Wednesday, December 12, 2007

Emotions as Information

Start with a premise: Suppose you were empathic and could experience the emotions of the trading crowd.

You could feel their fear.

You could sense their greed.

What they felt, you felt.

If that premise were true, then emotion would not be something you would fight, ignore, or minimize.

Nor would emotion be something you'd blindly follow.

For the empath, emotion would be information: valuable information. It would be an indicator no less than market price or volume.

How would it change your trading to view every trading emotion as information to be scrutinized? How would it change your experience of your trading?

Amazing what a difference a premise can make.

RELATED POSTS:

The Fallacy of Controlling Emotion

Somatic Markers and Trading Decisions
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5 comments:

Anatrader said...

Brett

Following on what you define emotion as information, perhaps another way of looking at emotion as information would be 'good emotion'.

Eg when a lady walks in the dark street and encounters two men, her first instinct is fear which is good emotion as it is a beacon of possible danger.

The two men may turn out to be two harmless old men, and therefore, if the fear continues, then she is responding to some past subconscious experience. She is thus responding to her 'rat brain'.

Adam said...

Brett ~

By lovely coincidence, last night we watched the brilliantly composed Wim Wenders film, Wings of Desire, for perhaps the fifth time. This poetic movie set in pre-1989 Berlin, features Peter Falk playing himself. In it, angels are empaths and feel the emotions of mortals: joy, grief, wonder, depression, elation, sadness.

The Berlin Wall is a mighty metaphor for this empathic condition angels long to escape; at times the “information” is too much for them to bear.

Experience has shown that one’s emotional condition plays more strongly on trading behavior and results than is true in other lines of work. And as trading is much like looking into a mirror, the feedback loop created seems to amplify feelings, creating self-fulfilling prophecies.

A couple years ago, after rereading that famous interview with Ed Seykota, I began adding notes to my trading diary: “Depressed about loss on XXX,” “Confused by results on XXX,” “Brilliant day, everything worked,” etc. Looking back through the pages, it’s clear that emotions felt and how one responds to them is hard-wired to profitability.

Holding one’s emotional life at arms length and seeing it as a prism through which “information” is diffracted is challenging indeed, perhaps made more difficult by the nature of the game we play. But it does seem worth the effort. As Mr Seykota said when speaking of a trader’s emotional life, “Everyone gets what they want out of the market.”

Adam.

Zach said...

Excellent posts

I use my emotions as a gage to measure sentiment. I base it on the premise that humans will react to the same information similarly.

The hard part is not acting on your emotions all the time, becuase you are subjected to the same urges as every other trader.

Brett Steenbarger, Ph.D. said...

Hi AnaTrader,

The construct of "good" vs. "bad" emotion itself is an artifact of an emotional judgment worth reflecting upon.

Brett

Brett Steenbarger, Ph.D. said...

Hello Adam,

You really should be a writer. Great phrase: "Holding one’s emotional life at arms length and seeing it as a prism through which “information” is diffracted". That's really the essence of being a self-aware trader, rather than a reactive one.

Brett