blathering because I can’t stand the sound of my own voice for the most part.

And I try to keep these quick hits at 5 to 10 minutes. Then I try to provide transcripts. So there you have it trying to do whatever I can to help you get the most out of this so that you could at least learn about yourself as fast as possible.

This is a computer generated transcript.

Subscribe to the show  

Click here to  get your free copy of The Inner Voice of Trading audiobook.

Please note: I reserve the right to delete comments that are offensive or off-topic.