An Inalienable Part of our System
When I was active on social media a few years ago, I began noticing certain ‘trends.’ Influencers were promoting various methods for self-improvement—some focused on relationships, others on well-being, and some on productivity. After skimming through most of this content, I saw a common theme: influencers emphasized “acting” over “acknowledging” and “being.” There seemed to be a push for people to act or become something without defining their own purpose—just because it was “cool” or trendy. Several examples come to mind, like smoking cigars like Winston Churchill or acting ‘cold’ and ‘nonchalant’ to appeal to others. We can also include social media gurus discussing emotions in trading the financial markets.
You may wonder where I’m going with this. The point is that “be emotionless” is common advice in financial markets, but not everyone understands what it truly means. Being unemotional in the market doesn’t mean becoming robotic or lacking feelings in life. It means following the doctrine of successful trading, focusing on the long-term picture rather than individual outcomes. In an environment where losses are inevitable and success is based on long-term profitability, attaching emotions to individual trades makes no sense. Trading is about numbers and probabilities, not the pursuit of quick wins.
Again, “faking it till you make it” won’t work in the long term. Without a genuine purpose or intention, sustained success is unlikely. As we’ve discussed in previous articles, it’s essential to define your purpose before starting any endeavor. Then, take the necessary actions and build consistency. In trading, don’t fake being “robotic” or indifferent. Instead, train your mind to understand what’s important and reframe your thinking for success and sustainability.
The aim of this short paper is to explore the emotional states one might experience in the market. We will provide insights on the best approaches to managing them. In the end, controlling emotions in trading financial markets is absolutely essential.
Euphoria and Grief
If you have the right approach in the market, neither making profits should make you happy, nor should drawdowns make you sad. Every trade should be treated as part of a larger dataset, with the focus set on long-term profitability. I always say this: if winning trades excite you, then losing ones will inevitably cause negative emotions. Think about it: if you know that wins, losses, and breakevens are all part of the game, why go through an emotional rollercoaster over each outcome? Isn’t it mentally easier to stay neutral and focus on the bigger picture instead?
Euphoria leads to overconfidence and excessive risk-taking. After profiting from a series of successful trades, you’re often tempted to over-leverage and chase more gains. On the other hand, grief triggers ego-driven decisions, leading to revenge trading and rushing into positions. If you can’t accept setbacks and trade emotionally, you’ll be tempted to jump from one trade to the next in an attempt to recover quickly and turn a profit. To regulate both extremes, you must stay mindful of your actions. Recognise that an emotionally charged approach won’t lead to anything productive—this is evident from past experiences and well-known trading principles. Keep your focus on the long-term outcome and avoid attaching significance to individual trades.
Fear through High Expectations | Greed
It’s fascinating to reflect on the early years of my journey and recognise how much power pixelated candles on a screen once had over me. Watching a trade move against my bias would trigger intense fear and anxiety, often leaving me paralysed—both physically and mentally. It’s a strange phenomenon, but once you understand the neurobiological aspect, things become much more manageable. The truth is, it’s all about how you interpret information. If a losing trade weighs heavily on you because you risked too much, then the problem lies in your risk management. If it’s difficult because you believe losses can be avoided, then the issue is with your mental frame and perception.
Another form of fear was FOMO (Fear of Missing Out). But once you truly grasp that the long-term picture is what matters and that there will always be another opportunity, FOMO loses its grip on you. This often stems from having overly high expectations. If you’re convinced that a trade will reach your target without fail, you leave no room for alternative outcomes or different perspectives. This can lead to overthinking and overanalysing when things don’t go as expected. That’s why it’s crucial to stay in a flexible mindset, allowing for shifts you didn’t foresee.
Greed is another emotionally charged element. If you aim for unrealistically high targets or don’t know how to secure profits along the way, you set yourself up for major setbacks. Yes, you can follow the rule to “let winners run.” But even then, you can’t be overly optimistic, assuming your view is always correct. Don’t hesitate to reward yourself with partial profits and trail your stop loss as the market moves in your favour. While we often emphasize focusing on the process over the outcome, we must also remember that we trade to make money. The key is to avoid becoming overly radical or optimistic, prioritising realism and sustainability instead.
The State of Zen
Emotions in trading the financial markets are crucial to understand and regulate. From fear to greed to euphoria, there is so much we can experience in the market. These emotions can become detrimental if one doesn’t grasp the importance of controlling them. The good news is that everything becomes easier once you reach a state of balance or “zen.” Through constant trial and error, and consistent practice, the necessary lessons will harmonize within you. You’ll realize that you don’t need to become emotionless or robotic to succeed in trading. You simply need to understand how emotions interact with trading and take the necessary steps to achieve and maintain emotional consistency.
So, keep working hard, and in time, that “state of zen” will come naturally.
