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Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30+ years of stock market experience and widely regarded as a leading expert on chart patterns. He may be reached at

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Bulkowski's Trading and Emotions

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Busted
Patterns
Candles Chart
Patterns
Event
Patterns
Small Patterns
Market
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 02/27/2017
20,837 15.68 0.1%
9,474 52.57 0.6%
696 -3.49 -0.5%
5,862 16.59 0.3%
2,370 2.39 0.1%
YTD
5.4%
4.8%
5.5%
8.9%
5.8%
Tom's Targets    Overview: 02/14/2017
21,150 or 20,000 by 03/15/2017
8,800 or 9,700 by 03/01/2017
700 or 640 by 03/01/2017
5,950 or 5,650 by 03/01/2017
2,400 or 2,260 by 03/01/2017
Indus strength: None YTD
Mutt Losers: None YTD
Mutt Winners: None YTD

Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information.

 

I remembered day trading when I was mad at the world. I said to myself, "I don't care how this turns out!" and took too many trades that I would never have made when I was feeling happier. The same thing happened when I felt as if I could conquer the world. I took every trade believing that I would win big. On some trades I made money and on some I did not. I would have done better by not trading under those circumstances. Perhaps you have similar tales.

Your emotions affect not only you, but others around you. Try this simple experiment. Smile at the next woman you meet (this works better with women). My guess is they will smile back at you. That simple gesture will brighten your day and theirs, too.

The same can be said for times in which you feel upset. It is contagious. If you are tense, you will pass on that feeling to others. If you stick out your tongue at the next person you meet what will happen? They will either stick out their tongue, too, or punch you out. Perhaps I have strayed a bit from the pack on that example, but you understand what I mean.

The emotions you feel affect your trading just like a pretty woman smiling at you in the grocery store affects your emotions. A bad trade may make you angry, and that anger could cause you to make more bad trades, snowballing until you are a stressed out wreck by the time the trading day ends. Strong emotions can cause you to lose focus, making you more likely to ignore trading rules. And that can lead to trading mistakes, perhaps costly ones.

Basket Case Bob

Now we come to Basket Case Bob.

It would be generous to call Basket Case Bob a miser. He takes two-ply toilet paper and separates the layers to make them go farther. He adds his trading winnings to his rainy day fund, a fund from which he never withdraws. "Why not spend some of that money and take a vacation?" He turns white as a sheet and grasps the desk to steady his balance. Just the thought makes him feel as if he is about to pass out.

When his one and only friend, Joe, needed an expensive operation which he could not afford, he dipped into his rainy day fund and paid for Joe's operation.

And then Basket Case Bob turned into Santa Claus. "What do I do next?" he asked with excitement bubbling in his voice as the world smiled at him. He put 10% of his funds into his rainy day fund, 10% he set aside for charity, and 10% went as play money. The other 70% was reinvested in his trading operation.

That act of giving changed both his life and Joe's. Basket Case Bob felt more alive than he had in years.

Are you a case of Basket Case Bob waiting to be discovered?

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Solutions

If emotions rule your trading (such as failing to follow your trading plan, or regularly feeling tense, angry, unloved, unappreciated, or apprehensive), then try these steps.

  1. Think back to each incident in which negative feelings affected your trading behavior.
  2. What triggered the incident?
  3. Where did it happen?
  4. What happened?
  5. Relive the episode. Examine every detail

Now imagine a similar incident occurs in the future. How can you handle it differently?

When you find that emotions are affecting your trading, try one or more of these.

  • Stop trading.
  • Get some exercise, like going for a walk, jog or bike ride.
  • Stand up and stretch
  • Close your eyes and go to that special place that puts a smile on your face.
  • Replace negative thoughts with positive ones.
  • Repeat affirmations, such as "I will follow my rules" or "The next trade will be a big winner" or "The next trade will begin a winning streak."

Analyzing trades when emotions dominated your behavior may help you avoid costly mistakes in the future. Learn from the past to avoid making them in the future.

See Also

-- Thomas Bulkowski

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Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information. In prison, you get your own toilet. At work, you have to share.