Emotion In Trading

[johnm]

Recently iam reading an article from the famous man Mahendra Sharma talking about emotion in trading and giving is view on the market and weekly trend. what u think do financial markets test your emotions ?

[ForexAbode]

Ofcourse they do . Especially they have the poser to drain the beginners. New traders would start with unnaturally high hopes and beacuse of this "unnaturally" part, people fall flat... and when they do they start with fear next time. This fear may stop them from cutting the profits short or stopping the positions too soon. Well, if that control over the emotions is not in place then it may leave people emotionally and bank account wise drained. I have put, what I think is good, a page on our site about this.

[graceheather]

Investing & Trading is not only testing your emotion... it is also FINE TUNING it.

By becoming a good trader, you are becoming a person with a better control over your brain & emotion.

As i mentioned in my other posts also, 2 of the greatest emotion affecting our trading is
#1 Greed
#2 Fear

[sidhart]

Traders both experienced and inexperienced have gone through this roller coaster ride of emotional ups and downs. To say that it becomes easier over time isn't really true. Perhaps one might be able to push the emotional buzz into the background, but the emotional stress does exist.

[Forexguy]

Part of the equation is recognizing that losses are going to happen and being OK with the fact that you ARE going to loose once in a while. The other end of the spectrum is getting too high when you have a big winning trade. This can trigger all sorts of psychological "issues" in a person. My brother had a trade not long ago where he made $3000 in a matter of 15 minutes, and proceeded to lose it all within the next 24 hours. Why? Because he got too cocky and thought he was suddenly a master trader. In short, he became emotional and it clouded his judgment.

[forextips]

Of course they do, howeeever we need to trade without emotion. This is the reason why I think most people lose money. We should trade based on systems,information and trends rather than our emotions

[craignorton]

I bring it up often, the primary source of capital loss is the psychological impact. Indeed, trading is not an activity like any other, the investors are presented with rigid constraints. The stress is part of the game. Learn to manage it.

The lack of control over the invester's stress drives him to take bad decisions.

[LivinFX]

Originally Posted by graceheather

Investing & Trading is not only testing your emotion... it is also FINE TUNING it.

By becoming a good trader, you are becoming a person with a better control over your brain & emotion.

As i mentioned in my other posts also, 2 of the greatest emotion affecting our trading is
#1 Greed
#2 Fear

I agree with all you say, continues fine-tuning is key ...

Problem is that for most beginner retail traders there is not much to "fine-tune". You got your demo account, try to establish your first trading methodology (or system). Seems to work. You go live.

Once live, maybe at first you got some luck, not long until that runs out and you are trying to "safe" your position ... adding more cash to your account? or cutting the loss?

Emotions kicking in ... :-)

Only experience get's you further, but the big question really is ... how much will it cost you to get to a point where you finally are disciplined enough and can control your emotions .. and can fine-tune your trading systems?

[investylesley]

I think it's a huge challenge to keep emotions in check while trading. In my former life as a tattoo artist, I had a client who was a professional gambler. He told me that if he had a fight with his wife or if something bad happened that upset him, he wouldn't gamble. Even though speculation implies the use of some kind of support with technical and fundamental analysis, it definitely employs the spirit of gambling... My husband made some bad forex trades after something really stressfull happened, he lost us some big money in a flash.
The issue of emotion in trading is complicated... We've made money on account of feelings we had about the Yen, the Euro... after all, who knows how much of fundamental analysis is just smoke and mirrors to divert the attention of the little guy away from the motions and intentions of the movers and shakers?

[LivinFX]

Originally Posted by investylesley

.... after all, who knows how much of fundamental analysis is just smoke and mirrors to divert the attention of the little guy away from the motions and intentions of the movers and shakers?

Good point I think. Just look how the EUR is driven from top down and all the way up.

If the powers behind the scene want it to go a particular direction, it will, regardless of the numbers
or what you read/hear in the news.

You can watch Bloomberg/MSNBC all day and read every newspaper you want until nothing makes
sense anymore.

I'm currently at a point to focus on better identify ranging markets and breakouts followed by strong trends.
Sounds easy, but it's not in practice.

EUR/USD is that great example where last year that unexceptionally great unemployment number first
Friday of December turned the trend around. That combined with very bad news from the Eurozone ...
it all went very fast downwards for the EUR.

Think back about all the noises screaming "Parity Parity Parity .." Think about how much these noises
impact your emotions in making trading decisions?

Now, where are we today? EUR/USD back to 1.40 ...

A smaller example is the EUR/USD past August, which was ranging, so technical trading systems, i.e. short
high & go long low, would work fine ... until it breaks through and goes up in September a smashing 1200PIP.

Spot the break-outs and ride a full month strong trend 1200PIP up non-stop ... how difficult could it possibly be?

Yes, that's all on hind-sight ... but to me, a big part of successful FOREX trading is a constant fine-tuning of
your "Noise Filter" ... the noise is what's mostly messing with your emotions -> which brings me back to the topic
of this thread :-)