I like this approach because when traders are all looking at the same info and coming up with completely different outlooks, it is imperative to ask what your mental state is but also the potential mental state of the market and other traders.
Same reason why sell offs are typically more violent than rallies, panic and fear.
Here’s my process and emotions (or rather emotional awareness) while I trade.
Sit down and breathe. Look at charts and observe while making sure I’m comfortable, hydrated and mentally clear.
Watch the market for at least 5-10 minutes, no trading or speculating. The idea here is to just absorb the information without bias or need. (How many times have you caught yourself saying things like “it HAS to sell off now” or “I need to make this trade a winner”?)
Top-down chart analysis to identify levels and overall trend while developing a strategy for the day.
When levels are identified and drawn, I start to focus on order flow and cluster charts to watch price action from sellers and buyers. I recently added the Nasdaq chart and DOM to gain some reference on how the markets are moving together.
Enter a trade that is inline with my strategy for the day. When I enter the market I may bid and offer multiple times to just get my feet wet. Then when my order is filled I start observing the market. I ask things like:
- What do I want to see to validate my hypothesis?
- How am I feeling already about this trade?
- Am I nervous, fearful, happy, confident, etc?
- What do I NOT want to see when I’m in this trade?
Many times I just talk out loud about what I’m seeing in the market. This step is super beneficial to me because when I say it out loud I can force myself to hear it as if another person is saying it.
Then when I’m short and I am saying “I see more active buying than selling. It seems price is hitting support at this area (go back in my charts to confirm). I feel tension in the market and the buyers are very strong right now”, it helps me process that information more objectively and trade more objectively.
- When I think something, feel something or see something I state it out loud. If I hear myself say “the buyers aren’t backing down” it gives me a chance to process that information while setting aside my emotions or needs. When I don’t say it out loud I tend to find myself immediately saying in my head “I hope it comes back or sells off.”
Even more importantly, I observe when I’m not clearly processing information and I can tell myself to sit out for a bit. This gives me a chance to get up and walk around, drink some water or look at charts.
At the same time, I also find it helpful to dive in on a smaller lot size to start monitoring my emotions and feelings.
Think of it like this, when you are in the market with a position on, it’s almost like you are turning on a monitor that shows your emotions and thoughts. It makes it real. Visualize an actual screen that is showing your mind that turns on when you have a position on. If you can look at this and watch what your mind is doing you’ll start to see many things that can easily be changed.
There is a substantial risk of loss in futures trading. Past performance is not indicative of future results. The figures here represent an opinion. The placement of contingent orders by you or broker, or trading advisor, such as a “stop-loss” or “stop-limit” order, will not necessarily limit your losses to the intended amounts, since market conditions may make it impossible to execute such orders. Please conduct your own due diligence if Futures are an appropriate instrument for you.