Published On: Thu, Jan 31st, 2013

Stock Trading’s Biggest Adversary: Emotion

Emotions and stock trading don’t go hand in hand. They should be kept as far apart as possible. Agreed, money brings the emotional quotient into play, but the unpredictability of the stock market makes it a pre requisite that we put all our emotions on the side and then play the market.

Given below are a few poignant features or points associated with emotions in the stock market

1. Past losses bring out a lot of hurtful emotions within you

People always tend to remember their past losses and feel pretty bad about them. Well, you can’t help getting emotionally affected by losses, but it’s advisable to keep these emotions to the minimum. They might just hinder decision making and not allow your mental faculties to function at their best. For some people, a loss takes the shape of a permanent hangover. This is not right and must be taken care of before it can affect your future decisions on the stock market.

2. Huge victories can put you on permanent high

Just like losses will leave you emotionally drained, victories will take your happiness to another level altogether. But, extreme happiness is also a cause for worry. You might just begin to feel over confident about your ability and make some fatal errors in your stock investment. An overdose of happiness or sadness can cloud a person’s judgment. It is not a healthy state to be in. In stock trading it is of paramount importance that you have a short term memory.

3. Greed, Fear and Envy

The stock market has no use for such emotions. Greed will get you down. Fear will keep you down. Envy will never help you get up. If you expect too much out of yourself and keep comparing with fellow traders, or investors then you have had it. There is a lot of money to be had in the stock market, but don’t get too greedy. In pursuance of more money, you might just lose everything. Fear of failure, affects everybody, more so in the stock market. Its important to use fear positively, and taking the necessary precautions. Envy will never help you. The stock market is volatile and everyone does not have the same level of success.

4. Great expectations

Most people are under the impression that every stock they buy or sell, will be a great success. They expect to make a huge profit through each and every trade. This kind of attitude and hope gives rise to negative emotions. If you fail, then you will become a pessimist and negativity never helped anybody.

5. Vulnerability

Emotions can make you the pawn of various entities in the stock market. People might just use you for their personal gains. As can be imagined this will definitely affect your stock investment in an adverse way.

Don’t get all emotional when you are a playing the stock market. Keep a rain check on your emotions. This will allow you to stay focused and confident about your ability to trade the markets.

About the Author

- Marcus Holland has been trading the financial markets since 2007 with a particular focus on soft commodities. He graduated in 2004 from the University of Plymouth with a BA (Hons) in Business and Finance.