Balance is but a brief transition between extremes.
"Traders with extremely intense emotions had the worst overall trading performance, researchers found. Traders with the best performance had reactions somewhere in the middle, stronger than those reporting little emotional response, but not intensely happy when their trades did well or down in the dumps when they didn't.
'Having an intermediate range of emotion response seems to be the sweet spot,' said Lo.'
Researchers also found there isn't necessarily a trading personality marked by aggressiveness, for instance. The researchers said that suggests "different personality types may be able to perform trading functions equally well after proper instruction and practice," provided they don't get too emotional about profits or losses."
As a trader, you don't need academic proof: you have lived it daily, perhaps at times even been a victim of your own emotions. Looking inward can be just as useful as charts and technique if improving your performance is what you are after.
If you haven't delved into trading psychology, Innerworth.com, which offers an excellent free newsletter, is one place to start.
Another would be Trading in the Zone, by Mark Douglas. Douglas is himself a trader and a pioneer in this field with his 1990 classic, The Disciplined Trader, written before most business schools discovered "financial engineering".
Trading psychology has even earlier roots. Charles Mackay's Extraordinary Popular Delusions & the Madness of Crowds describes manic markets of the past, and Jesse Livermore's Reminiscences of A Stock Operator chronicles the inner life of a daytrader in the early 1900s. Finally, Candlestick charting, with its origin in 1600s rice futures and final development in Meiji Japan, exploits emotional terms for market behavior.
For a trader to recognize the waves of emotion and reject them in favor of riding the market waves means transforming negative behaviors into positive attitudes and effective actions. Forgoing charting for a bit, I'll be sharing my own thoughts on this subject over the next few posts.
An important disclaimer: my knowledge on this subject no more indicates my own success than does a spoon taste the soup it holds. However, an "A" for effort counts.
At last, over the rim
of the waiting earth
the moon lifted with
till it swung clear of the horizon and rode off,
free of moorings
- Kenneth Grahame,
The Wind in the Willows