How to Control Emotions in Trading

There were lot of traders including myself worried about a big sell off due to all kinds of reasons..

Elections, FEDS, job report, technical levels oversold, RSI divergences, Market in Churns etc..

But following a simple indicators like mentioned below can help you overcome some of the emotions based fear. I am guilty of succumbing to fear and follow emotions instead of following the Markets. Last week had too many ghosts to be scared off so no regrets there as its very easy to jump and buy what you like..

But in past I have been guilty of either getting scared out of position(s) or taking profits too early. So I vowed that next time I will not be scared out of any trades based on my emotions.

I came across interesting articles to overcome such emotions.. Hopefully should help you and they have helped me understand how a simple system is so useful.

Orignal Article can be found here:

http://www.thinkmoney-digital.com/thinkmoney/2010fallred#pg30

Doing some further research on this Heiken Ashi Trend system.. I found that Sylvian Veervoort has done extensive research on this.. and has also developed so called zero lagging moving average indicators

Details and formulas can be found here:

http://stocata.org/metatrader/ha_tema_typ_tema.html

Since I am a thinkorswim FAN.. I am using the following Code for Sylvian's work

#******************************************************

input period = 55;

def price = (high+low+close)/3;

#-----Typical Price ZeroLag Triple Exponential Moving Average

def TMA1 = 3*expAverage(price,period)

-3*expAverage(expAverage(price,period),period)

+expAverage(expAverage(expAverage(price,period)

,period),period);

def TMA2 = 3*expAverage(TMA1,period)

-3*expAverage(expAverage(TMA1,period),period)

+expAverage(expAverage(expAverage(TMA1,period)

,period),period);

def difference = TMA1-TMA2;

plot TypicalPriceZeroLagTEMA = TMA1+difference;

TypicalPriceZeroLagTEMA.setDefaultColor(color.green);

#------Heikin-Ashi Close ZeroLag Triple Exponential Moving Average

rec haopen = CompoundValue(1,((open[1]+high[1]

+low[1]+close[1])/4 + haopen[1])/2, hl2);

def haclose = ((open+high+low+close)/4+haopen

+max(high,haopen)+min(low,haopen))/4;

def HATMA1 = 3*expAverage(haclose,period)

-3*expAverage(expAverage(haclose,period),period)

+expAverage(expAverage(expAverage(haclose,period)

,period),period);

def HATMA2 = 3 * ExpAverage(HATMA1, period)

- 3 * ExpAverage(ExpAverage(HATMA1, period), period)

+ ExpAverage(ExpAverage(ExpAverage(HATMA1, period)

, period), period);

def HAdifference = HATMA1 - HATMA2;

plot HeikinAshiZeroLagTEMA = HATMA1 + HAdifference;

HeikinAshiZeroLagTEMA.setDefaultColor(color.red);

def buySignal = if TypicalPriceZeroLagTEMA > HeikinAshiZeroLagTEMA and TypicalPriceZeroLagTEMA[1] <= HeikinAshiZeroLagTEMA[1] then 1 else 0;

def sellSignal = if TypicalPriceZeroLagTEMA <>= HeikinAshiZeroLagTEMA[1] then 1 else 0;

plot signal = if buySignal or sellSignal then TypicalPriceZeroLagTEMA else double.nan;

signal.setLineWeight(5);

signal.SetStyle(curve.points);

#*****************************************************************

Comparing Both John Carter's and Sylvain's methods. It looks like that Sylvain's method is generating the signal little faster than John's Exponential system..

I also found very interesting thing that at times, Sylvain system might provide an exit signal and then stock can reverse back creating a buy signal. I did not find this kind of reversal in John system.

I believe both has done extensive backtesting but the focus of these similar systems are just a tad bit different

- John's focus might be more robustness on Entry and Exit

- Sylvain's focus might be faster entry /exit signal with a thought that it is easier to get invested after selling off or taking profits rather than giving up profits.