Where Trader’s Emotions Come From and What to Do About it


The hardest thing about trading is not the math, the method, or the stock picking. It is dealing with the emotions that arise with trading itself. From the stress of actually entering a trade, to the fear of losing the paper profits that you are holding in a winning trade,  there are many different types of stress. How you deal with those emotions will determine your success more than any one thing.

Here are some examples of emotional equations to better understand why you feel certain emotions strongly in your trading:

Losing Money and failing to learn to Trade Better results in Despair. 

Do not despair look at your losses as part of doing business and as paying tuition fees to the markets. If you are getting better at trading do not despair even if you are losing money.

When Expectations clash with Reality it causes Disappointment.

Enter trading with realistic expectations. You can realistically expect 20%-35% annual returns on capital with great trading. More than that is possible but unlikely.

Disappointment in a loss that was Caused by a lack of Discipline leads to Regret.

If you followed your trading plan and lost money because the market did not move in your direction so be it, but if you went off your plan and traded based on your feelings and opinions then you should feel regret and stop being undisciplined. Your regret is telling you to get back on track.

You can start Enjoying your Trading and your winning trades when you have removed the Fear of Ruin.

Trading is much more enjoyable when you are risking 1% of your capital in the hopes of making 3% on your capital with a zero chance of ruin. It is not enjoyable when you are putting a huge percentage of your capital on the line in each trade and are only a few bad trades away from your account going to zero. Taking big risks for small profits is not really enjoyable.

Wisdom comes through years of  trading, wise traders have usually been on both sides of the markets, they have won big and lost big and now know what they have to do.

To get good at trading you have to trade real money. Wisdom comes from putting real money on the line for years and proving to yourself that you can come out a winner in the long term after you learned what not to do.

When you combine a Belief through back testing of a systems robustness to the Experience of winning with it for years you get Faith in your system.

A lot of emotional trading can be overcome when you do not have doubts about your method. When you hold an almost religious fervor over believing in your method, system, risk management, and your own discipline you will overcome many of the emotional problems that arise with other traders in the heat of action.