EMOTIONAL INTELLIGENCE
In contrast to normal intelligence as measured by IQ which provides a somewhat tentative measure of a person’s conscious ability to process information rationally and logically, Emotional Intelligence (EI) is a measure of a person’s subconscious aptitude in processing his or her emotions and feelings.
The term itself was relatively unknown until US psychologist’s J Mayer and P Salovey used the term in the 1990’s, before becoming popularised following a key study into EI by the University of Manila which illustrated how important the concept was in enhancing both performance and overall wellbeing – even more so than IQ, which has been used for decades as a measure of personal aptitude.
A key study into EQ was undertaken by the University of Manila in collaboration with Reuven Baron, the study showed that EQ is more effective in job success than IQ! The great advantage of EQ over IQ is that it can be measured and changed, unlike IQ which remains constant throughout our life.
At one time or another we all experience strong feelings that accompany positive or negative emotions. A day without feeling emotions would be impossible to imagine. Each day we feel dozens of emotions; the excitement of going on holidays, the fear of flying, getting stuck in traffic, and certainly during your trading day.
Trading has numerous connections with top athletes, and in sport to be the best you have to look at the complete self, and how to attain maximum performance consistently, imagine a racing car every component is finely developed, and tuned to give maximum performance, this is how the finest traders operate.
EI is a powerful tool which can help us to do this, and is based on 5 key factors:
- Awareness of our own emotions
- Management of our emotions
- Recognition of emotions in others
- Management of emotion in others
- Motivation
| Pain | Most markets participants will undergo a wide range of different emotions within the space of a single trading day or session. However, there is one overriding emotion which prevails over all others, and that is pain – and it is unlikely that you’ll become a truly successful trader unless you confront the pain of certain issues which trading will inevitably bring to the surface. Read any biography or autobiography of great traders, from Reminiscences of a Stock Operator by Edwin Lefevre, to the Market Wizards books by Jack Schwager, and you’ll find this in invariably the case. Therefore, it is crucial that you redefine your relationship with pain, which often only occurs because of an unwillingness to confront reality as it is, and learn the lessons you need to learn both about yourself an individual as well as about the markets. Therefore, focus at the beginning of your trading career less on making money and more on learning – and see the losses that you (inevitably will) make as tuition fees for learning those lessons. By developing this kind of mindset, your relationship with the market will become less confrontational (where you see yourself at war with the market) and more playful (where you see yourself playing a game with the market). By this shift in context, your trading will quickly become what it should be – fun and enjoyable, which in turn will have an immeasurable impact on your trading performance for the better. |
| UNCERTAINTY | Your trading performance will reflect your ability to deal with risk – which is just another word for uncertainty. However, despite the market being a seemingly unstructured environment made up of an endless stream of random events, uncertainty doesn’t arise from the market itself, but from the individual traders. Therefore, it is vital to understand that although you never know what the market may do next, this doesn’t matter if you are certain as to what you will do next. Even with the most accurate market information and analysis, a lack of self-certainty will undermine even the very best trader time and time again. This gives rise to perhaps the most powerful feeling within the emotional spectrum – FEAR! Psychologists state that human beings are naturally afraid of only one thing – darkness, and that every other fear has been imposed by society, parents or cultural values. Dig a little deeper however, and this fear of darkness itself arises because of an innate human fear of the unknown. In this content therefore, it is perhaps not surprising why most people are so reluctant to come face to face with a range of emotions which usually have been repressed or suppressed for many, many years. Studies have shown that trading as a profession is on par with Formula 1 driving or grandmaster-level chess in terms of the level of stress it places on the person taking part. In this kind of pursuit therefore, it is inevitable that the trader will come face to face with many psychological issues which will arise because of the high pressure faced by traders on a daily basis. Therefore, you have two choices – either continue to suppress these emotions until they escalate to a point where you are no longer able or willing to continue trading, or have the courage to accept these emotions and begin the process of managing them. |