Emotions
Emotions are one of the biggest challenges in trading. Even with the best strategy and perfect technical analysis, emotions can completely take over your decisions and completely undermine your results. This page explains which emotions you'll encounter, why they're so dangerous, and how to deal with them.
Why are emotions bad in trading?
Emotions cause you to not follow your strategy and make decisions based on feeling instead of logic. This leads to:
- Trading outside your strategy's rules
- Not respecting your stop loss
- Taking positions that are too large
- Trading too much or too little
- Losing streaks
The reality: Most traders don't lose their money due to bad strategies, but due to emotional decisions. You can have the best strategy in the world, but if your emotions take control, you'll still lose. Below are the most common emotional mistakes.
FOMO (Fear Of Missing Out)
What is it? FOMO is the fear of missing a profitable move. You see the price rising and think: "I need to get in now, otherwise I'll miss it."
How do you recognize it?
- You see a strong movement and feel pressure to enter immediately
- You think: "If I don't enter now, I'll miss the profit"
- You open trades without following your strategy
- You enter at the wrong time (too early)
Why is it dangerous?
- You enter without confirmation
- You ignore your entry rules
- You've acted too hastily
- Your RR turns out to be insufficient
Example: The price rises to a level and consolidates just below it. You don't want to miss the breakout and enter immediately when it breaks the HOD. The price makes a spike and immediately falls back, a fakeout. If you had controlled your FOMO, you would have seen that the stock was low in volume and momentum, making the breakout unlikely.
How do you prevent it?
- Always follow your strategy: First check if the trade meets all must-haves
- If you miss the move, that's okay, there are always new opportunities
- Plan your trade before the setup occurs, not during
Overtrading
What is it? Overtrading means you place too many trades, often without good reason. You trade because you think you need to trade, not because there's a good setup.
How do you recognize it?
- You trade the same setup on multiple stocks simultaneously
- You 'bend' the rules of your strategy
- You force trades where there's no setup
- You feel restless and impatient
Why is it dangerous?
- You take lower quality trades
- You lose focus and discipline
- You risk more than your account can handle
Example: You've already made 3 trades today, 2 losing and 1 winning. Not what you had hoped for. You feel the urge to keep trading because you want to become profitable as quickly as possible. You take another trade and lose again, turning a break-even day into a losing day.
How do you prevent it?
- Set a maximum number of trades per day
- Be critical of market conditions
- Only trade when there's a clear setup
- If you feel restless, stop trading
Chasing
What is it? Chasing means you chase after a setup. The setup has already happened and you jump in anyway, resulting in poor risk-reward or even a loss.
How do you recognize it?
- You see a setup that's already gone and enter anyway
- You have to set a stop loss that's too large
- You haven't checked if the setup was legitimate
- You ignore your entry rules
Why is it dangerous?
- You enter too late
- You take bad setups
- You risk more than planned
- The trade doesn't achieve 1:2 risk-reward
Example: You're waiting for a setup and get distracted for a moment. When you're back, the setup has already happened. You decide to enter hastily anyway and your stop loss is now 2 times larger than planned. Your target is now only 1:1 RR and as the final blow, the trade fails. You now lose 2R in this one trade due to your poor entry and unfavorable stop loss.
How do you prevent it?
- If you miss the move, wait for the next setup
- Follow your entry rules, even if the price is already moving
- First check if the setup is (still) legitimate
- Adjust the number of shares if the stop loss becomes larger
Revenge trading
What is it? Revenge trading is trading again immediately after a loss, to "win back" the loss. You act out of frustration, not logic.
How do you recognize it?
- You lose a trade and feel angry or frustrated
- You open a new trade immediately without a setup
- You take larger positions to make up for your loss
- You ignore your risk management rules
Why is it dangerous?
- You act emotionally, not logically
- You often take larger risks
- Losses pile up
- You lose discipline and control
Example: You've lost all your trades for 2 days in a row. You get frustrated that it's not working out to become profitable right away. You open another trade with a larger risk unit and without a good setup. You lose again. If you're not careful, you'll blow up your entire account this way.
How do you prevent it?
- Set a maximum of 2 losses per day and stop then
- Stop trading when you feel frustration rising
- Analyze your trades, was the setup legitimate?
- Log your trades in TradeLogger and look for patterns
Fear
Fear makes you too cautious. You miss good setups or close profitable trades too early out of fear of loss. How do you prevent it? Trust your strategy and follow your rules, even when you're afraid. Start with small positions to build confidence.
Greed
Greed causes you not to close profitable trades because you think it will go further. This can cause you to miss a lot of profit. How do you prevent it? Always follow your take profit rules. Consider taking partials: sell 50% at TP 1, let 50% run.
Overconfidence
Overconfidence arises after a series of profitable trades. Especially beginners with a bit of beginner's luck quickly become overconfident. You think trading is super easy and ignore your rules, take positions that are too large. This leads to bad trades and one (inevitable) large loss can cause enormous damage to your account. How do you prevent it? Stay humble and always follow your rules, even during a winning streak.
Distraction
Distraction means you're not fully focused. Perhaps there are things outside of trading that demand your attention, or you're 'channel surfing' too much (scanning through too many different stocks looking for setups). How do you prevent it? Only trade when you have full attention. Put your phone on silent and ensure a quiet environment. Make a watchlist in advance.
How do you deal with emotions?
1. Recognize your emotions:
- Think before you start: what are you feeling now?
- If you're emotional, don't trade
- Learn to recognize your own emotional patterns
2. Follow your strategy:
- Your strategy is your anchor in emotional times
- If your strategy says "don't trade", don't trade
- Trust your rules, not your feelings
3. Set limits:
- Maximum number of trades per day
- Maximum loss per day (stop trading when you reach this)
- Time limit: don't trade longer than X hours per day
4. Take breaks:
- Stop after a series of losses
- Take regular breaks, even when things are going well
- Step away from your screen
5. Keep your trading journal:
- Log your trades accurately in TradeLogger
- TradeLogger generates accurate data
- Trust your data and find your strengths and weaknesses
- Adjust your trading style based on what the data shows
6. Start small:
- Start with small positions to build confidence
- If you get emotional about small amounts, you're not ready for larger ones
- Build up slowly as you gain more experience
Important reminder
Emotions are human and normal. Every trader deals with them, even professionals. The difference between profitable and losing traders is not that profitable traders don't have emotions, but that they learn to recognize and control their emotions.
The golden rule: If you're emotional (angry, frustrated, afraid, greedy), do NOT trade. Wait until you're calm and focused. Every day brings new opportunities.
Next steps
Now that you understand how emotions affect your trading, it's time to learn how to log and analyze your trades. In the next lesson, you'll learn about the importance of logging and how TradeLogger helps you with this.