Remains of the Day

This isn't a psychology blog, but psychology is a very important part of trading (it could be argued that it is the entire basis of trading, and the various analytical approaches are simply attempts to decode the psyche of the human participants).

One interesting phenemenon that I'm facing with myself is how to handle trading on a day which follows a day that went poorly. And when I say "poorly", I'm not necessarily talking about a loss (although that's part of it). I am really referring to a day when things just seemed to go wrong. In the three days prior, I felt like the Rudolf Nureyev of trading; on Thursday, I felt like the Fred Flintstone. Everything seemed to go wrong, and I felt really clumsy.

So one can make up "wrong in the head." I've been very concerned all night about what today would be like, and if the market would spike higher. Quite obviously, based on the latest economic numbers, the market will gap lower, so the easy mindset to have is something like this: "Yesterday was awful, and the market reversed way higher, and that felt bad. I am going to avoid that. Today I'm going to sell the puts I've got for a quick profit and avoid having that pain again."

That's very close to where my head is at, but the intellectual side of me knows that it is wrong, because that isn't technical analysis; it's simply an emotional reaction. So what would happen if a person bailed left and right on index positions, made a profit, and then watched the Dow go down 500 points? Then you're really off your game! (And in such a poor mindset, one would probably gobble up index puts at a much higher price and at the worst possible time!)

It would be interesting to hear in the comments section what people do to center themselves and clear their heads before the trading day.