Emotions in trading

21 Dec 2022

The two psychological factors that affect the success of trading are:

1. All economic theories are established based on a number of assumptions, and conclusions based on economic theories or statistical probabilities may be far from the truth. Therefore, no matter how carefully we analyze the market, there is always the possibility of omissions, and there is uncertainty in the trading itself. This means that as traders, we are bound to experience a certain degree of anxiety, at least there is the possibility of experiencing distress.

2. If we make a profit, the pleasant emotional experience is actually part of the benefit we get; and once we lose money, it will easily lead to emotional confusion, and anxiety leads to fear.

Fear is actually common among traders, and psychology points out that the way of dealing with fear in the subconscious is manifested in the following basic forms: the protection of self-image; the protection of personal space.

When personal behavior is dominated by the need to maintain self-image, we will strive to gain the approval of others. When the approval does not appear, self-esteem will be frustrated. In order to avoid this feeling, the tendency of self-image maintenance will be in line with Imagination is combined to create an idealized self-image to prevent us from perceiving "hostile" reality. This is usually manifested in trading as being unwilling to admit mistakes because of fear of making mistakes, which hinders further analysis and correction of mistakes.

People who seek to secure their personal space, on the other hand, have a strong mental self boundaries and will try to control all the factors that may affect their lives. The performance of this in trading is usually that they subconsciously believe that they can control price movements to some extent. Their arrogance does not even consider the possibility of making mistakes, and in case they do, they blame external circumstances.

Obviously, a careful analysis of these forms of reaction shows that they are not suitable for dealing with fear in the financial markets. The subconscious mind cannot help us overcome fear in trading and face the market and ourselves objectively and positively.

So, what should we do?

First of all, correct our beliefs so that it matches the facts as closely as possible. If there is a gap between the belief in the world and the real situation of the world, the result may cause inappropriate expectations, and the divergence between expectations and results will cause physical and psychological pressure and negative emotions.

Therefore, we must accept the following facts:

1. As a trader, when establishing a position, our judgment and emotions must directly deal with challenges. In other words, we must accept risks, and risks must be accompanied by a certain degree of fear and anxiety.

2. Emotions are innate and an indispensable part of the self. They can provide valuable information in the subconscious. We must accept it, not fight it. Negating or trying to exclude its existence will cause eternal internal conflicts.

3. We are bound to make mistakes. No one has unlimited rights and extraordinary abilities, and admitting mistakes does not diminish the fundamental value of the individual.

These seemingly easy to understand facts may not be easy to implement in the practice of trading. Accepting them means changing some of our previous values and ways of thinking. This may require a long period of self-reflection and an honest confrontation with ourselves.

In addition, it is essential to establish an evaluation system for the subconscious.

Before actually establishing a position, we should intervene in the operation of consciousness and evaluate subconscious conclusions. The so-called evaluation is to check whether the trade complies with your own trading rules. We must ask ourselves: Is the risk/reward ratio appropriate?..." In other words, after subconsciously reacting, we must evaluate what the subconscious has done according to our own trading rules. Whether the judgment is valid. If the subconscious judgment is indeed valid, then trade. Otherwise, you should give up. We must define our trading behavior according to our established goals and our own trading rules.

Finally, to perform the above procedures, you must maintain great concentration. Maintaining energy and concentration is extremely important in an unpredictable and risk-filled work environment. A successful business career must have clear thinking skills, vigorous energy and free emotions.

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