The Angry Trader Never Wins 

Holding on to anger is like grasping a hot coal with the intent of throwing it at someone else; you are the one who gets burned.

– Buddha

Trading and emotions go hand in hand. There is a distinct need to feel in control, fear can be overwhelming, and reactions to things not going as expected are hard to contain. The thing is that the trader needs to win every time as they forget that the markets are in control, not them and they do not allow themselves mentally to lose. They don’t map into their plans that the markets will suddenly spin in a different direction, usually only temporarily, and there may not be an obvious cause.

Typically the shifts are driven by mass hype and for the trader that can be seriously aggravating as they know the reaction is based on fear or hype that is not founded on fact. However whatever the cause, the fact is the trader’s positions can be put at risk and their reaction is inevitably going to be frustration, anger, and stress. This is not conducive to working out the best response as a trader needs to have a focused and calm mind with rational thinking.

Professors Jennifer Lerner and Larissa Tiedens have recently produced a paper in “Journal of Behavioural Decision Making” about the angry decision maker and what their profile looks like. They have used as their basis scientific research that looked at how anger influences decision making (Lerner & Tiedens, 2006). Overall the results are as one would expect as it directly influences all thoughts, words and deeds as well as perceptions, rationalisation, beliefs and ideas. The trader who has become angry starts with the premise that they are right but their clouded thoughts will disable their rationality. The research confirms that once someone becomes angry, they gain a greater certainty that they are right, are overly optimistic and have a need to act. This is most definitely not an ideal place for a trader to be when making decisions.

When considering the angry trader, then it is evident that they will start acting impulsively and will start taking decisions that are not based on fact. They may find they come out ahead but it will most certainly be down to luck rather than judgement. The greatest risk is that such impulsivity and reaction becomes integral to the trader’s approach. The driving force of fear that losing can create, added with anger can ironically make the trader start to feel that they can do whatever they want and that they have the winning formula. The results are never going to be good though as their impulsive trading will usually mean they ignore the risk element of their planning and losses will increase.

Trading is not a hobby, it’s a job and its success depends on a clear head and the ability to manage the psychological challenges of the markets. Most certainly a trader should never operate when angry as the resultant impulsive trading will not deliver success. Anger needs to be managed and every trader needs to have a strategy to deal with emotional reactions to situations to ensure that they are trading at the peak of their ability.

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