In the next part of this guide to emotional balance, I dare to describe a method that I myself have developed for my own use in more than 2 decades spent in the stock market. However, it is justified by what psychologists suggest.
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USEFUL TIPS FOR DEALING WITH EMOTIONS part 5
It’s my favorite technique, and I use it whenever I want to make decisions that aren’t related to the strategies I normally use, or when I’m trying to talk about my strategies. However, there is no obstacle to using it in every investment decision. It’s mostly about those times when turbulent emotions drive us to make irrational moves that we’ll find afterwards just as stupid, risky, reckless or even surprised that we could have done them, but we were blinded by fear or we were lost through greed. After some time of use, this technique should become a habit, very beneficial by the way, especially for frequent and fast traders.
For my own use I call it “pause“Because he literally has that character.
First: a moment BEFORE trying to implement any decision, including those driven by emotions, in particular, will be necessary grab and stop your own stream of consciousness. This means that we have to stop our emotionally flooded thoughts and reflexes, and thus let those emotions cool down for a while. This requires a certain habit of automatism which develops in the process of training. It is best to ALWAYS try to implement every investment decision, because it is never certain that it will not be overwhelmed by excessive emotions.
Secondly: if the decision goes beyond our previously agreed terms and conditions, especially when it resembles previous incidents of this type, it is a must at this point we check its rationality in our head. We make sure that it is not dictated by an emotional overflow, that it has logical foundations, that it somehow breaks through to our consciousness. If someone needs proof of their emotional “eclipses”, they can now transfer those thoughts and conclusions to paper. Our restless mind will try to deceive us at such a time in many ways, of which, first of all, the subconscious can impose an emotional push towards intuition or a pseudo-conscious decision: to rationalize, to belittle the importance, to pretend that nothing bad happens, allow the only exception, etc. We have to take back those thoughts resulting from this kind of self-sabotage, try to evaluate them. Very often, at such a moment, the body itself will give us signs that we are trying to deceive ourselves, the feeling of guilt will seek an outlet, the emotions will demand their rapid discharge, otherwise the pain will eat us up little by little. Such body shocks are a symptom that we are trying to break our own system, to do something we will regret.
ThirdlyWhen we pause in this freeze frame and admit or not admit that we are about to make an emotional mistake, we need to ask ourselves some important questions in the final act of defense.
They may look different for everyone, you can create a ready-to-use CHECK-LIST for each application. Their meaning is based on an attempt to activate a logical and analytical thought system, which is designed to break the deadlock coming from the emotions that engulf us. Only references to logic and rationality have a chance of preventing the greatest projection of our emotions. If we put our thoughts in order, there is a chance that our emotions will be brought under control.
Sometimes a single question is enough, prepared in advance, but such that it can put us in order. Example:
– Do I just want to break my rules of the game or other rules of my discipline?
– Am I sure I want to give in to this weakness and I promise myself not to regret it, especially if something goes wrong?
– Do I have a plan B in case what I plan does not suit me? If yes which ?
– What compelling evidence do I have that it is worth playing the way I plan to?
– Am I aware of how many times this happened in the past, how did it end and how did I feel afterwards?
The most important thing is that it is a question that really has a power of persuasion for us, that we really believe the meaning of, and that has real importance for us. We can ask several questions at the same time.
Fourth : let’s leave the last defensive door as we go through the above “suspension” procedure and begin to implement our decision, but still UNSURE we haven’t tried to cheat ourselves. I now use the “position scaling”, That is, the size of the planned transaction is reduced by 50-70%, taking part of the planned capital. This way, I give myself time to reflect, possibly to relieve more emotional tension, to see the reaction of the market. After all, I can enlarge the position at any time.
This kind of “suspension” technique may only last for a moment after a good practice, but in the beginning you have to work hard for your own good, develop a procedure, questions, safety barriers. Of course, you can make your own changes as a result of practice, the scheme above worked several times in my own case.
Finally, an important tip:
If something goes wrong, there will ALWAYS be a feeling of regret. And the fact that despite the whole procedure, we were still deceived by our emotions, or that we did not make a freeze frame but it turned out to be profitable, etc. etc And while the feeling of regret can be dealt with in many other ways drawn from psychology, as I will in future entries, it is important to have a well-established and reworked awareness of investing. Scaling a position is one of the best ways to do this.
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