What Is Trading Emotion and How Does That Happen?

As traders, when we put our hard-earned money at risk in the market, we can tend to become emotional during the trade. Typically, since our attachment to those funds in our account are strong, any perceived loss results in a feeling of uneasiness and sometimes even panic among some traders.

As a beginning trader, these emotions can weigh more heavily on you and can lead to a loss of focus and produce inferior performance. Therefore, it is critical that you address negative emotions related to your trading head on so that you can try to minimize its adverse effects.

Some examples of the most common negative emotions that traders experience include the following:

Frustration – Getting frustration with yourself or your trading system for making a bad decision in the market, or not feeling confident in your strategy.

Depression – Going thru a string of losing trades and having to deal with a large unanticipated drawdown. You beat yourself up psychologically and may even begin to enter into a depressive state.

Panic – You might have put on a position that is much larger than you typically are comfortable with. You may have neglected to use a stop loss order, and now your position is going deeply against you and you begin to panic and feel paralyzed to act.

Desperation – Maybe you sold at a support level, but the price shot up from that level and now you are holding a large unrealized loss, and you pray and hope for price to get back to your breakeven level, so you can just get out of the trade without a loss.

Greed – You are in a winning trade, but now technically everything on the chart is telling you to get out of the trade and lock in your profits. But you feel in the back of your mind that this is going to be a big winner, and you need it to be to help pay for that Valentines Day gift your planning on buying for your girlfriend. Subsequently, due to your blind greed in the market, you wind up taking a loss on the trade.

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