Does Emotion Come into Play When Trading?
“Nine tenths of wisdom consists in being wise in time.”
There is a stereotype out there that makes some investors wonder if they really have what it takes to succeed. Many people think of stock market traders and view a cool, level headed individual who never gets stressed out or upset. They ride the waves of the market like a pro. Even when stocks are sliding down, they rebound quickly and never bat an eye lash or sign in exasperation. While this sounds like the best personality type for a career in investing, it is really a far cry from reality. In fact, it is safe to say that the opposite may be the case. Many of the most successful stock market investors are emotional people. They get upset, angry, frustrated and celebrate their victories with happiness, joy, and excitement. They are definitely not cold, unemotional people.
The Role of Emotions in Success
Perhaps it would help to take a look at how emotions can play a role in success. When an investor becomes too emotional, he or she may begin allowing that emotion to get in the way. They may trade irrationally and suffer from stress due to strong reactions when things go wrong. This can begin to influence their health and is definitely not a good thing. However, as long as the investor can prevent their emotions from completely taking over, they can actually benefit significantly from them.
Look at it this way: when you win or achieve something you feel very positive emotions. These reinforce the desire to win in the future. When you feel failure, something similar occurs. You feel negative emotions that teach you to avoid losing in the future. In the stock market, these emotions can spur investors into making better decisions and discovering better trading techniques. Emotion can help drive the right actions and attitude to become a success, even if the trader has already experienced failure.
Discovering the Balance Between Emotional and Emotionless
The last thing you want to do is get carried away in a failure or success. Being too emotional has its draw backs as well. The goal should be to find a balance between emotional and emotionless. Let yourself feel failure and success through emotion, but do not allow those emotions to govern your better sense. You must trade rationally and remain calm. A failure should not encourage you to turn to self destructive behavior or alter your personality because of the emotions you feel. However, harnessing those emotions can help push you towards better future choices and profit. Emotions are a part of investing and can help you improve if used the right way.
Just think of the global financial crisis. How did that affect you? In my case, I definitely learned how to tighten up my risk management across the board and ensure losses of that magnitude never happen again, and hence the GFC was a silver lining due to the unpleasant emotions I had during that time.
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