How Thinking, Feeling and Emotions Affect Traders
Do emotions affect a trader’s decision making and if so, how do they go about it?
It’s not the emotion that really affects a trader’s decision making, but their expertise to regulate these emotions to make good decisions.
Let’s look at how some of the best and biggest traders in the world cope and see how their ability to keep their emotions under control help them make good decisions in the market.
There is evidence to suggest that positive decision-making (assessed by profits and losses) are associated with a pleasant affect, and that negative outcomes were associated with unpleasant affects (such as boredom).
Interestingly, we find that those who are more emotional (positively or negatively) when making trades are amongst the poorer performers, in comparison to those who are able to neutralise their emotions.
Effects of Your Previous Trades
Humans are naturally not great traders. Whereas a computer doesn’t have any emotions and can continue to pull the trigger on a trade and continue taking the same trades time and again.
A trader’s emotions can start to waiver after a few losses which can alienate them from a profitable fx trading plan.
At this time, traders will often do things such as not taking trades according to their plan because they are scared or are trying to get as much of their losses back as possible. Some even begin to overtrade and others simply manage their trades different from their plan altogether.
Someone who makes 2-3 wrong decisions may not take a risk for a further month until they have rebuilt their confidence.
Likewise, people who are on a good run can get too arrogant for their own good. This can be dangerous as it stops your thought process from thinking as much.
It is common for traders to take their emotions from one trade, or previous trades, onto their next trade(s), whether that is overconfidence, fear or anger. This can be a problem in sticking to their plan.
What Can You Learn from This?
This information will hopefully help you to learn how to regulate your emotions, to deal with any daily stresses along the way to becoming a professional trader.
Experience and high-paying traders often know how to handle their emotions so that it does not affect their strategy.