Whenever there is a sharp price movement in either direction, it may pick up momentum. This is because such a price movement is likely to attract other buyers and sellers and that’s why we see such strong ‘bull’ and ‘bear’ markets.
Often these market spikes result from FOMO, or the Fear of Missing Out. If you haven’t already seen it, the movie ‘Dumb Money’ – the story of GameStop is a great example.
Emotions are a measure of people’s thoughts about a company’s health or a particular sector of a market.
It’s supply and demand.
Emotions such as fear, greed, hope, and regret can profoundly influence trading decisions, often leading to irrational behaviour and suboptimal outcomes. Ignoring these emotions or attempting to suppress them can be detrimental, as they tend to manifest in unexpected ways, undermining even the most well-thought-out strategies.
The Rational vs. Emotional Mind
Traditionally, traders have been taught to rely on logic and reason, often dismissing emotions as irrational and unreliable. While analytical skills are undoubtedly essential, disregarding emotions ignores a vital source of information. Emotions serve as signals, providing insights into underlying market sentiment, personal biases, and subconscious beliefs. Learning to listen to these emotional cues can complement analytical approaches, offering a more holistic view of the market landscape.
Intuition and Gut Feelings
Intuition, often referred to as a “gut feeling,” is another valuable emotional resource in trading. While intuition may seem mystical or irrational, it often reflects subconscious pattern recognition and experiential knowledge. Seasoned traders develop a sixth sense for market dynamics, allowing them to make split-second decisions based on instinct. Learning to trust and listen to these intuitive insights can provide a valuable edge in navigating uncertain market conditions.
In his training manual, the Smarter Starter Pack, David Bowden, the Founder of Safety in the Market says “Get to know your stock or your commodity like a cow knows her calf. That is the best advice I can give you. The market is a living thing. If you get to know it – to live it and to love it, it will be your friend – otherwise look out.”
By this David means that each stock or commodity has its own idiosyncrasies and over time you develop an intuitive understanding of it.
Really studying your chosen markets and knowing little things like the average daily range it likes to move in, how it reacts at certain price levels, or its all-time high and low prices and where it currently sits in between, will help you recognise irregularities and spot opportunities in the market as they arise.
Emotional Discipline and Self-Awareness
Listening to your emotions in trading requires a high degree of emotional discipline and self-awareness. What are your emotions trying to tell you – It involves acknowledging and accepting your emotional state without allowing it to cloud your judgement or dictate your actions. This process requires ongoing self-reflection, mindfulness, and a willingness to confront uncomfortable truths. By cultivating emotional discipline, traders can better manage their impulses, adhere to their trading plans, and maintain composure in the face of adversity.
So, What are YOUR emotions trying to tell you?
In trading, emotions serve as valuable indicators of various aspects of your mindset and market conditions. Here are some emotions experienced by other traders and some clues as to what they may be telling you:
- Excitement/Euphoria: Feeling excessively excited or euphoric about a trade may indicate overconfidence or chasing returns. It could signal that you’re ignoring potential risks or failing to conduct thorough analysis.
- Frustration/Impatience: Frustration or impatience may arise from a lack of immediate results or from trades not going as planned. It could suggest the need to reassess your trading strategy, set realistic expectations, or exercise more patience.
- Confusion/Indecision: Feeling confused or indecisive may result from conflicting signals or uncertainty in the market. It may be a sign that you need to gather more information, undertake some further study and seek guidance from mentors or peers, or take a step back to regain clarity.
- Regret/Guilt: Experiencing regret or guilt over a trading decision typically indicates that you violated your trading plan or made an impulsive choice. It’s a reminder to learn from mistakes, practice discipline, and stick to your predefined strategies. If you don’t already have a trading plan in place, or maybe yours needs a tweak, then our Trading Plan Tune Up is perfect for you.
- Calm/Confidence: Feeling calm and confident about your trades is generally positive and stems from thorough research and diligent preparation – but could also indicate complacency. It’s essential to maintain vigilance and not become overly relaxed, as markets can change rapidly.
- Doubt/Scepticism: Doubt or scepticism may arise when you’re unsure about the validity of your analysis or the reliability of market information. It may prompt you to conduct further research, seek confirmation from multiple sources, or consult with experienced traders. If you find yourself lacking confidence in making informed trading decisions, our Active Trader Program is tailored to assist you. You can find our more here ( – link https://safetyinthemarket.com.au/active-trader-program-2023/)
- Contentment/Satisfaction: Experiencing contentment or satisfaction with your trading performance can be gratifying but may also lead to stagnation. It’s crucial to strive for continuous improvement and avoid becoming complacent with past successes.
- Stress/Anxiety/Nervousness: Feeling stressed, anxious or nervous about trading could be a sign of excessive pressure, fear of failure or a warning sign of overexposure to risk. It’s essential to manage stress levels through proper risk management – we recommend no more than 5% risk on any one trade, and only 2.5% when you are starting out learning to trade. It’s something we cover more in this article Risk Management – The Key to Long Term Trading SuccessRelaxation techniques, maintaining a healthy work-life balance and a hobby away from your computer screen can help!
- Optimism/Hope: Optimism and hope are natural emotions in trading, but they should be tempered with realism. It’s essential to maintain realistic expectations, avoid overly speculative trades, and focus on consistent, sustainable growth.
- Disappointment/Despair: Experiencing disappointment or despair from losses or setbacks can be challenging but offers valuable lessons for growth. It’s crucial to maintain resilience, learn from mistakes, and persevere through adversity.
By paying attention to these emotions and understanding the messages they convey, traders can gain valuable insights into their psychological state and make more informed decisions in the markets.
Even the most experienced traders will tell you that these emotions never go away – they just get used to them, and learn how to manage them better!
Emotions are not obstacles to be overcome but valuable sources of information to be embraced. Listening to your emotions is not about letting them control you but rather about understanding their underlying messages and integrating them into your decision-making process. By acknowledging the human element in trading and developing emotional intelligence, traders can gain a deeper understanding of themselves and the markets, ultimately enhancing their chances of success. So, the next time you’re faced with a tough trading decision, take a moment to listen to your emotions—you might be surprised by what they have to say!
