Documenting Your Trades: The Path to an Edge

psychology Dec 24, 2020

From Dr. Woody Johnson, Trader Psychologist

This evening I began thinking about a horrible decision I made that took a big bite out of my stock account due almost entirely to… greed! Yeah, you read that correctly. Dr. Woody here apparently missed my own medicine and allowed emotions to hijack my process.

Like watching a horror movie where you know the monster is hiding behind the closet door, you watch the unsuspecting guy (me in this case) put his hands on the knob as you scream “no don’t go there!” I never heard you as I went there and was summarily attacked by the vampire of a monster who is not scary looking – on the contrary by outward appearances is usually quite attractive and seductive until s/he exposes those fangs - comes out of nowhere and even before you can react has sunk its teeth deep inside from which you are no match because you were caught unaware.

Now, I know that my tools would have helped me fend off this greed-monster, but at that moment I was seduced by the allure of what greed promised. At that point I was a goner. Now if this seems all too familiar, in this several part Blog posting I'm going to show you how to effectively ward off the emotional monsters that are lurking at every turn. They will destroy your account if you don't learn to manage and regulate your internal data.

If you’re currently trading or investing and educating yourself (whether organized or the school of hard knocks) to gain market knowledge and profitability, then you’ve heard about measuring and documenting your trades.

What gets measured gets improved. In other words, documenting the data of your trading is essential to becoming consistently profitable. Additionally, as you track the data of your trades it’s important to have a scorecard for both types of data.

OK, you may not know what I mean by that. Well, there are basically two domains of data in trading: one domain is comprised of mechanical data. These are data that most traders will track, if they track at all. These data are made of your actual trading mechanics or execution-oriented charting, news information, processing, analysis, entries, targets, stops and exits, to name a few.

Now, the other domain of data is just as important, but many traders around the planet don’t even think about this unless they find themselves in a panic over a loss. These data can be described as “internal” data which are essentially your personal thoughts, emotions and behaviors.

Essentially your thoughts and emotions or feelings, are driving what you do “as you panic” and thus create your trading results. You must attend to these data because they are involved with every trading decision you make.

Now, the only way you are going to ever get consistent in your follow-through and hence your trading results is to manage these internal “fear and greed” type of sensations is to 1) become aware of them and how they can take over, 2) learn to manage them through self-regulation, and 3) in order to successfully attend to the first 2, you must measure and track your responses. It’s that simple, but don’t be confused, it’s not easy. Want to know more? Stay tuned for my next blog post.

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