Emotional Trading | Winning the Psychological Trading Game (2024)

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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.

If you don’t have a trading plan, sign up for The5ers hub, and you will receive a free online trading plan.

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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Emotional Trading | Winning the Psychological Trading Game (2024)

FAQs

What is the psychology of trading winning mindset? ›

Winning traders are flexible.

They aren't ego-invested in their trades. They are able to always view the market objectively and easily cast aside trade ideas that aren't working. Winning traders do not hesitate to risk money when they see a genuine profit opportunity based on their market analysis and trading strategy.

What is the psychology of winning trades? ›

Discipline and risk-taking are two of the most critical aspects of trading psychology since a trader's implementation of these aspects is critical to the success of their trading plan. Fear and greed are commonly associated with trading psychology, while things like hope and regret also play roles in trading behavior.

What are the 4 emotions in trading? ›

Fear, Greed, Hope, and Regret. Investing decisions in any market in the world are driven by 4 powerful emotions of Fear, Greed, Hope, and Regret. Left uncontrolled, these emotions can have a seriously negative impact on your trading account—but only if you let them.

How can I be psychologically strong in trading? ›

By understanding and managing emotions, avoiding common pitfalls, and embracing individual strengths and weaknesses, traders can elevate their decision-making process. Through discipline, self-awareness, and emotional intelligence, you can unlock the potential of your trader DNA and develop a healthy trader mindset.

Is trading 70% psychology? ›

According to experts, successful trading is a result of 30% strategy and 70% of understanding Trading Psychology. So, if you are capable of handling your emotions and making full use of Trading, progress is not far for you in the Trading world.

What is the golden rules of trading? ›

Let profits run and cut losses short Stop losses should never be moved away from the market. Be disciplined with yourself, when your stop loss level is touched, get out. If a trade is proving profitable, don't be afraid to track the market.

What percentage of people succeed in trading? ›

Approximately 1–20% of day traders actually profit from their endeavors. Exceptionally few day traders ever generate returns that are even close to worthwhile. This means that between 80 and 99 percent of them fail.

What is the best mindset for trading? ›

The Mindset of A Successful Forex Trader
  • #1 Don't Let Losses, Mistakes or Failures Determine Your Sense of Value. ...
  • #2 Use Losses and Failures As An Opportunity To Become More Resilient. ...
  • #3 Take Trading Seriously, Not Yourself. ...
  • #4 A Loss, Mistake or Failure Informs Me What I'm Doing Wrong. ...
  • #5 It Takes Courage To Fail.

What is trade theory in psychology? ›

Trait theory in psychology rests on the idea that people differ from one another based on the strength and intensity of basic trait dimensions. There are three criteria that characterize personality traits: (1) consistency, (2) stability, and (3) individual differences.

What are the three C's in trading? ›

To take advantage of the global selloff, analysts advise investors to stick to the 3Cs theme - consumption, capital spend and cyclical stocks -- to beat volatility.

What is an example of an emotional trade off? ›

In this example, we would define the emotional trade-off difficulty associated with this safety–price trade-off as the level of negative emotion that is experienced or anticipated as a result of the direct trade-off between safety in an accident and purchase price.

What are the 4 R's of emotional regulation? ›

Eric Barker encourages us to follow the 4 R's rule: Realize, Recognize, Refine, Regulate (and yes, in this case the order is important). 1) Realize: Self-awareness. Having a deep and clear understanding of one's emotions, strengths, weaknesses, needs, and drives.

Is trading good for mental health? ›

The challenges inherent in online trading and investment can wield a significant influence on mental health, unleashing a spectrum of emotions from exhilaration to anxiety.

What is the secret to successful trading? ›

Success in trading is intrinsically linked to emotional control. Almost 90% of this success depends on managing emotions during market fluctuations. Patience, discipline, and objectivity are essential for making accurate decisions.

How do you train your brain to trade? ›

Get Yourself in the Right Mindset

Before you even start your trading day, simply remind yourself that markets are never constant. You will have some good days and some bad days, but the bad days too shall pass. Another effective strategy to improve your trading psychology is to give yourself time.

What is the mindset of a successful trader? ›

Discipline and Consistency: Successful trading requires discipline and consistency in following trading plans, risk management strategies, and sticking to predetermined rules. Trading psychology helps traders develop and maintain the necessary discipline to avoid impulsive actions driven by emotions.

Is 90 mindset 10 skills trading? ›

It is often said that trading is 90% mindset and 10% skills. Having the right mindset is essential for any successful trader, as it helps to build confidence and consistency in your trading decisions. The right mindset can help you make good decisions quickly, remain disciplined and stay focused.

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