The Volatile Trader

Note: I believe the article below was written by Adrienne Tograhie, a good friend and great trading coach.

The Manic/Volatile trader has learned to create emotional volatility by developing a great imagination. By looping positive and negative stories with more detail, he is very effective in becoming dramatic.

With enhanced feelings, he has justified to himself about being right. This keeps him stuck in a loop of emotions and makes it difficult for him to trade. (It is important to note that I am not talking about a person who is clinically manic/depressive. I am talking about a trader who lets his emotions swing out of control.)

Environment that Creates this Type of Trader

In my experience, those who have struggled, suffered great loss, and have known difficult times, especially as a child, have the perfect foundation for becoming a manic/volatile trader. Once this trader type has established a pattern of emotional volatility in his everyday life, the behavior will carry over into his trading life. He will then make radical choices in the markets, which lead to loss. Then what follows is his not taking action on any opportunity.

The Other Side of the Coin

Happy times are over-exaggerated because of how they contrast to the difficult times. Dealing with a Dr. Jekyll and Mr. Hyde personality is difficult in a relationship and adds a double whammy to the trader when he feels the backlash of people's responding to him. Those who live with these types find that they are always waiting for the volatile side to come out. Then the trader does not understand why others fear him when he is being overly happy.

Reality Check

I would never put a damper on a trader's belief that he is able to produce extraordinary profits. This is especially true if his confidence comes from good testing results. A trader will find out soon enough when he puts money on the line if his theory works. Statistics will not change his attitude until he faces reality. The reason that I hold back is because there are those few traders whom I have met over the years who did not consider or know what the average professional trader earned in a year, and went on to earn millions from a small account. Of course, this is rare.

A manic/volatile trader is often over-confident in his planning stage of trading. He then swings to his depressive side when he realizes that his strategy does not produce the profits he thought it would, even if he is making a reasonable profit.

Using Drama to Your Advantage

Volatile Vic is a good example of a trader who learned to use his ability for creating drama to his advantage. Vic lived in several foster homes that were not at all pleasant. He created his own world where he would escape when he found that reality was too painful. When Vic was fourteen, he lived with a family that was loving and kind. He created havoc in the family, but even with his volatile behavior they stuck by him. For the first time he knew love and security. He went on to study at a Junior College and then earned a scholarship to a university to study accounting and finance.

Vic had a well-paying job as an accountant and was married with two children when he decided to trade stocks. He made a good choice in developing a strategy, but he could not get past simulation. Vic said to me that he was afraid that the monster in him would come out if he were to have any kind of loss. He met me on one of my webinars and decided to take my seminar.

With every exercise he would say, "WOW, that was worth the price of the seminar." Heading off trouble, I suggested that Vic take an acting course, so that he would learn to know how to use his emotions to work for him. He did so eventually, and found another passion. He now works with his local community theater group.

Vic began to use the techniques I taught him in the seminar. After a year of getting moderate results with tight stops, and not allowing his winners their full potential, he decided to do private coaching with me.

In private work we were able to address his issues, and he is now a highly profitable trader. It took Vic two years to give up his day job. He is happy with two new passions that allow him to be free of his self-sabotage.

Exercises for Emotionally Volatile Traders

• List all of the things, people, and situations in life that you would praise and think of as the best.
• List all of the things, people ,and situations in life that you think of as the worst.
• Find in the best things something to criticize.
  Examples: 1) This person is beautiful, but she has ears that are not perfect. 2) This vacation was the best I have ever experienced, but those long lines that I had to wait in did hurt my back. 3) This trade was perfect it is perfect only if you follow your rules and not because of what you earned. (Okay, a bit different, but I saw an opportunity here to teach an important lesson.)

Find in the Worst Things Something to Praise

• This politician did not give me what he said he would when he was campaigning, but considering what he had to deal with it is amazing he was able to get that much accomplished.
• This vacation was the worst, but I did enjoy that one restaurant.
• This trade was terrible, but I did follow my rules, and I am learning by my consistency.

Have Significant People in your Life Question You About How You Express Yourself.

• You say he is the worst ball player. What can you say that is good about him?
• He is the best ball player. Is there any room for him to improve?

Give Permission to Significant People to Give a Word or a Hand Signal

When you are over-expressing your emotions. Create a repetitious word that can be your anchor such as, "Bla, bla, bla, bla, bla" while clapping your hands.

You would think that I would want to damper only the negative part of the equation, but a trader needs to learn to maintain emotional stability. If a trader gets excited on winning days, and then goes into a depression on losing days, he may hesitate to take a trade even when he sees an opportunity.

Conclusion

Traders who swing their emotions to such extremes have to learn to be less volatile, or they will find that their trading results will also be volatile. With this same imagination the manic/volatile trader can overcome his extremes by understanding how he creates these emotions in the first place, and use that knowledge as a strategy to overcome them. Most traders who experience these emotional swings need outside help, but consider the alternative of not taking care of this issue.

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