Have you ever found yourself in a situation that is depressingly so sad. For example have you been around people who are terminally ill, have you been with people suffering from abuse, have you spent time with people who are desperately poor not knowing where their next meal will come from. If you have then there is a very real chance that some of the sadness would rub off on you and possibly lead to a mild depression.
When I think of the markets this kind of contagious emotional behaviour is exactly what permeates the air so when markets are going up you feel the collective euphoria and when going down the collective depression.
My question is does it have to be. I think my answer is yes and no. Health care practitioners especially those of the mental healing variety such as religious pastors or psychologists and social workers need to feel the pain of the client in order to empathize but also need to be able to let the negative energy pass through after the session. This is clearly possible as these people don’t all walk around in a depression. Of course some fall through the cracks and are deeply affected.
The answer for the trading community is to somehow take on the techniques of the mental health professionals and learn to distance themselves from the emotional overhang. I think I have hit the nail on the head with this point. The mental health professionals do feel the emotion it’s just they learn to let it go. This means you have to feel, so in the case of the trader they will have to feel the collective emotion which is when they are most vulnerable to poor trading. Somehow the trader needs to create some space/time before trading when feeling such emotion. But alas – how?
The reason we get the boom bust in the markets is for the very reason; traders project this collective emotion on to the markets. We somehow need to do more work on letting emotion go and invest based on real research. I think I just struck another nerve i.e. do traders actually trade with an edge…….?