Lessons from the Pros

Specialty Skills

Emotional Pivots: They Can Be a Boon to Your Trading

“It happens every time,” Raymond seethed to himself. “Why do I freeze up just when the set-up is ready?” The price action on the ES E-Mini had just pierced the supply zone and a shooting star candle formation had presented itself at the top of an intraday rally on the 60-minute chart. Rather than place a market order at the close of the next candle on the 5-minute chart, he found himself unable to pull the trigger. He was driven by fear of loss and fear of being wrong.  And, it seemed that lately he had become much more prone to anxiety and fear when getting ready to place a trade.  Now the price action was dropping and was putting considerable distance between the stop that he “would have” placed had he entered the trade at the current price, which would have considerably increased his risk in this trade.  His feeling took yet another turn as he made internal pictures of what someone looks like when they are losing…slumped shoulders, sad face, and dejection in their eyes, which he began to uncannily look like that internal representation or picture .  Additionally, since the train had left the station if had he entered now he would be effectively chasing the trade.  He noticed that he was feeling angry, irritated, and stressed with a distinct indication that he had swallowed an anvil which was just sitting in his stomach.  Raymond was experiencing “emotional pivots” at play in his body and mind.

Using pivot points as a trading strategy has been around for a long time and was originally used by floor traders. This was a nice simple way for floor traders to have some idea of where the market was heading during the course of the day with only a few simple calculations. The pivot point is the level at which the market direction changes for the day. Using some simple arithmetic and the previous day’s high, low and close, a series of points are derived. These points can be critical support and resistance levels. The pivot level, support and resistance levels calculated from that are collectively known as pivot levels.

An emotional pivot is a distinct turning point in your internal emotional experience.  The strongest points are those that have moved the person from a somewhat emotionally balanced state to going up in feeling intensity.  These emotions could include for example anger, excitement, greed, fear, anxiety, impatience or on the other hand sadness, guilt, boredom, humiliation, dejection and/or rejection.  As in Raymond’s case, his emotional pivots became activated firstly by an event (he saw the signal on his charts that the ES E-Mini had just pierced the supply zone).  This got his attention and he immediately asked himself three questions that he and you always ask in the presence of an event (although for the most part these questions and the subsequent answers are out of his and your awareness).  Those questions are 1. What is it?  In this case it was a signal that required him to enter a trade.  2. What does it mean to me?  Here it meant that he would by necessity be putting himself at risk – thereby initiating the emotional turning point bringing in anxiety and fear.  3. What am I going to do about it?  In this instance he was so anxious and fearful about putting his account at risk and possibly being wrong that he did nothing, which resulted in a missed trade.

The second event was internal (he made internal pictures of what someone looks like when they are losing – which was due to his missing the trade).  He again unconsciously asked himself three questions (these same questions are asked every time someone experiences an event.  1.  What is it?  The “it” here refers to the picture that Raymond conjured in his mind of a loser since he has again missed a trade due to a lack of follow through.  2. What does it mean to me?  Here Raymond’s interpretation of seeing a picture of what it looks like to be loser means to him that he is that loser?  3. What am I going to do about it?  In this case he assumes the posture of the internal picture effectively making it a reality that he (in his mind) is a loser, a failure, and can’t follow his plan.

The third event was also internal (he noticed that he was feeling angry, irritated, and stressed).  As indicated in the above, whenever an event happens you ask those same three “mostly unconscious” questions.  1. What is it?  Here Raymond recognizes that he is feeling worse, no doubt brought on by what he is internally telling himself (an unconscious conversation); for instance, “…This happens every time.”  2. What does it mean to me?  In this instance Raymond’s meaning is confirmation that he is a failure; why else would he feel such negative emotions.  (Of course, this meaning is only in Raymond’s mind; it is another example of what he is telling himself).   3. What am I going to do about it?  Well, we don’t know what Raymond did, the vignette ended there.  But, in these types of scenarios, if you were Raymond, you might find yourself continuing to sulk and missing other high probability set-ups or taking an impulsive revenge trade and adding to poor results.  Either example does not bode well for your trading results.

You’ll want to find out as much about your emotional pivots as you can.  They are usually your first signal that you are in hot water (with a trade or otherwise).  This signal is often a feeling; like a tension headache, butterflies in your stomach, anxiety, fear and so on.  When you get that event or internal signal that something is not right; then ask yourself this additional question.  “What must I be telling myself or believing to feel this way?”  This is a very important question that helps you to begin to identify the impetus for the bad feelings; that is, the unconscious conversation.  You can then do something about it.  Once you identify the faulty internal data you can start to change it.  Remember that thoughts prompt emotions, emotions drive behavior and behavior delivers results.

Just like on a chart with price action pivot points, you can begin to track your emotional pivot points as you identify which set-ups or strategies have associated with them negative emotions.  Document your trades with both a trade log (for mechanical data) and a thought journal (for internal data).  You can actually indicate on the chart with both text and a mark at which point your emotional pivot became activated.  This will help you to be proactive in dealing with the difficult entries and preemptive in using an emotional tool to reduce the intensity of the emotion associated with that particular entry.  Your A-Game is absolutely critical to executing in the right place and at the right time.  You’ve got to deal with your mental game before you can begin to hone that A-Game.  Also, get my book; “From Pain to Profit: Secrets of the Peak Performance Trader.”

Happy Trading,

DISCLAIMER This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.

Join over 170,000 Lessons from the Pros readers. Get new articles delivered to your inbox weekly.