How your mood affects your trading

[MrPaul]

This was copied from another forum, which had copied it from another website...I found it to be a good read.

Innerworth today discussed your mood and how it might effect your profits.

Here is a snippet from what they said.

quote:...When you are in an unpleasant mood, you may have a strong need to feel better. How can you feel better? Making money usually makes you feel better...



The discussion was based around the ability of a trader to hold on to a trade through to the target or stop and not close the trade prematurely. One of the reasons that you may close a trade prematurely is if you're in a bad mood. Why is this? Because taking a small profit will put you in a better mood and everyone wants to feel good.

So think about these two scenarios:

Scenario A
You wake up and start trading and you're feeling great.
Your trade is hanging around the 2 point profit mark and your target is 5 points.
It's okay to sit back and wait for the target to be reached (or the stop to be hit) because you're happy. You do NOT have any desire or need to change your mood because you are already in a happy place.

Scenario B
You wake up and start trading and you're in a bad mood.
Your trade is hanging around the 2 point profit mark and your target is 5 points.
By closing out the trade now you will make some money and you will improve your mood. By waiting for the trade to reach its target will postpone and delay the improvement in your mood. i.e. you will continue to feel unhappy until you have taken profits.
So not wanting to delay the shift to a better mood you take your profits earlier.

Let's take a look at how the mood can effect your impulse to trade.

Bad Mood
You're in a bad mood and you want to feel better. (Remember that this is going on in your subconscious and is not an active thought at the front of your mind.)
If you trade and make money you will feel in a better mood.
If you trade and lose money you will continue to feel in a bad mood.
So, in the worse case scenario your mood doesn't change. In the best case scenario your mood will improve.
So this may cause you to take an impulsive trade. If you trade without a setup then there is a 50/50 chance that the trade will make money. So you have a coin flip to change yourself into a better mood.
It's your subconscious that's making you do this trade.

Good Mood
You're in a good mood and you're subconscious therefore has no desire or influence over your actions to change your mood.
Therefore, your mind can focus on market action and wait for valid set-ups before you enter a trade. There is no need or rush to make an impulsive trade to improve your mood. You're subconscious is not sabotaging your efforts here.

I have heard of a number of traders that have told me that when they are going through stressful times in their lives their trading results have deteriorated. That last case is by no means scientific and actually comes from a bunch of men who went through a divorce. During the divorce their trading results were worse.

Elsewhere on this forum, there is a reference to a Tony Robbins technique that Chameleon gave a trading room recently. He (Chameleon) basically gave a method for making you feel in a better mood. This is obviously not the only method that can make you feel in a better mood and you may have your own or a different one that works better for you. If so, then let us know by posting a reply here.

The trick, though, is to make sure that you're in a good mood before you start trading. As part of your pre-market preparation you should perform this get-me-in-a-good-mood technique to make sure that you are feeling great before the market opens. Even though you may already be in a good mood it doesn't hurt to check. When you go on a long distance trip you check the water and tire pressure even though they are fine 90% of the time. No reason why you should do a pre-market check on your mental state as well.

[pierre]

Thank you for the post MrPaul. Very interesting read.

[protrader]

I think this is part of the journey of becoming a professional trader and learning to separate your emotions from the trade. Lots of psychology actually involved in the market, in my opinion.

[torero]

I wonder how the floor traders do day after day, moving markets with $millions. Do they sit out too if they don't feel like trading? And if they have to trade for their clients even if they're not up to it? I'd love to hear from a pro who works or used to work on the floor. I guess a book written by one would do.