It should be action-emotion-reaction. Studies have been done on how our emotions effect our decision making and what they found is that we essentially make a decision based on what emotion we are feeling. What this means is we have pre-programmed decisions based on emotion. Not specific pre-programmed decisions but we make the decision based on that emotion that we think will get us back to normal. It's a mind game you are playing with yourself.
Say someone has a lot of experience with violence and they can keep good judgement and keep their decision making optimal while someone has a gun to their head. An extreme situation but how is this possible? Most people would be panicking, begging, doing things they wouldn't normally do to get away from this dangerous situation or just break down. The person with good judgement under pressure understands what emotions arise, why they arise, and how to handle it before starting to make decisions. They also understand that they are making decisions, not just flowing emotions out. This process happens in under a second, and the emotion is under control not allowing it to effect judgement.
People that don't or aren't able to put the emotion under control end up continuing to feel that emotion throughout the entire process of decision making, and every decision is based on that emotion as we discussed earlier. It comes down to self-knowledge. Do you know what situations trigger your emotions? Which emotions they trigger? Do you know what the emotion feels like, both in the moment and after you have regained your decision making? Do you know how your overall thinking effects which emotions you feel and how strong those emotions are? This is what makes the action-emotion-reaction so personalized yet so universal.
I think the first step in this is accepting that there is an emotion in between the action reaction sequence that will affect your reaction to the situation. Then start digging into yourself. What is the emotion causing you to do that you wouldn't otherwise? What does it feel like? When does it go away? What triggers it? You have to get to the point where you are ready for it to hit you and understand how to tame it down to a level that you can make good decisions. Understand that it is in your head, maybe from all the noise out there that ends up being noise in your head. Many things could be causing it and maybe it's just a lack of self-knowledge.
Having a process makes this 100x easier, and having a process you have confidence in makes it 1000x easier. This is because it's a process, you have a set of rules or steps with only so many outcomes and you know or get to know each emotion in those various outcomes very well. The simpler the process, the less potential outcomes you worry about in your mind, and the more focus you can put on a lower number of outcomes or emotions. You have control over them at that point, and they don't get in the way of your action reaction sequence. Many good traders skip straight to the end result with their advice, "have a process" "follow your rules" "keep emotions out". All good advice, but I thought I would get into the "why?" part in this post because I didn't always know why either. Hope it helps you.
Trade well,
-Michael
