You need to know WITT
Most market participants spend the majority of their time trying to understand and predict what triggers a move in the market. But the majority of participants are unable to consistently profit from such efforts. I propose a different way of using your time and suggest that if you spend some of your market study time on learning what triggers you to move, your trading will improve. If you believe thay trading involves psychology, than you should consider balancing your market study time with self study time.
This does two things: 1) you learn what triggers those mistakes you so often repeat, allowing you to begin to work on having alternative behaviors; and 2) by learning what makes you tick it helps you understand what makes the market tick.
People that have seen my presentations and who’ve worked with me know that I like to talk about how the market is both social and emotional. The market is not moved by logic, it is moved by the emotion and perception of the participants. Support and resistance are not simply areas of demand and supply; they are areas of emotionally charged activity.
Traders who’ve known me for many years know that part of my own approach to trading is reading the emotions of the participants and inferring their potential future behavior. I began reading the behavior of others as a psychologist who specialized in threat assessment long before I began trading or worked with my first big bank trader in 1995. Earlier this year, Charles Kirk asked me about this when he interviewed me. I’ve blogged a bit about understanding what others think and feel and discuss it more in my seminars and coaching.
Most of the other participants are acting on their emotions, whether they realize it or not. Even with algos and machines being responsible for a lot of volume (it takes people to program the algos and machines), emotions still play a huge role as people react to the machine generated volume.
Knowing WITT is an important step to improve your trading.
Andrew, thanks. I find your articles informative.
After reading some of your earlier posts, I tried searching on Google various combinations of word “Emotion Analytics” to understand more about it and to find any samples to see how institutional or experienced traders employ to track and analyze their internal state. Thought I can use that as base to craft a spreadsheet to track my own internal state. It is really surprising how less info is there on this. Don’t know if I should be searching using different keywords.
If other readers have same issue, I am wondering if you can cover in future blog posts on the implementation aspects of Emotion Analytics and any samples you came across in past.
Thanks
@DS
DS,
Probably the reason why a search for emotion analytics doesn’t produce much is because in general it is implemented in a manner specific to a firm’s objectives and therefore often remains proprietary.
I do touch on it in some of my videos, and I’m sure that as I continue to blog I will talk about it more over time. And in my coaching work with clients I sometimes develop a unique approach,, a way that resonates with that individual as opposed to expecting them to be fully engaged and benefit from a canned approach.
One example is to use a chart, like a price chart, where you plot your emotions throughout the day…..positive emotions rising and negative emotions falling (which can be a challenge because we need to be short and long at different times.). The chart approach gives a graphical quality to recording your emotions and can make it easier to see which emotions engender other emotions and to spot recurring emotional patterns. And you can compare that chart with your performance for the day, comparing it to the grades you give to your trades and your performance.
Andrew Menaker, PhD
Andrew, thanks.
I think I am getting a better idea now. If I understand the comment correctly, what we are trying to capture in above comment is flow of internal state (as sequence of emotions) corresponding to flow of the market.
I was planning to do a slightly different way i.e., define a list of fears and end of the day distribute the trades (both the one’s I made as well as those I missed but meet my setup) into one of these buckets. Then I plot a column chart and work to bring down and maintain these columns near zero while detached trades column raises on the chart.
Probably sounds dumb but the reason I went with fears instead of tracking emotions is more because I don’t know how to categorize emotions. The list of emotions mentioned in wikipedia seems not relevant to trading or too generic. Ex: Joy, love, Fear etc. So I thought I will go with 4 fears mentioned by Mark Douglas and use them as labels for my internal state.
@DS
You hit the nail on the head, when you said trying to capture the flow of of the internal state and see how it corresponds to the flow of the market. That’s one of the primary objectives of emotion analytics.
The ability to recognize and distinguish between different emotions is something that many (stereotypically men) have some difficulty with. You can view it as a learned behavior….its gets easier with practice.
Andrew Menaker, PhD
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