Monday, May 18, 2009

Emotional Risk Management: Reflections of a Wanna-be Surfer

By Dr. Ken Celiano with Mark Paulik

Date: Summer 1982
Place: The Jersey Shore, Manasquan Beach
Scene: At sundown with a hint of moonlight, 7-foot and higher waves roll one after the other; skilled surfers on quick, short boards knife through waves. A 21-year-old rushes to the beach after a long day caddying, eager to score some waves before darkness takes over.
Enter: I paddle into the surf on my long board, climb over white water that knocks me side to side as I head toward a big wave, excited to show I have the right stuff among a throng of local professionals and aspiring amateurs. Onlookers hang on the beach and soak in the scene, drinking a few beers. I catch a perfectly shaped wave. Thrust to the top and staring over the edge, I quickly descend its face, fall and roll out of control into the sea ?oor. “Wow, that was awesome power,” I think. But it hurt, too. Thoughts cascade through my mind as I paddle out to catch another set. This time, my excitement is tinged with fear and doubt, wondering, “Do I know what I’m doing? Can I surf these kind of waves?”
Boards are breaking in half; skilled surfers abandon the water; waves surge relentlessly toward the beach. It’s getting darker. I am alone, stuck and realize I can’t get back in. I scream for help. No one hears. My only thought: “I have to get out of this place!”
Endurance: I take the plunge on a 7-footer, kick my board from underneath, accepting that I am not skilled enough to ride this long, thin-nosed board in these kind of waves. The rip cord on my ankle keeps me tethered to a sling-shot that will soon challenge my endurance and breath. A wave catapults me off the board. I sink to the ocean ?oor. The wave throws my board toward the beach, pulling me under. Then, my head breaks the surface, and I gasp some air, only to see a missile throttling toward me. I duck, avoiding the nose of the board as another wave crashes on me. Holding my breath, I ?nagle the cord from my ankle, knowing my safety lies in body sur?ng a massive wave to the beach.
Exit: I kiss the sand. I take a breath, grateful to be alive. My board washes up beside me. Departing the beach, I am a wiser wanna-be ­surfer who respects the power of the ocean.
Surfing Markets
You are probably wondering what this scene has to do with wanna­be traders looking for pro?table waves. To keep it simple, it is all about the wave and having the right tools and skills to ride with courage and competence.
As you have likely concluded, I had no business being in the ocean that day. In addition, I had the wrong board and my skill was better suited for 2- to 3-footers. In short, I was not a skilled surfer. My excitement deluded me until the crashing wave woke me to a harsh reality.
Market prices rising and falling can be thought of as a consolidated wave of human decision making fueled by emotional intensity. I never thought that my days sur?ng would in?uence how I coach traders to ride emotional waves. But, as we appreciate more than ever, if you are out in the markets today, the skill to surf this kind of volatility requires intense emotional management. Without it, you are like I was, gambling on a thin-nosed long board wishing on a star to make it home alive.  

Overcoming Slings and Arrows of Screen Trading

By, Ken Celiano, Psy.D. and Mark Paulik, MBA

The first lines of Hamlet’s soliloquy reveal a common dilemma traders at a crossroads face when debating whether to stay the course or throw in the towel.

To be, or not to be: that is the question. Whether ‘tis nobler in the mind to suffer the slings and arrows of outrageous fortune, or to take arms against a sea of troubles, and by opposing end them?
The world of trading has been rapidly transformed by the rise of screen trading at the expense of pit trading. Hamlet’s contemplation of whether to commit to life or allow death to take him toward uncertainty is similar to traders who wonder whether they still have what it takes to be the “brave new trader” in a world of nanosecond speed and egalitarian markets.

Psychological and financial endurance become necessary ingredients as traders face the brutal facts of their industry and the most basic question: “What am I going to do to survive?”

David Silverman’s article in SFO’s January 2008 issue addressed the extinction of the pit trader and the psychological impact the loss of that identity has on one’s being (“I trade; therefore, I am.”). So, if traders cease to trade, who do they become? Silverman noted reluctance on the part of his trader colleagues to answer this question publicly and chose to create a fictional character to tell the tale of the death of the pit trader.

Well, in this article we explore how three ex-pit traders from Chicago, despite being uncertain about their future, learn to become brave new traders and survive in the electronic age. Their experiences are not just applicable to ex-pit traders; all traders can learn something about improving their trading skill from the process they have used.

These traders have given us permission to share their self-examinations with you in the hope that it inspires a second chance to learn how to strategically survive the challenges that lay ahead.

“Scared to Pull-the-Trigger”

I see the set up, I go as far as having an order in and just as it gets to my price, I pull my bid. This is not an issue of the trade setup, because it’s an all too familiar scenario of running scared. And sure enough, when I don’t get into the trade, the market moves off to what would have been a quick, painless and tidy profit.

Market Perspective
Do you have a written trading plan that includes reward to risk parameters to keep you on course?  
Consider this exercise: Write out a trading plan for that trade you couldn’t pull the trigger on.  Define your trade setup, trade entry, stop and profit target. In order to re-script doubt into confidence, you need to be active in redirecting the scene, just like a movie director. The following example could be one small component of your new written trading plan.
For Example: If your trading platform allows for the use of OCO bracketed orders (OCO means one cancel other), investigate how to use them by calling the brokerage firm or by using the online help/tutorial. Place your next trade using a bracketed order where you have a resting buy order at your researched entry price and when that order is filled, you have two orders that are triggered: one is your stop and the second is your profit target as defined in your trading plan. If either your profit or stop order is filled, the trading platform automatically cancels the other order. By redirecting how you enter orders and simultaneously manage the risk of the trade, you can overcome doubt.
Psychological Perspective
Do you fully understand what’s going on emotionally that causes you to get off course?
Fear of loss challenges all traders more often than not. Acknowledging fear “face-on” is the only way to defuse its grip. However, admitting being scared triggers weakness. Most of us have conditioned ourselves to deny fears grip. Instead, we unconsciously flip it on it’s side, replacing it with an arrogant pursuit of control and predictability. The brutal fact about trading is, that all one can control is everything leading up to pulling-the-trigger (i.e., pre-trade routine, research, defined edge, etc.); everything after is uncertain. It’s that piece that’s not fully accepted by the fear-based trader. 
So when doubting thoughts grip your mind in the last moments before executing a move, keep a close eye on the the wave of fear; notice it’s deceptive voice reminding you “you don’t have total control...back away.” Take a breath, access courage, the antidote to fear, and rest assured that if you did your homework your prepared for the moment. Now it’s time to be poised to perform what you planned and let go into the opportunity flow. 

~Your EKT Coaches

Performance Coaching Philosophy

EKT Coaching Philosophy from Ken Celiano on Vimeo.

Welcome to Even Keel Blog!

Even Keel Trading looks forward to providing our expanding list of curious traders cutting edge information on trading psychology, market strategies and performance management that you can "take action on now." Our approach blends insights from Mark, a seasoned trader and market analyst with the intuitive skills of Ken, a performance psychologist/coach. Together, our "Batman & Robin" style helps you strategically navigate the waves of opportunity while maintaining an "Even~Keel" state of mind. 

We hope you enjoy the practical information on trading process, planning and performance.

~Your EKT Coaches