Basic trading emotions
There are times when anyone invested in the stock market feels like giving up and selling everything. There may even be times when you, as an investor, feel as if this asset class is not for you. However, what will happen if those emotions take over? That could lead to panic selling then regretting it later on.
The topic of emotions and trading is something that is incredibly frequently discussed, especially among newer traders. With so many things to think about in the field, it can seem overwhelming to contemplate your emotional state as well. You may wonder: how can I maintain a level head when everything is going wrong? However, if you consider the root cause of these emotions, they’re often brought on by market volatility.
So what exactly are basic trading emotions?
You’ll have your own emotions that define the ups and downs of trading—after all, emotion drives the market. There are two major types of emotions that you can use to define this experience: positive emotions and negative emotions.
● Fear: being afraid of losing money.
● Greed: being too greedy by holding onto trades for too long, trying to milk back some lost profits.
● Anger: becoming angry at others or yourself for bad trades or lack of discipline.
● Embarrassment: feeling embarrassed about losing money when other traders see your positions exposed in public forums.
● Disappointment: feeling disappointed because you did not achieve what you wanted to when trading.
Positive emotions (aka winning mentality)
● Confidence – the emotional high of making good trades with sound risk management and money management.
● Desire – feeling inspired to keep trading because it allows you to make more money for your future.
● Hope – having a solid belief that things will work out, regardless of what happens before you hit the “enter” button to place a trade.
In general, traders should feel confident in their skills to make correct decisions. Embrace fear as a natural part of trading and embrace winning as an essential part of staying motivated about trading. Avoid emotional meltdowns when losing. Be aware of the euphoric feelings that come with making good trades, and let those feelings push you even further to becoming a better trader.
So how does that affect your trading?
These emotions tend to lead to impulsive decisions that stem from acting on what you see happening around you. If the trader is fearful, they may become too conservative with their trades; after all, what’s worked before might not work now if markets are volatile. The anxious trader might jump into a trade without research or analysis because of fear of missing out, likely resulting in them losing more money than they would have gained. The angry trader will often try to make up for losses by doubling down on trades, leading to further losses.
How can you prevent these emotions?
The first step is recognizing these as the primary trading emotions that they are. The next time you are feeling particularly anxious, analyze your thoughts and see if it is because you are afraid of missing out or just wanting to recoup your losses from a previous trade that did not go as planned. By being aware of what is going on, you can take a more calculated approach to trade, rather than impulsively acting based on primal feelings.
One of the biggest problems for beginners in trading is understanding their emotions. It can be hard to take our feelings seriously at first – after all, they are just feelings. Not only that but many of us have been told to ignore our feelings all along. It can lead to some trouble when we begin to learn something new like ETF trading.
One problem with ignoring these basic emotions is that they do not go away. They tend to get stronger if you do not deal with them, so while it may seem like a good idea not to think about how you feel (which will probably leave quickly), learning how your specific emotions act might help you control your behaviour and make better decisions.