Understanding your emotional trading model

So all of this has gotten me to start thinking about why do people do what they do? And the ultimate, my ultimate thought on it is that people are pleasure seekers. We do things to go towards pleasure, and we certainly do things to avoid pain. And I think from what I’ve read, people actually go to greater lengths to avoid the pain than they do seeking the pleasure. So what I started thinking about last night was when you think about trading, it said that 75, 80% of this is trader psychology and emotional intelligence. And the rest is the how to stuff, which is one of the reasons why I don’t really do lots of trader videos – it’s because anything that you need to know is already out there, I don’t have to give you my tilt on it.

Maybe it would be interesting. Some of the uber-fans, thank you so much, but I just don’t, it’s not a great use of my time. And two, I don’t think it’s integral to your success. But I did think that when you break it up, you might not know this.

You might feel intuitively that we’re all running two models at the same time – we’re running what we may or may not know as our technical model, what we know how to do are tactical trading. So that’s your process. We talked about routine and rituals. But then there’s the whole part beneath that, that you may or may not be in touch with. And that is what are all the emotional inflection points of you doing what you do, because that is really what’s running the ship, especially if it’s in your subconscious and you’re not aware of it.

So let’s take a look. Let’s take an example. So the first part of the trading would be, how do you isolate and find and pan for the gold? How do what you’re going to trade? Once you’ve had to decide on whether or not you’re going to do options versus futures versus stocks versus bonds, whatever foreign exchange. That’s one decision. So what is the emotional payoff of making that decision? And how does it serve you then? There’s the point of, okay, now I’ve picked my asset class. How do I isolate the names that I’m going to eventually look at and put on what some people call their wishlist? There’s another emotional bogey right there. What is that for you? What is that emotion and what is it on a scale of one to 10?

Then somewhere in there – and this is not in any particular order, but it kind of is what are your rules? Because now you have to start looking at the tactical part of it. Of how do you enter risk? How do you choose the position size? Where do that you exit? So that too is tactical, but it also gives you an emotional angle.

Then the next stage is once the risk is on, how do you feel about it? What’s the emotion there? Is it excitement? Or do you just not care? Because it’s just another day. That’s where I am. I don’t care. What I care about is the process, the overall discipline in the process. I don’t care about any one particular part, but nonetheless, some of you are where you are.

So now you’ve got the risk on emotional feedback system. How do you feel about risk? Are you watching the thing, thinking you can steer it or do you put your stops in and walk away? Because those are two different levels of emotional intelligence, not to say that the feelings that you’re feeling aren’t important and they’re not strong, they probably are. All right. So then you get to the point where you’re offsetting the trade. How do you feel about knowing how to keep losses small? Because there’s an emotion to the intellectual side of it. Then there’s also a big emotion to actually doing it in practice.

So we’ve covered the research, the risk on the risk management, the risk off. Then there’s the emotion of the aftermath. How do you feel about the trade itself? How do you feel about how you handled yourself doing the trade and how do you feel overall about being a trader or trying to manage risk? There’s an emotion to that.

So if you take away all the tactical stuff and you look at your emotions from each of those stages, that’s your emotional model. That’s, what’s running the show and you need whatever degrees of strength. So you can study this and then figure out how you’re built. A good example of how you can use this information is if you look at the very first step, some people are not that technical and they’re not really good at analysis. So what do they, you got it: Cramer’s Action Alerts. And in my opinion, you can’t buy your way out of that part of the business. You can use it to accent certain things, but ultimately you have to make a decision. So to me it creates extra work. So say you buy Action Alerts. And again, I’m a, I’m a Cramer fan. I always laugh at the assholes that blame Cramer for their failure. I was like, come on. In fact, what I say to Jim is don’t even reply to these people it’s beneath you…

But nonetheless, you farm that point out part out, because you’re not really great at analysis. You’re good at marketing. You might be good at adding and removing risk. You might have a good sense of timing that’s okay. But when you look at the model from an emotional standpoint, you can learn to highlight where’s your strength and where your weakness is.

