Psychology, Emotions and Trading

Trading psychology edge

Psychology is one of the most important factors in trading.

Everyone that has traded has known the emotional states associated with this world and any human activity with high uncertainty. Many traders know what a fast pulse rate is when their trades show them big profits; not to mention the anxiety attacks when things go wrong.

It is one thing to say it and other to live it.

Those who have experience in the markets know about this.

It could be a good or a bad sensation. After all, you feel alive; you feel that you are participating in something at least for a while. The majority of people, at least in Europe, see the world of trading as something evil.

Who is bold enough to defend the speculators in public?

Not many people.

For liberals, it is a wicked activity.

But nothing is further from the truth.

Trading is an activity that requires that you think and act. There is nothing evil in it.

Those who criticize it are the champions of prohibitions and government control. Those that, in general, do not like to think for themselves; those who want other to do so: The State. That is their idea of the world: to work, and the state will provide. Men cannot think, just work. The State is God.

But before I get lost let us talk more about psychology and trading.

Trading psychology stock market

The majority of traders do not worry about this when they start their “careers”. That is normal actually. You will learn step by step; with experience, as usual. It does not matter how much we read when it comes to emotions. You have to live it.


When you start trading, you will be frustrated many times and will learn new frustrations continuously. After some time, you will get used to it. You learn that some things just happen.

“The trend is your friend”; is one of the most famous mottos of this world, and for a good reason.

Day Trading psychology

The majority of traders who start this world want to do day trading. They read somewhere that you can earn 2000 $ per month with a 3000 $ and start trading ES futures.

Not long time after, they will find themselves without a penny and financially wrecked.

Trading psychology and technical indicators

Day trading psychology is very hard. A lot of traders make it worse when they follow the recommendations of many people “selling” the use of complex indicators, signals, and expert advisors. Eventually, those traders will be saturated with so much confusing information.

Imagine you have many indicators in the chart. What would you do if the first indicator “tells” you it is time to trade, but a second indicator “tells” you it is “almost” time to do so?

It is always nerve-wracking.

Finally, you decide not to trade, and immediately the asset shoots up in your planned direction to your main target. You may get a lot of anxieties while you see this happening in front of your eyes. You pray for the price to come back to your entrance point, but it does not and keeps moving up. You end up very disappointed.

Next day a similar situation presents itself and that time you decide to trade. It may occur that this time you get a loss. And believe me; you end up with a very bad mood. I have seen that. It happened to me a lot.

The moment when you have to get in a trade is a very difficult one. That is why many people try to use automated systems.

But that is another story.

Emotional states in trading: greed, fear, hope and repentance

Greed is a very common feeling in every activity that involves money. Stock Markets are about money. Sometimes a trader does not close a trade because he wants more profits. But a trade is never a winning trade until it closes.

You have to know when you have to be in and out.

It is especially important for novice traders. They should not be carried away by greed and trade too big. In fact, the best thing they can do in the beginning is to start trading very timidly.

You should forget about the promises of quick profits that many scammers claim.

It is good to stay humble.

Trading psychology fear and greed

Fear is very important in trading. Fear may paralyze us and make us trade when we should not or not trade when we should.

It happened to me many times that I did not trade for fear and those operations ended up being winners. Psychologically it always affected me. That is why discipline is so important.

If you have a simple and good system and you have enough discipline, you have a good chance of success.

If you see that you are fearful constantly you should not trade the financial markets.

Another case is when a trader does not make a trade for fear of losing after a big losing stake. And the last time he decides not to trade. It may happen that that last time was the good one. It happened to me sometimes as well, and it is very frustrating.

Trading psychology and risk management

One good idea to reduce fear is to apply a good money management and keep your trading size low.

Use stop losses and limit profits always. If you risk a small size of your account, it will help your nerves.

You have to limit fear as much as possible.

You should never follow what the news or the masses say. You have to follow your plan. If you trade the trend, forget what the news is saying or what your friends tell you.

We will stop trading the trend when there is no trend.

Trading psychology hope

Hope is a double-edged sword.

It is not bad to have hope; on the contrary it is a positive trait.

“While there is life, there is hope”, as the saying goes. But in the world of trading, hope can gives us a hard time sometimes, particularly if we do not apply sound money management. Or in other words, if we do not use a stop loss order.

We should never let the market do what we think it should do.

We should learn to lose. There will be many trades in the future.

I remember the experience of some guys who said that: after many years trading they had found their secret: not using stop loss. Well, it may work for them for a while, but in the long run they will go bankrupt.

The only ones who should not use stop loss order in trading are those who invest in stocks for the long run (buy and hold strategy).

Repentance happens when we have done or not done what we should have. A missed opportunity is as hard as a loss. The best thing is not to regret too much, look forward and carry on.

My advice is that you should concentrate in simplicity. Try not to have many indicators and complex entry and exit points.

The more indicators and complexity the more emotions suffer, and we should reduce emotions as much as we can. And automated trading is not the solution for day trading success (could work for trend or swing trading)

Thanks for reading and sharing.