TRADING PSYCHOLOGY
Profit From Your Feelings
Emotionally Intelligent Trading
by Eliot Brenner, Ph.D.
Increase your trading profits by incorporating these strategies for emotional intelligence with a sound trading plan.A few months after I began daytrading equities, I learned a tough lesson that illustrates how emotionally intelligent traders can profit from the mistakes of others. I was trading at a firm with 50 other traders who sat shoulder-to-shoulder at computer terminals. The trader who sat next to me was considerably more experienced than I was. On one occasion, I was feeling quite pleased because I was long 400 shares of a stock that had risen eight points. The experienced trader was envying my position. Much to my chagrin, about two hours before the market close, the S&P futures market headed south -- taking my position with it.
My pride turned to regret. Within a matter of minutes, I lost half of my profit. Fearing I would lose it all, I sold the entire position. I turned to the more experienced trader and noticed that he bought the same stock at the moment I sold my shares!
"Why did you buy now?" I asked him. He replied, "I figured that when you couldn't take any more pain, it was a good time to buy." I watched my colleague's new purchase earn back all of my "lost" profit and then some.
DEFINING EMOTIONAL INTELLIGENCE
Peter Salovey and John Mayer, the two academic psychologists who created the concept of emotional intelligence, define it as the ability to read and understand others' emotions, to use emotions to guide thinking and behavior, and to manage your own emotions. In the story I just related, my colleague knew that I was an amateur who would probably sell too early, so he used my distress to time his purchase.
...Continued in the September issue of Technical Analysis of STOCKS & COMMODITIES
Excerpted from an article originally published in the September 2004 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2004, Technical Analysis, Inc.
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