When it comes to trading your emotions are a big factor we need to consider and the different methods and skills you are taught throughout the principle’s series are designed to help you stop making decisions based on your emotions.
The reason for that is because the market is constantly changing, learning and evolving and so if we make decisions based on how we are feeling then we are speculating by using our opinion.
Now the reason for why making decisions in your trading based completely on your opinion and emotions is because it isn’t verifiable to prove you can be consistent.
One of the primary goals of a trader is to be consistently profitable but if the method you are choosing to trade the markets with is your own opinion/bias/view then achieving consistency will be hard if not near impossible.
Again, the reason is because we can’t verify that over the long term your opinion can extract profits consistently out of the markets.
Now when it comes to opinions and emotions, they change over time depending on how we are feeling or thinking in the specific moment (the present).
To prove this here is an example of opinions changing on we feel;
Have you ever had an argument with a loved one and said you would never talk to them again? But then after a few hours you gradually start talking, make up and forget what happened earlier as you have now moved past it because whatever the reason was for the argument it doesn’t seem as important now (present) than what it did earlier (past)?
That is because your emotions changed overtime and because your emotions changed so did your opinion on your loved one. Therefore, how you viewed your loved on earlier to how you do now has also changed.
Emotions fluctuate, they change, and they are not consistent. They fluctuate dependant on how we feel in the moment and so if you felt hurt from your loved one earlier in the day but then later in the same day he/she apologised to you then you may not feel the same now as what you did earlier and that is how you can move past that problem and move forward.
So now that we know from a real life example we have probably all experienced at one point in time, we know that emotions, opinions and views can change over time and depending on how we are feeling in the moment how can we use that as a strategy with the aim of consistency in our trading?
We can’t, it is too unreliable and not a strategy we can trust. The reason we can’t trust it is because we don’t know what the end result of using it will be.
The only way to find a process or strategy you trust with confidence is knowing it has worked in the past and that is why we back test our trading plans/strategies as we can find different variables to find out if it is; testable, repeatable and verifiable.
They are the three variables we need to know the answers to in order to trust a method, strategy or plan when it comes to our trading. As each one tells us that we can use it consistently, it wasn’t a fluke that we see that move or pattern happen frequently and most importantly we can verify through collecting different trade data that using that strategy in the long term we will be profitable and how much we should roughly stand to make.
However, when we are using our opinion, we cannot find the answers to any of those variables because we can’t find out if our opinion is testable because we know opinions change and the markets are constantly changing too. So how we could feel one time in the markets could then be completely different to when something similar happens in the future.
So, if we can't get the answer to the first variable how can we for the rest of them…we cant. This the reason for why so many traders fail to be consistent because they are trading through pure speculation using their own opinion which they will never fully trust as they can’t be consistent.
Its okay when everything is going well but nothing good lasts forever and eventually a drawdown will occur, so do you think you will trade the markets the same way you did when you was winning trades now you are losing trades with no end in sight? No, as your opinion and the way you are feeling in that specific moment is what matters. As it doesn’t matter that the day before you would have been feeling happiness, excitement and like a god because now in the present all you feel is sadness, anxiety, stress, panic and like a fool.
Now as humans all we want to do is find pleasure and avoid pain as that is one of our basic instincts and we always work harder to avoid pain than seek pleasure. So as you are now in pain whilst being in a drawdown will you continue move closer towards the pain or run away? Your body and mind will be telling you to run away to avoid being in pain for any longer and it will be a stronger feeling to stop trading than continue trading through the drawdown and seeing as you don’t trust your opinion anymore as its no longer making you money but rather making you lose money you will stop trading or at least stop using the same process.
And there it finally is inconsistency and that is how the market breaks traders down, as it makes you doubt yourself and everything you knew. From that point you may slightly change your approach, processs or strategy but if is still mainly based on your own opinion it will only be a matter of time until the same thing happens again.
That is why we don’t try to remove your emotions or your opinion entirely from trading otherwise we wouldn’t be human but what we teach you is how to stop your emotions from making bad decisions as emotional trading only ever leads to inconsistent behaviour. If you want to be consistently profitable trader, you then need use methods and approaches that you allow to be consistent which is exactly the reason why we teach you to follow a step by step principle based strategy. As it removes your own decision making as much as possible in your trading, as instead all you need to do is go through a checklist of requirements to find a trade setup, confirm and execute.
I Hope this read gave you an insight as to why trading based on your opinion is of course possible for some but for the mass majority it is much easier to trade by removing your own opinion out of the decision making process to attain consistent results. Because unless you have an expectancy or edge for the method you are trading then you are simply just gambling.
Thanks for reading,