Diary of emotions: a detailed guide. Part 1Hello, traders 😊
Today we will talk about 📖 diary of emotions .
🏳️ This is part 1, as the topic is very voluminous.
In the second part, there will be an example of a diary and consider the mistakes in its management.
I know many people don't even keep a trade journal, but they don't take into account the importance of recording emotions at all.
⚡️ Perhaps, after reading this article, you will change your mind and the diary will become as routine and important for you as opening/ closing deals.
Let's start with the definition:
✔️ Emotion Diary - is a structured tool for the systematic registration and analysis of a trader's psychoemotional state at key moments of the trading process: before entering a position, during its execution, and after closing .
📍 The purpose of the diary is to objectively identify correlations between emotional states and the quality of trading decisions, as well as to exclude subjective interpretations in the process of analyzing the results.
It is not intended for therapy, self-reflection, or motivation.
✂️ It serves as an analytical tool that allows you to quantify the impact of psychological factors on the execution of a trading strategy, thereby reducing the likelihood of errors caused by cognitive biases (there was a recent post about some cognitive biases, it will be attached)
🔎 Theoretical basis
The psychology of trading demonstrates that decisions in the market are often made not based on analysis, but under influence.
➡️ Cognitive distortions:
- the effect of disposition (profit is attributed to oneself, loss to the market);
- loss effect (greater reaction to loss than to equivalent profit);
- confirmation effect (interpretation of data in favor of one's own beliefs).
➡️ Emotional triggers:
- stress from a previous loss;
- the desire to win back;
- social pressure (comparison with other traders);
- feeling guilty or ashamed of a mistake.
📔 Studies of behavioral economics (Daniel Kahneman, Amos Tversky and Richard Thaler) and neuroscience (A.Damasio) confirm that emotions influence decision-making even among experienced traders, and this influence cannot be realized without external fixation.
The diary of emotions is a methodology of external cognitive support that allows to circumvent the limitations of human memory and subjective interpretation.
🔎 Diary structure:
A diary can consist of several important components, each of which is designed to capture a specific aspect of a psychological state and its relationship to an action.
✏️ For example, such:
🟣 1. Date and time of the transaction: provides an emotional state link to a specific transaction and time context (session, news background).
🟣 2.Position type: long / short - allows you to analyze whether there is a dependence of emotions on the direction of the transaction (for example, fear of shorts)
🟣 3.Trading instrument and time frame of analysis: BTC/USDT, H1 - captures the context, whether the emotional state affects the choice of the instrument (for example, high volatility → increased anxiety).
🟣 4. Emotional state before entering, determine the state: calm, nervous, aggressive, tired, expectation of profit, fear of loss, doubt, indifference.
Purpose: to record the basic psycho-emotional state prior to making a decision.
🟣 5. The key thought before entering. Captures the automatic thought that influenced the decision. Examples: "The market needs to bounce off this level," "I don't want to miss the last opportunity," "I lost yesterday, I'll fix everything today." Objective: to identify the cognitive biases underlying the input.
🟣 6. Emotional state during the execution of the transaction. Captures the dynamics of emotions in real time. It may differ from the state before entering, for example, "calm" → "nervous" after the stop is triggered. The goal: to determine how the price affects the emotional state, and vice versa.
🟣 7. Emotional state after closing the deal. Captures the consequences of a decision. For example: "The deal closed with a profit, but I feel empty" → indicates dependence on the result, not on the process.
🟣 8. Was there a violation of the trading plan? yes/no
If "yes", it is mandatory to indicate the type of violation: entering without a signal, changing the stop loss, increasing the lot, holding a losing position, no take profit, trading outside the Kill Zone.
The goal: to connect emotions with specific violations of the rules.
🟣 9. The factor that influenced the emotional state. Indicates an external or internal trigger: a previous loss, someone else's profit on the social network, lack of sleep, FOMC news, lack of a plan for the day ...
Goal: to identify systemic provocateurs of emotional breakdowns.
.......
💡 The second part will be released in a few days .
Leave 🚀, so I'll understand that the topic is interesting to you.
Profit and discipline to all 🪙
