Edge and Emotions

Simply, an edge gives you an advantage in a trading opportunity on a generally consistent basis. It does not guarantee an outcome. It does not give you control of an outcome.

In trading, our emotions gift wrap our perceptions and thinking. Even when we can see through coloured lenses, logic may still lose the contest of will, and we execute a trade to our eventual regret. If we cannot often enough subscribe successfully to an objective faculty, how do we claim a mental discretionary edge? Can we subdue the emotional beast before it deludes us and tears away our self respect?

A simple solution is the use of a list – a list of processes – steps or events to be ticked off before we progress from one step to another. The list may be complex or simple, and easy to use. However we forget a list is effective only if the user is motivated to use it. A trader with a limited, highly strung budget, and the stress of bringing home income for his family will be besieged with pressures from many fronts. For him to adhere to the discipline of using a list – no matter how simple – is a terrible struggle – and if a struggle persists – more emotions will fall into the fray. But what if we can change our mental state – ie. our emotional state – we recognize the first steps of disconcerting emotions – and we block them or change them …

But why are we unwilling to change – because we think we know better than the system we design? Because we wish to take a gamble? Because we know our system is short of certain advantages we possess (we think we know better in some circumstance). Because we use discretion to augment the shortfalls of our systems?

Or are there questions we have no clarity on.  Are 5 min momentums worth the risk – do they have a strong edge or are still subject to unpredictability?   Do we want a relatively consistent system that sometimes misses opportunities or do we value our need to be correct and take as many opportunities as possible.

Even if we know the answers and work arounds to many concerns – our minds can only see “a few pages” of the thick book that is made up of our conscious and unconscious intellect at any one critical point.  So we call it an optimized solution  – if this is what you can accept, it ends here.  (Otherwise maybe, one day I be brave enough to write on googling the unconscious, and we can reclaim this discussion.)

Updated (2019)

On managing trading emotions, it is easy to divine the causes and problems.  The possible solutions are as many as there are traders.  For me personally, emotions over longer term investments are easiest to manage, followed by 4 hourly to daily timeframes.  For 15 minute charts, I had no successful intellectual solutions – I could just suddenly manage the thoughts and stresses – it is like someone had switched on the light in my mind.  For 5 minutes strategies, I am still gasping with emotional control.  I may just give this last one up, and not waste time on it anymore.

Important follow up link – why-i-could-not-stick-to-a-trading-plan