Emotional Trading | Winning the Psychological Trading Game (2024)

Conquering the major emotional states associated with trading

The best emotional trading advice to mentally prepare a trader for success in the market is a simple premise, but one that is in conflict with our natural state and, therefore, exceedingly difficult to achieve. To conquer the psychological roadblocks, we as traders need to transcend them and free ourselves from their push and pull. The nirvana of trading states is free from the emotions that make us human.

To better understand these emotional pitfalls, let’s go through all of the possible states you will encounter on your road to trading enlightenment.

Envy traders

One of the most destructive of the seven deadly sins, this affliction will see you shifting focus away from yourself onto other people. This leads to an obsession with how much other people are making and can completely consume you. This is dangerous because when you focus on other people, it’s impossible to evaluate yourself. You’re unable to see what you’re doing wrong and what you might be doing right. While in this mood, it’s impossible to improve and grow as a trader.

Shame in trading

When we hang our heads and retreat inwards, we lose the incredibly important element of outside feedback. While covered in shame, we stop looking and asking for help, usually because we’re so embarrassed by recent losses. It’s important to be strong and to remember that even the best traders always consult with people, no matter if they’re ashamed about recent negative trades. The best thing to do after a bad move is to stick with your trading plan and move ahead. Don’t wallow in negative emotions!

Pride traders

The opposite of shame, this raw emotion comes when you feel you’re untouchable, that you’re the best in the world, etc. When gripped by pride, you’re going to be more likely to take silly risks even if they run counter to your trading plan. Trading 101 – when you don’t follow your trading plan, you get into trouble.

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Contempt

This emotion is a little trickier to define than the others because it usually leads back to and can resemble pride. It manifests when you ignore things that you shouldn’t, especially your trading plan. Even if you get lucky and win a trade, it’s a false sense of security which will lead you to continue making bad decisions outside of your set agenda. To repeat – as long as you stray from your trading plan, you’re setting yourself up for trouble.

Depression from trading

This is one of the major reasons people quit trading. After a long losing streak, many traders will fall into a depressed state. A depressed period can also be triggered by events occurring outside of the trading world. A death in the family or other such negative news can pull down the mood. Here is another area where if you follow your trading plan, it is possible to ride out the depression wave. Keep your eyes on your goals and targets, and don’t be deterred by a few losses.

Trading anxiety

In traders’ psychology, this is a big one that we can associate with other negative moods on this list. Anxiety is a general term that causes stress and hinders your ability to think clearly and execute trades according to your well-thought-out trading plan. Anxiety is often a byproduct of previously mentioned emotional states like envy, depression, and shame.

Anger in trading

After failing to achieve your goals or dismay at witnessing other traders perform well, anger can sneak in and grip your emotional state. It sounds obvious, but trading in a fit of emotional rage is a big no-no. This can often lead to revenge trading, which is one of the most detrimental syndromes a trader can experience. For more information regarding revenge trading, please see our comprehensive article about the Revenge Trader.

Traders Fear

While biting your fingernails or anxiously bouncing your knees up and down while staring at the market’s fluctuations on screen, a trader inflicted with fear can be paralyzed. There is a whole range of negative effects when held in this state. For more information on conquering fear, please check out our guide on how to defeat fear in trading.

Happiness trading

While it certainly sounds good, happiness is, in fact, bad. As we mentioned at the top of this article, any emotional state that swings you one way or another in trouble. In this case, happiness can lead to overtrading or increasing your position size outside of the parameters laid out in your trading plan. When trading, it’s best to have emotions set at neutral. Not happy, not sad, just flatlined.

Surprise

Surprise! There’s a sudden spike in the market! You get the urge to make a move. It doesn’t matter if it’s in line with your plan. You’ve gotta act now! Like anything that causes you to set aside your trading plan, this is bad news. Always follow the trading plan!

Emotional trading summary

If you’ve been following this post-close, you should have already come to this conclusion: the best psychology state for trading is one that can handle all emotions.
In order to achieve this, it is imperative that you follow your trading plan. Don’t ever let emotions interrupt your focus and course.
You must at all times be guided by the well-thought-out, comprehensive plan you developed.
Find the reasons not to enter a trade rather than following emotional impulses to enter. Don’t think about the money, and don’t think about how much you can make. Just stick to your plan.

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