Emotions Are Part Of Trading – Accept It And Profit From It

The Inevitability of Emotional Trading

As traders, we often discuss the need emotional trading – and we all want to act like we are emotionless in our trading decisions. However, this is frankly impossible. Emotions are as inherent to humans as stripes are to zebras. We must acknowledge this fact, especially in trading where emotions can significantly impact our decisions.

Our brains are hardwired to react emotionally. The limbic system, including the amygdala, processes emotions like fear and pleasure, which are traits designed for survival. In trading, these responses translate into fear of loss or the thrill of gain, making emotional neutrality in trading a myth.

How Trading Amplifies Emotions

Trading is structured in a way that maximizes emotional responses. The thrill of a successful trade or the despair of a loss are not just feelings; they’re part of the trading experience. Whether it’s the excitement of a win or the frustration of a loss, these emotions are always present.

Examples of Emotional Responses in Trading

• Fist pumps after a good trade.
• Desk pounding after a bad trade.
• Nervousness about overnight futures.
• Overconfidence in trading abilities.

These are all emotional reactions that traders experience, regardless of skill level.

The Danger of Uncontrolled Emotions

Let me give you an example. In your marriage, you get mad at your wife or husband at some point. Perhaps more often then you prefer, but that is normal. When you live in close quarters with someone, there is bound to be conflict. That is the emotional nature of humans when things don’t pan out perfectly like we want it to.

However those emotions have to stay in control, because the moment you start tearing down your partner verbally or physically, is when the emotions become unbridled and bad things start to happen, resulting in a lost marriage or the police escorting you down to the jailhouse.

Now, I’m not trying to make apples to apples comparisons between domestic abuse and trading. What I’m trying to say is that when there are tense and emotional states, the key is not to ignore the fact that there is emotions involved or to let the emotions go unchecked. Rather the key is to acknowledge the role that emotions are playing in your trading, what kind of information you can glean from them and finally what is the best response, while being fully aware of your feelings, and not letting them overpower prudent decision making.

Strategies for Emotional Management in Trading

The first step in managing emotions is acknowledging their role in trading. Here’s how you can approach this:

• Journaling: Keep a trading journal to document not just trades but your emotional state during each trade. This can provide insights into patterns of emotional responses.
• Physical Activity: Engaging in activities like walking on the beach or any form of exercise can help clear your mind and reset your emotional state. I’ve used walking on the beach as my preferred method of clearing my head and getting perspective on everything troubling me in the stock market.
• Reflection: Sometimes, talking out loud or praying can provide clarity. These activities can help you process your feelings without letting them dictate your trading decisions. For me personally, I do a lot of praying, not because I am praying for a losing trade to turn in my favor, but to gain right my mind and the emotions that are steering me off course.

A Personal Example

On one such day, I woke up to a market that had gapped against my short positions and spent the morning squeezing me hard. My stops were hit, leaving me 100% cash. Instead of jumping back into the market, I took a break. I walked on the beach, which is just minutes away, and then went for a swim. This break refreshed me, allowing me to return to trading with a clearer perspective, leading to a series of successful trades later that afternoon.

Embracing Emotional Intelligence in Trading

Ignoring emotions or letting them run wild is detrimental. Instead, use them as data points to inform your trading strategy. By managing your emotions effectively, both your mental health and trading performance will improve. Remember, mastering emotional control in trading is not a destination but a journey. As markets evolve and personal growth occurs, so too will your emotional responses. Regularly revisiting and adjusting your strategies for emotional management ensures you stay ahead, not just in trading, but in life.

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