3 thing to master emotions in trading

What are emotions in trading?

We have two channels that we use to perceive the world. The first (customarily attributed to the left hemisphere of the brain) is the analytical channel — the stream of thought, we usually think of as rational. The second (customarily attributed to the right hemisphere of the brain) is the emotional channel. We perceive what is happening around us emotionally.

We can better understand the role of both channels when we turn to simple evolutionary biology. Thinking allows us to make sense of the world: to seize opportunities and avoid dangers. Emotions and feelings tell us what is an opportunity and what is a threat. In other words, emotions give meaning to the events we perceive.

In the vast majority of people (this is evolutionary biology again), the emotional channel is stronger. We consider people who are completely emotionless to be cold or even impaired.

Strong emotions usually turn off the rational channel, because the primary function of emotions is to identify danger, they “turn off” thinking, they redirect blood from less important organs (including the brain) to the muscles, they initiate a hormonal response: they prepare the body for fight or run

This is also how emotions in trading work.

How best traders control emotions in trading

The best traders have both channels functioning well even in the most difficult situations. This means that even under the influence of strong, or even very strong emotions in trading, the best traders are able to make good decisions.

Several important things help the best traders to control their emotions in trading:

• experience
• proper preparation
• the ability to manage emotional reactions in trading

Most of the best traders are capable of acting in spite of their emotions, and even use them in some cases as a source of information about what other market participants are feeling, e.g. during a market panic.

A trader may feel strong emotions in trading such as fear, but will still correctly execute multiple entries in a row in a panicked market.

Traders who work alone have it easier — they can cut themselves off from emotional news, TV, and just not read upcoming news. It is more difficult for traders who work in trading rooms, because the atmosphere of panic is shared by everyone.

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