Emotions and Trading

Site Administrator | January 19, 2012

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TraderTalk 1/19/2012

Chuck Crow –

Alex Wasilewski –

Sean McKissen –

How did you get your start in the markets?

Alex – I got my start a long time ago as a New York police officer.  I placed an order for soybeans, and that’s what started it all.

Chuck – My father came into an inheritance and split it up amongst myself and my sisters and introduced us to his broker out of New York.  That was at a time when you really couldn’t miss on most stocks.  Even a 10 year old like myself could trade that market.  Then in college, a friend of mine introduced me to the futures market.  The market in the 2000s was a bit more interesting to say the least than the 80s and 90s market.

Sean – I started trading at 15 or 16 and my girlfriend’s uncle was a broker.  I eventually opened an account and tried to learn how to trade.  My first trade was a soy bean trade as well, and now I mainly traded stocks and futures.

How would you compare the emotional swings when you first started trading vs. your current emotional mindset now?

Sean – when I first started trading, I wasn’t afraid of it at all. But once I went through a phase when I blew that account out, I found that I was taking the trading way too personal.  If I lost money I took it way to hard, if I made money, I was way too excited.  Now, I’ve learned that its very important to stay in a medium mindset.  Its easier to stay in an emotional low, but I really only get mad at myself now if I take a trade and don’t follow my rules.  The main thing is getting my emotions to stay in the middle no matter if it’s a winner or a loser.

Alex – I still go and do an analysis of myself and what makes me a good trader and a bad trader.  My college training was accounting, but like I said, I went into law enforcement, I became a pilot.  If you’re an accountant, your balance sheet has to be the same, in law enforcement, you either arrest someone or they get away.  In trading, there is no black or white.  It is a different skill set in trading.  You deal with a lot of uncertainty.  I accept the risk of the market.

Chuck – I was really not paying that much attention to the market, but as I got into futures markets and being a lot more active in the market place, you really control that need to micro-manage a trade.  I find myself standing up and walking away from the computer, then coming back a few minutes later to check on things.  For me, I found that I make much smarter decisions when I’m not in a trade.  I plan out what I want to do with a trade before I get into it now.  There is greed and fear while in a trade.  Trust the evaluations that got you in the trade. Be smart about it.

What adjustments have you made to your trading methodology to deal with a news driven market with volatility?

Chuck – Recognizing that we trade numbers. As traders, if the market goes up 20 points in the S&P, does it really matter?  Does it change the outcome of your trade?  A news driven event, often times is looked at as a reason, but more often than not, it is looked at as an excuse.  I think there is almost too much emphasis put on the news.  Some items that come out of left field and affect the market have a huge reaction.  But you know hours in advance about jobless claims news.  That’s more of an excuse than a reason.  I want to step away from the idea that these markets are news driven markets affect volatility.  The news items that we’re looking at primarily are not things that aren’t expected.  We put too much emphasis on the news.  I’m going to trade the numbers, not the news.

Sean – Really, news just adds more confusion to the process, especially with day trading.  If it’s a big announcement like a Fed meeting or such, I might stay out of the market, but I agree with Chuck, we know the news before it happens.  I do better when I don’t follow the news.  The anticipation of the news can move the market more than the news itself.

Alex – The first thing I do is I don’t put orders in before an economic release.  The principal there is to let the market digest it.  The news event validates their directional prior to the news.  When I worked at Merrill Lynch, there were the traders, the analysts, and brokers.  The analysts where supposed to tell us what the news would do, but they were never right.  I decided to be risk averse.  I would say as a professional trader, I’m more of an accountant than a gun slinger.  Watch how the market reacts to the news.

What is the biggest struggle that you have faced as a trader and how did you overcome it?

Alex – I have a lot of clients who are engineers, and I always tell them they are going to struggle.  Most engineers and pilots that are traders have the most struggles.  When they get stopped out, they re-adjust and then end up losing.  Psychological coaching works over time.

Chuck – I think Alex hit on it.  The idea that you mess up and you go back and try to change everything. One of the things that you have to accept as a trader is that you’ll never be 100% accurate.  There is always a risk of loss. Everybody is going to have losers. I’ve got to be able to distance myself.  I need to put the trade on, put the stop in, and then walk away.  Traders always like to be in control, and sometimes you just have to let it go.

Sean – When I first started, I was way too aggressive.  Not just with trading, but with everything in my life.  With the market, being too aggressive can put your focus on the wrong things.  There are so many websites that make trading look easy, but it doesn’t work like that.  It takes a lot of time and failures to become eventually successful.  Don’t put too much value on indicators.

Alex – What advice would you give to a new futures trader? It is stressful.  There is a high failure rate.  And there is no indicator that can tell you whether to go long or short.  Forget about profits in the beginning, the next thing is be accountable.  Don’t tell someone you’re making money when you’re not.  Write out your trading plan and have a friend, spouse, whoever, go over it with you.  Did you follow your plan? Treat it like a business.

Sean – Does psychology still play a role in using a system to trade?

The psychology of my entry does not.  The entry is the entry.  You’re better off entering your targets and leaving the room.  You have to follow the rules and not get tunnel vision.  I’ve seen very calm people, calm with everything in life, put on a trade and become a wild man.

Chuck – How do you factor market correlation into your daily support and resistance levels?

In some markets, it can be an important pivotal thing.  For instance, we look at the Dax to see what is going on with the Euro stocks.  You want to look at how those markets are moving together.  Trading is not an exact science.  One of the reasons that a lot of futures traders focus on the E-mini S&P is because it is a very big market.  There is plenty of liquidity.  It is an extremely liquid market, pulls down a few million contracts a day.  That market can stand on its own, but if I’m trading the Dow, and its coming up to 125.64 as the high, and do we thing its going to come below the 125.50.  I want to correlate it with a few other markets, like the Dax.  How does it compare?  Does it provide support?  Then you look at the Emini S&P.  How the markets react across the board gives you an indication of how the market reacts.  You look at the way they line up and see the support levels and if they hold.  Finding those correlative levels, from market to market, adds weight to what you’re looking at in the individual market that you’re trading.

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Risk Disclaimer: Past performance is not indicative of future results. Futures trading involves substantial financial risk. Views of guest commentators do not represent those of  Article intended for educational purposes only and not meant in anyway as a solicitation to buy or sell certain securities.  Please consult your personal financial advisor before using this information for your own trading purposes.