Three Remedies for Affliction
By: Jea Yu
The following is an excerpt from Jea Yu's Trading Full Circle
I have discovered that there are three distinct remedies to fight any affliction. Afflictions can be physical, psychological, emotional, or spiritual, but they all contain two core factors: a trigger and an outcome. An affliction triggers suffering, that’s the outcome. That’s half the battle!
Note that these remedies are linear to all afflictions, not just trading. Why a person does something is not the issue. What makes them tick is of no interest. The issue is determining the trigger that produces the outcome. It is simple cause and effect. By trigger, I mean a stimuli, condition, event, or situation which causes the trader to act irrationally. The root of the affliction doesn’t concern me. If we can prevent the trigger, then the outcome simply doesn’t happen. If we neutralize the cause, then there is no effect. It’s simple enough.
The person who best knows the trigger is the trader himself. He knows it immediately, but it may be so deep in the eye of the storm that he has blocked it out. That’s when he has to make an honest assessment. It doesn’t take a forensic scientist to figure out the triggers once you know the effect. It’s just a process of elimination. However, when it comes to trading, the fingerprints are right there on the activity reports.
Define the outcome and root out the trigger. The trigger is the key. Without a detonator, a bomb is harmless. So focus on combating the trigger. This is where the three remedies come into play.
- Roadblock: To roadblock means to preset a detour ahead so that the trigger is avoided or can’t be accessed. It takes the power away from the victim, and in essence, saves them in the process. The more seamless, fluid, and undetectable a roadblock is, the more effective it becomes. It’s the difference between placing rubber cones on a highway exit ramp versus extending the freeway wall to seal the exit. This is a preplanned move. This takes foresight.
- Counteract: This remedy means to reciprocate with an equal opposing force to neutralize the trigger. This is a reactive move set forth by the trigger.
- Dilute: Diluting will diffuse, minimize, and dissolve the significance of the trigger to a point where it no longer remains a trigger. This can be either preplanned or reactive.
Let’s apply the three remedies to a situation. Tim tends to panic when his losses go beyond the -$500 mark. This triggers Tim to desperately overtrade in the ‘dead zone’, which backfires, leaving him with losses around the -$1500 mark by close.
Tim’s outcome is taking big losses. Tim’s trigger is losing more than $500. The three remedies can be applied here.
Roadblock: Tim could have his broker set a maxim daily loss provision at $450 in the software, which would immediately cancel his buying power if he surpasses that mark. He would have no control over that.
Counteract: Tim could immediately take the opposite position on his trade – wait, that’s what he has been doing constantly, which is what elevated his losses to -$1500. That’s not a counteraction. Tim could rip the computer plug from the wall. Now there’s an effective way to counteract the trigger to prevent the damaging outcome.
Dilute: Tim could sell $500 worth of longer-term holdings to bring his net loss back to zero on the day (at least in his mind). This minimizes the significance of the -$500 loss trigger, which should help him regain his sanity to trade effectively again.
Counteract Stress
Relaxation is incompatible with tension. You are either in a state of one or the other, never both. When I refer to stress, it includes tension and anxiety. A relaxation state is the most ideal zone for trading. It allows you to be resilient, objective, focused, and in control. This is easier to attain while you are profitable, at least for me. However, getting into this state before you start your trading day will make for a smoother session.
Self-inflicted wounds are a nasty byproduct of stress, anxiety, and tension. Despite conventional thinking, self-inflicted wounds are not accidents. Trading is 90% between the ears. To be effective, one has to neutralize stress. Our mental and physical states are correlated. In times of high stress, the heart rate jumps, breath shortens, muscles tighten up as the mind panics. By counteracting these physical symptoms, we can help to neutralize the mental symptoms, therefore creating a more relaxed trading environment.