Our Unconscious Motivators (Part V)

An example

The last trades I took in the DX (US Dollar Index Futures) and the ES (e-mini S&P Index Futures) highlight the importance of being aware of our unconscious motivators.

Regular readers of this blog know that I started 2009 trading results with a  whimper. I failed to recognize that my trading was in an Ebb state and as a result suffered the largest monthly loss since I started managing my private, closed fund in 1990. Since then I have been struggling to make a significant dent in the losses.

I had great expectations for the two trades, DX and ES.  I'll focus on the DX here because the ES trade is well documented on the Video/Forum/Twitter free service.

Everything had lined up perfectly and I was very confident that my favoured scenarios would unfold. I entered my first positions at 79.67 and a second set at 80.49 After both entries, the market immediately went my way.

But then the DX stalled.

I had been looking for a simple correction but instead we saw a small trading range develop (see Figure 1).  The second set of positions I had added to the DX 80.49 proved to be around the middle of a congestion zone bounded by 81.97 and 79.62.

On Thursday June 25, the DX went to the Death Zone of the congestion zone mentioned above and sold off. I was faced with the prospect that:

• The DX would at least break 79.62 and if it did that, a breach of 78.83 was likely. A breach of 78.83 probably would resume the US Dollar bear market. If I did not exit and the market broked as expected, I'd be faced with a loss or breakeven trade after the market had moved  in my favour.
• Or would the DeathZone sell signal play false? If exited the positions, would the DX go up rather than down and I would exit my positions prematurely? What if I exited and did not see another setup and trigger to re-enter the trade? I'd lose the one chance I had to make substantial inroad into my losses.

I have reproduced some of journal entry to give you an insight into my state of mind. I am comfortable losing up to 20% of my capital - I don't like it but accept it as part of the trading game. When I lose more than 20%, my anxiety levels rise. I respond by cutting position size and making it a priority to bring the losses down under the 20%.

Unconsciously I had placed great faith that these two trades would not only bring me under 20% but would also substantially reduce the losses. ‘Then the blinking market  had do this......!!' (quote).

Whenever I feel great stress, I find it useful to rant in my journal - it blows up steam and it allows me to safely fully experience what I am feeling. Once I have calmed down, I return to myself and then the markets. I realized that the loss and market information I had received on Thursday had triggered my unconscious motivator. Hence the emotional response. That awareness allowed me to deal with the market information more centered than I would otherwise would have.

Having made a decision, I implemented it and felt better for the way I had gone about it. If I had acted when my unconscious motivator had hijacked my emotions and reason, whatever decision I would have made would have been wrong for me.

Figure 1 DX September