Lessons from the Pros

Specialty Skills

Pivots Are In the Charts and In Your Emotions

I remember many years ago as I sat at my trading platform staring at the NQ E-mini.  It was well into the trading day, and I had yet to get a set-up signal that was in keeping with my trade plan.  I was feeling bored and secretly wished  “something” would happen…I really wanted to open a trade.  Then it happened; a green blast-off candle formed on the 15 minute chart, and it was rising faster than a bottle-rocket.  Just like that blast-off candle my emotions of excitement and greed soared as well taking me perilously close chasing that trade.  I noticed that my thoughts went something like, “I’ve got to jump in on this trade; it’s got money written all over it.”  Well, spoiler alert, I did chase that trade after all; but, the change in feelings from boredom to excitement/greed was an “emotional pivot.”  If I had been aware of the change in feelings and especially the motivation behind them, I would have been in a much better position to “manage” the situation and keep my A-Game at the platform.  Emotional pivots, the point at which your internal data moves appreciably and puts you in danger of doing something that is not in your best interests, must be tracked and documented in order to begin to manage them.

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.

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, anger, excitement, greed, fear, anxiety, impatience or on the other hand sadness, guilt, boredom, humiliation, dejection and/or rejection.  As in my case, these emotional pivots became activated firstly by an event (I saw a signal on my charts that the NQ E-Mini candle was raising sharply).  This got my attention, and I immediately asked myself the three questions that everyone asks in the presence of an event (although for the most part, these questions and the subsequent answers are out of awareness).  Those questions are 1. What is going on?  In this case, it was the blast-off green candle.  2. What does it mean to me?  Here, I perceived it to mean that I was going to miss out on a profit – thereby initiating the emotional turning point bringing in excitement and greed.  3. What am I going to do about it?  In this instance, I was so excited and greedy that I chased the trade.

You will 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 extremely important question that helps you to begin to identify the impetus for the bad feelings; that is the unconscious conversation.  This is an important step because if it remains out of your awareness the behavior is likely to continue; you can’t change what you can’t face and you can’t face what you don’t know.  Once you identify the faulty internal data you can begin to address it.  Remember that thoughts prompt emotions, emotions drive behavior and behavior deliver 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 have 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.