Then again, I’m thinking from the 30,000 foot view, you could write down what’s the emotion of the need to watch it during the day. How does that feel? What is that feeling? What do you think? How does that feeling serve you? That’s where everyone falls short in my estimation is that they don’t ever ask you to evaluate what your feelings are. Like your feelings are trying to communicate to you. They really want to be advocates, not antagonists. So what are you, how are you talking back to these feelings? Are you resenting it? Are you going to try to bull through? Because I’ve got news for you. They ain’t going away. In fact, they might amplify until one day, you’re really faced with a “do or die” situation where you have to face that feeling. Hopefully it’s not when you’re in a 70% draw down…

Hopefully it’s not. After you thought that you could delegate all your wisdom to f*cking wall street, whatever on Reddit you see. So how does that feeling serve you if you farm out that part of your business, as opposed to doing it yourself, because then the whole system to me could collapse because if you don’t know what you’re doing in terms of picking your own names, how do to get in? When do you get in and at what price? How much do you have when do to get out? So as if you’re subscribing to a service that might be fine, because you say “well I suck at analysis and the research” so I need somebody else who’s got better skills than me to find the names that I would put on my wishlist. I’m fine to trust other people. Here’s some money for that.

Okay, perfect. But now you have to look at your higher power in the eye and say, okay, now how, how am I going to select from these 20 names? Which ones do I pick? Because that’s your responsibility. How do you feel about having that responsibility and what happens when you pick one and it doesn’t work? Is it Jim Cramer’s fault or is it your fault and how do you feel about taking on that responsibility? Is it your action when you make money, but Cramer’s fault when you lose, because that’s how a losing trader would think. How do you feel about being a losing trader and then what are you willing to do once you get all this information to change that? So now I answered the question. Why don’t you do trader videos? Because it’s not about the chart pattern. It’s about ownership. I said before kind of mockingly, every wants to quote Goggins and Jocko, but you have to live this – not be a sloganeer.

It’s not just about making quotes and sloganeering on Twitter. You gotta actually live it. And it’s hard. Trading is very hard because it goes against every bone in your body – “fight or flight.” Most people are not built for trading, but I’m not going to try to stop them from trying because I’m not a dream killer, but this is a good first step to kind of start to isolate.

How does the whole process serve you? Because those emotional tugs and pulls and otherwise are what really make you tick. The interesting part now is to say, well, which of those feelings are part of your conscious and which are within your subconscious, because those to me are the ones that are really running the show where you get a certain result. And you’re like, why does this keep happening to me? When that, when you say that to yourself, it’s probably because whatever you’re doing is being triggered from something that you learned from growing up or in your environment or from the people that are around you now and it’s dominating your behavior.

It may or may not serve you, but it’s going to keep happening until you address that. So this is what we focus on here because you’re not going to make any progress until what this model is. You could try to fight it. You could read another book, you could take another course, look at another trader’s results. And it’s ridiculous because even if I showed you how I traded, there’s no guarantee that you could ever replicate that because it’s customized to me, right? Just like if you go to Turnbull & Asser on 57th street and get fitted for a shirt or suit – they’re going to literally do 26, 27 measurements. And tailor something that fits you to a T. That shirt as nice as it might be isn’t going to fit me. Even though it costs $300-$400 shirt, you see what I’m getting at. So this model is uniquely yours. It’s not necessarily a weakness. It could be a strength, but if you’re not aware of it, then it is probably a weakness because you don’t know what makes you tick.

So this to me – I’ll go out on record saying this – is probably the most important episode I’ve recorded here before. And some of you might agree, some of you might disagree. But this is my paradigm in my belief system. I’m always interested though, in whatever points you want to make and feel free to write in because I’m not infallible. That’s for damn sure. But I’ve spent…this is my life’s work right here is knowing the inner game. And if you haven’t addressed that part, you find yourself struggling, this might be a good lesson for you to start doing the work on because I believe from a very Buddhist standpoint that men, women and non-binary people are the source of their own problems they’re suffering.

This is a computer generated transcript.

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