Randy Howell explains how emotions hijack traders and offers two tools to stay in control. Scan your body early for tension and breathing changes before emotion takes over. Use an 'offensive coordinator' vs. 'defensive coordinator' framework to structure whether you're hunting opportunities or protecting positions.
How do emotions factor into your trading? We're talking about that today with Randy Howell. Randy, tell us, how do emotions play into trading?
Oh, big time. Ultimately what happens is most traders don't recognize that an emotion has already taken over until it's way too late and they've blown something up. The thing is, it's way too late. By the time you feel an emotion, it's already grabbed you, it's already distorted your thinking. And you have to learn to find out what an emotion is and learn how to interact it long before it takes over thinking.
Well, give us some ideas then for how you might go about changing your process and being able to identify these before it's too late.
Well, you know, it's a very interesting question. The very first part is actually understanding what an emotion is. It is not touchy feeling. An emotion is biological and it takes over psychology. That's the first piece you need to get. An emotion in a technical sense to a neurobiologist is any disruption to a standard familiar pattern that the brain's already established. Now what does that sound like in like a trader's life? Well, go pull the trigger. When you're looking at setups, there's no confirmation and you're just sitting there waiting for a setup to show up and stuff like that. That's a standard familiar pattern. When you start seeing it warm up, when you start seeing the confirmation, you start seeing the signals, you start seeing entry. Suddenly there is a disruption to the standard pattern and emotion automatically comes up. Most people do not grasp that and they are already underwater before they get into the trade.
Now you talk about something called emotional intelligence. What is that?
Emotional intelligence is recognizing that we are emotion. And the more you understand about emotion, the more you can instead of be its victim, you can actually use it to serve you. And again it goes to saying, well, what is an emotion? It's this disruption. And the biggest key is to begin to understand the elements of an emotion. For instance, what I will teach someone to do is I will teach them before they get out of bed to start scanning their body because I'm looking for them to be able to identify the arousal component of an emotion. If you feel tenseness, Kate, if you feel that you're. If you find that your breathing has altered from a diaphragmatic, that is an emotion, those are biological elements of an emotion, of arousal. If you catch it, then you don't have to wait and then get cold cocked by an emotion sweeping your mind away. That's the first point. Arousal.
Now you use some football examples, Offensive coordinator, defensive coordinator. Tell us what you mean by that.
Absolutely. As a trader really begins to get into the journey of the development of his mind, and he's gotten past just the emotional regulation part. But when he's going, how do I develop the self for trading? Because ultimately, what the trader discovers is the mind that he brings to trading is not going to be the mind that's going to produce success in trading. What they learn is that there is a subset where you build a mentality. It's very disciplined, it's very calm, it's very patient. More like a cougar hunting a deer than like a pack of wolves after, say, a buffalo. Very important is you're waiting there. But what you're doing as an offensive coordinator is you are looking for opportunity.
There is a bias in mind that you can create that allows you to do that. Then when you enter the trade, what happens? You have to defend turf. You become a defensive coordinator. Okay.
Thank you so much, Randy. I appreciate your insights today.
Thank you, Kate. It's been a pleasure.
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