Plogical stress is a reaction to threat. Because it mobilizes our funds for fight or flight : to escape or confront a circumstance The majority of the time is elastic. Cognitive plogists emphasize, however, the stress response isn't just a reaction to events, but to our interpretation of these events. What counts as a threat is partly a function of our understanding.

That is very true among traders. Two market participants might experience the same market movement, but respond differently depending upon their interpretation of occasions. Though it's common for traders to blame their stress into the market activity it'd be accurate to point the finger at the way they'd processed the market movement. How traders translate market events makes the difference between a constructive reaction to adversity and an one.

Several months ago, Linda Raschke and that I undertook a poll of over 60 active traders and investors. The poll analyzed their egies to their styles, their personality traits, and trading. Unsurprisingly, was a close connection between the self-reported strain of the traders and their self-reported trading results. Inadequate trading contributed to plogical upheaval, which in turn further impaired trading. Interestingly, one of those personality traits most connected with self-reported problems from the markets was”neuroticism”, the tendency toward negative plogical experience. Overall, traders who experienced a high amount of depression, fruion , and anxiety tended to report worse trading results than those who were more even-keeled.

This finding led me to ask as to the plogical patterns that differentiate successful traders from less successful ones. Here are a couple of tentative decisions that form the basis for hypotheses for future studies:

1) Successful traders tend to be effective at activities aside from trading. Most of us are familiar with the idea of diversifiion. We don't bet all our trading capital on one place; nor can we place all our investments in one stock. Successful traders tend to be diversified in their own life positions than unsuccessful traders. They report decent involvements in their personal and social lives besides trading. This, I believe, inoculates them throughout dry spells of gambling from undue distress. Unsuccessful tradersappeared to have poor or absent relationship resides and very few involvements out the markets. In short, most of the self-esteem eggs were at the trading basket. (Over one trader confided that he couldn't believe himself a success in existence before he'd made a substantial amount of money from the markets). Such traders are apt to translate those drawdowns as threats to their self-esteem, magnifying their stress responses.

Two ) Successful traders tend to moderate their risk exposure. I found this to be eye-opening. Traders who were reporting poor trading results and high stress tended to have little account sizes, but often obtained leveraged positions and held them. Indeed, the account sizes of those unsuccessful traders were less than half that of the ones, but their reported positions were very similar. This meant the unsuccessful traders were taking on more risk (variability in returns as a percentage of trading capital) than the successful ones. Likewise, most unsuccessful traders and ones reported using a structured method. The ones , however, were more likely to have developed procedures for trades that are exiting, suggesting a greater attention to risk management. In short, unsuccessful traders experienced a response because their trading capital was threatened!

3) Successful traders tend to use some form of quantitative analysis to guide their decision making. This was perhaps the funniest finding whatsoever. Of the handful of traders who reported consistent profitability, all indied they used some form of data analysis to guide their trading procedures. Of the traders who reported persistent unprofitability, none used data analysis. Instead, they relied entirely upon trading and their intuitive feel for chart and indior patterns. Discussions with the traders indied to me the long, arduous process of assessing market data had awarded the effective traders a”sense” for market activity and assisted them internalize a feeling of confidence in their systems and methods. Traders who hadn't immersed themselves in the flow of market activity failed to cultivate this feeling of control and were prone to oscillate between the extremes of panic (”Can't pull the trigger”) and impulsivity (”I can't believe I made that mistake again!”) . The traders who had analyzed their approaches historically knew exactly how often their approaches could yield losses. This assisted occasions are construed by them as normal, expectable occurrences, dampening their stress responses.

4) Successful traders tended to use problem-focused coping styles instead of emotion-focused ones. When problems in trading struck, effective traders pretended to have reviewed their options and had egies prepared to limit their losses, undo their ranks, etc.. Losses were approved as a member of the business. Unsuccessful traders, however, often failed to rehearse outcomes, maybe because they found these to be too threatening to their egos. Because of this, they were likely to become suspended by markets moving , racking up drawdowns and declines. A number of the unsuccessful traders actually reported fair batting averages: they'd roughly as many winners as losers. The size of the average winners exceeded those of the gainers, however, due to their inability. The least successful traders of all were those who tended to ignore or deny market problems, preventing them from creating any constructive coping responses in any way. This was a common situation among investors in 2000 and 2001, who rode the NASDAQ down to astrophic losses.

The moral of the story, I believe, is that plogical mastery of the markets begins with mastery of very good trading techniques. Exercises or A few plogical approaches will not make an individual a fine surgeon or basketball player. Nor will they transform the average trader into a machine. A scientific method of trading is the finest approach a trader can embrace. If I could offer guie to traders in just a couple of lines, then it'd be this:

Risk exactly the same, little percentage of capital on each transaction and ground each trade in a historical analysis that puts the odds on your side.

If this sounds too dull, the chances are good that you're trading for ego and enthusiasm: motives aside from earning money. This will leave you exposed to the distortions of stress responses when you need your wits about you. Markets are merciless; in case you don't master the market's plogical dynamics the experts will be only too happy to take another side of your trades.

http://www.greatspeculations.com/
Brett N. Steenbarger, Ph.D. is Associate Professor of Psychiatry and Behavioral Sciences at SUNY Upstate Medical University. Dr. Steenbarger is an active trader and author of The Plogy of Trading (Wiley, 2002). He writes feature columns to the MSN Money site (http://www.moneycentral.com) and several trading publiions, such as Stocks Futures and Options Magazine (http://www.sfomag.com). These articles and a daily trading weblog are connected at Greatspeculations.com.