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 " would like to share some of my thoughts. In a very nice way.
My three best teachers are "LARRY WILLIAMS" - "Robert R. Prechter, Jr."
and do not forget " The School of Hard Knocks". " I " will never quit learning.
Believe me " I " could write a book on what not to do. Because when " I " first
started trading, " I " did just about every thing wrong. (#1 Trading Options)
(#2 Poor Money Management) for starters. These two books have helped me
out very much. "Elliott Wave Principle" by Robert R. Prechter, Jr. and
"The Right Stock at the Right Time" by Larry Williams. " I " think they are a must
read. These books have also help me out in every day life. (not just trading)
" I " am very honored to have learned from both of them.
Thanks for listening and good trading to all of you.
" ONE EYE JIM "