Tuesday, October 25, 2016

Improving your emotional control

A few weeks back, a trader friend of mine sent me the following message: "Just had my best ever trade...well, was a full -1R loss in record time!"

When I read this I thought he was being sarcastic, however he went on:

"There were f*** all emotions. Didn't hesitate on the exit, didn't think - just acted".

I've known my trader friend for a few years now. He actually has more experience in the markets than me, and has developed his own method, but he is continually learning and trying to develop himself as a trader. He has also been consistently profitable.

So why did he think this was his best ever trade?


Over the last few weeks he has been devoting his time to improving his level of emotional control. He has created a diary that he keeps open throughout the day, recording his thinking, emotions and responses as and when they occur. This can mean there are several entries in his diary each day.

This is similar to something another trader I mentored did a while back. He also kept a diary - rather than track setups, entries and exits, he was solely focused on recording his emotions and his thought processes. He did this for several months.

When he went on holiday, he took the diary with him to review. What he found was that, in that period, his way of thinking and his level of emotional control had completely changed - for the better. He had developed his mindset so that he was able to let the market do his thing, and accept that micro-managing his positions was detrimental to his trading performance. As he told me afterwards "I cannot believe the way I used to think!"

Anyway, back to my friend. As part of this process, he found he was following the markets way too much throughout the day. He has developed his own method over time and trades off the daily timeframe. Therefore once trades have been placed with stops and profit targets set, he doesn't need to follow every tick in the market.

Being able to wean himself off of following the markets so closely would also help him with controlling his emotions and stress levels - and avoid the potential for overriding his rules, which has happened in the past, creating a negative impact on his results.

I should also say at this point that my friend has extremely good risk control. It goes without saying that being strong in this area also helps to alleviate negative emotions and stress.

One day shortly after sending me that message, he sent me another: "Today's the first day ever I've been up about an hour and haven't even looked at the markets yet" he stated triumphantly.

Well, this was a good opportunity to give him a little test. So I sent him this reply:

"You do know that the markets have cratered overnight. FTSE and DAX have gapped down big time due to news in the Far East".

In actual fact, they had gapped up. I also knew he was long a few positions, so I was curious to see what response I would get.

It didn't take long (about a minute!) to arrive...

"F*** you. I had to look after that. I obviously still need some work. My heart sank after I read that."

I thought this a bit odd, as he wasn't trading the indices themselves anyway. And it doesn't automatically follow that, if the indices are moving down, that your own positions are also moving down.

Yes - it was a bit of a prank. But there were some important lessons here.

I referred him to the Paul Tudor Jones' interview in Market Wizards, where Jack Schwager talked about Jones' mentor, Eli Tullis:

"Perhaps the one trait of Tullis that made the greatest impression on Jones was his steel-hard emotional control. He recalls how Tullis could carry on a polite, relaxed conversation with visitors, without blinking an eye, at the same time his positions were getting decimated in the market."

As I said to him afterwards:

"The thing is, once you are in a trade, and have placed your stops and profit targets, you cannot do anything. You have to let your method play itself out. You can't control the market (i.e. all the other market participants and their own buying and selling). You've kept your side of the bargain. Now you have to wait and see what the market decides to do".

Given his level of experience, he knew this, but until recently, deep down I'm not sure he truly accepted it.

He is continuing to update his emotions diary, and the number of 'negative' emotions he has recorded (which he highlights in red) have continued to fall, and they are now very few and far between.

He has coupled this with a more critical regime of reviewing his trades and performance, and as a result he is finding out a lot about himself and his trading, and identifying areas for improvement. Some elements which he was doing on a discretionary or irregular basis have been identified, and he has now been able to 'formalise' them and incorporate them into his trading plan.

He has thanked me for helping him, but in reality I've done very little apart from asking a few questions which makes him think.

He's the one who decided to accept responsibility for his actions, and has got the desire to improve - and that can only come from within. And, he has shown the commitment to recording everything and creating his own feedback loop.

Is it a lot of work? To some, maybe. But I believe you can only improve as a trader if you can do the following:

  • be honest with yourself - don't sugar coat your results or performance;
  • identify issues or areas of concern;
  • create a plan to eliminate those issues;
  • act on it and follow through;
  • review the results of the changes;
  • and then continue to go through the same process on a periodic basis.


  1. Great article. Thanks Steve!

  2. Thanks for the great post Steve! I also had a similar breakthrough when I finally accepted that micromanaging trades was hurting my performance (it was also stressful and unrewarding in other ways too). So I think you hit the nail on the head when you said that once you've entered the trade and set your stops, there's nothing else to be done! Sit back and relax. The Tullis example seems to be something to aspire to. Thanks again!