We all think we know ourselves. We're wrong
I'd bet you think you know yourself well. But a simple exercise can show you otherwise:
Fill in a personality questionnaire, then ask people close to you, friends or family, to fill it in about you too.
Compare the results.
You'll be surprised by the difference between how you see yourself and how others see you.
I did this when I started out, and I can tell you I didn't know myself nearly as well as I thought.
Not a great look for a trader...
Why is knowing yourself so difficult?
It's difficult because we're full of cognitive biases that distort our perception.
We tend to see what we want to see, downplay our flaws and convince ourselves we're more rational than we really are.
As a result, we don't even think we need to spend time looking inward.
Why knowing yourself matters in trading
Trading is, first and foremost, an exercise in managing yourself.
The distorted perception I mentioned can make you overestimate your strengths or ignore some of your weaknesses.
When you're euphoric, afraid or frustrated, it's easy to lose control and make impulsive decisions.
Understanding how you react in those moments helps you avoid mistakes.
Your analysis will be more relevant and your decisions less biased.
Recognising your emotions
When you trade, emotions influence your decisions.
But you tend to identify only broad categories such as fear, anger or euphoria.
Emotions are much more subtle and varied than that.
That's why you don't always understand what's really going on inside you.
For example, anger can show up as irritation, frustration or resentment.
Recognising exactly what you feel while trading helps you work more effectively.
If stress is a major factor for you, you can read this article on managing stress in trading.
Techniques for understanding your emotions
During my podcast with cognitive psychology expert Taha Mansour, he shared several ways to understand and manage emotions better.
Identifying your emotions more precisely
One is to use Plutchik's wheel of emotions.
By becoming familiar with a list of emotions and their more specific forms, you'll be able to identify what you feel while you're trading.
This approach develops your emotional intelligence and helps you identify more precisely which emotions are influencing your decisions.
For example, recognising that you're feeling apprehension rather than terror can stop you overestimating how serious a situation is.
Anchoring your emotions
To go further, you can associate specific images or sensations with each emotion you feel.
Here's how:
- Describe the emotion: choose a precise word for what you're feeling, such as excitement, frustration or tiredness
- Locate it in your body: where do you feel it? In your head, hands or chest, for example
- Give it an image or shape: picture the emotion as an object, such as a black ball of stress
- Give it a sensation: does it move or stay still? Does it expand and contract, for example?
During my conversation with Taha, I used this exercise to identify the feeling of relaxation more clearly.
Here's what I noticed: a purple inflatable balloon in my chest, filling and emptying with each breath.
Through that exercise, I anchored the feeling of relaxation.
Next time I feel that way, I'll picture the purple balloon again, which will help me recognise the emotion more easily.
Checking your emotional state
When you're trading, particularly during scalping sessions where decisions need to be quick, you can lose your cool.
One technique I use, and that you can try too, is taking a break every ten minutes to check my emotional state.
During that break, ask yourself:
- How do I feel right now?
- Am I still able to follow my strategy?
- Do I need a longer break to let things settle?
Your answers will help you work out whether your emotions are under control and whether you can keep trading.
Thanks to Taha Mansour for his advice.
