Hello traders, after receiving a lot of positive feedback from my TradingView educational posts I thought today I would break down a subject on with the 14 stages of investor emotions.
Learning how market cycles operate can be extremely beneficial to your trading, understanding the true influence of fear and greed.
But... Controlling your emotions within the market is your main 'personal' objective, becoming an emotionless trader. It's what we're all told from day one right?
90% of trading is purely psychology. It is the main reason why so many traders fail as they let their trading become over-ruled by their emotions, thus making irrational decisions.
Many traders will never overcome their inherent emotional biases, therefor you should seek to understand the range of emotions we may experience as investors and how it affects our interactions within the market.
1. Optimism: A positive outlook encourages us about the future, leading us to buy assets.
2. Excitement: Having seen some of our initial ideas work, we begin considering what our market success could allow us to accomplish.
3. Thrill: At this point we investors cannot believe our success and begin to comment on how smart we are.
4. Euphoria: This marks the point of maximum financial risk. Having seen every decision result in quick, easy profits, we begin to ignore risk and expect every trade to become profitable.
5. Anxiety: For the first time the market moves against us. Having never stared at unrealised losses, we tell ourselves we are long-term investors and that all our ideas will eventually work.
6. Denial: When markets have not rebounded, yet we do not know how to respond, we begin denying that we made poor choices. Our "long-term" view now shortens to a near-term hope of an improvement.
7. Fear: The market realities become confusing. We believe our positions in the market will never move in our favour.
8. Desperation: Not knowing how to act, we grasp at any idea that will allow us to get back to breakeven.
9. Panic: Having exhausted all ideas, we are at a loss for what to do next.
10. Capitulation: Deciding our assets will never increase again, we close all of our positions to avoid any future losses.
11. Despondency: After exiting the markets we do not want to trade ever again. This often marks the moment of greatest financial opportunity.
12. Depression: Not knowing how we could be so foolish, we are left trying to understand our actions.
13. Hope: Eventually we return to the realisation that markets move in cycles, and we begin looking for our next opportunity.
14. Relief: Having bought an asset that turned profitable, we renew our faith that there is a future in investing.
To round off this post I truly hope this provided a more in-depth insight to the emotions which can occur during trading.
I am available via private message for any questions you may have.
Support & Resistance for Beginners:
To add to the information provided here are my top 5 tips for controlling your emotions.
1. Develop a strict daily routine, meditate (I use headspace on the AppStore) and trade in a calm environment.
2. Treat trading like a business.
3. Truly accept the risk involved with each trade.
4. Self-reflection, track your progress.
5. Recognise when you are wrong, avoid the emotional cycle.
Thank you all for your continued support, I've got a lot more content on the way.
Here's to your success.
In relation to the emotional cycle, I would like to provide several market examples.
USD/CAD - Daily
Ripple - 4H
Take a close look at both of these charts, notice the similarities in emotion... This cycle is relevant in all markets and can help you identify which stage you are in currently.
I like this post as well.
Id like to add something here to think about as well... Psychology does play a large part in trading. No debate. I think though it stems from an insecurity rooted in not knowing what the heck we are doing. Then maybe we take some classes. Read some books. Read some blogs. Maybe do some demos. Then finally put some money on the line. Confident at first. Until things don't go our way. Yall know the story. I know folks for years have went from one method to the next. Took this and that class. I for one read a fortune in books, books are my thing. Each time with new confidence trying again.
Over and over going through the very cycle, repeatedly, you posted about here.
What I want to contribute to the discussion is this though....statistics everywhere say that 90% of traders fail at trading. Most sooner than later. I think the statistic is more like 99%. I think we contribute a lot of the reasoning wrongly to psychology though. There is a huge industry dedicated to trading and financial education. Some classes are upwards of $50,000 for a complete class. You can get degrees for that money. But still people come out of these classes no closer to success than they were before. They go through this cycle you posted over and over and over until they finally just give up.
I offer, I suggest that traders go through this psychological roller coaster largely because we suffer from the illusion of knowledge. Knowledge and education which is by and large across the board erroneous. I have friends on here, smart people, educated and respected that have paid for and graduated from some of the most famous and top rated schools for trading in the industry .... cant trade any better than when they started. Its not that they are doing it wrong. Its not that they are not mentally prepared. Its because they were told, taught and trained wrong and they suffer from the illusion that their knowledge will ensure their success.
Their knowledge doesn't ensure their success. In fact just the opposite is true. They ride this psychological roller coaster and fail in the end, much less wealthy than they started. Largely due to the deluge of erroneous industry of trading education.
Why else do probably better than 90% of traders end up on this roller coaster and fail in the end?
I do not believe an individual should pay a high-end 4 figure sum for education, never mind $50,000 which is ridiculous.
You sir are a very wise, educated individual. Everything you explained here is what everyone should be taking on-board, I'd like to thank you for your contribution :)