Why Being Smart About Emotions Matters in Trading
“The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading.” — Victor Sperandeo
Emotional intelligence is the ability to identify and manage your own emotions and the emotions of others. It is generally considered to include three elements: self-awareness, motivation and self-control.
Every trade needs to be aware of his qualities, his weaknesses and strengths. Only by knowing oneself you can make a right decision and to clearly see when the market is ‘against you’ and it is time to get out for a day. You also need to know what motivates you to trade in a certain way: whether you are trying to prove that you can outsmart the market, or you truly have a feasible chance to close a successful deal. Self-control helps you to control your emotions and to make sure that your trading technique and patterns are backed up by strategic thinking, rather than blind emotions.
Emotional intelligence is also important when encountering a failure. A trader who is self-aware of his emotions and can control them is more likely to accept feedback and to restructure his behaviour. According to a psychologist Maria Konnikova, people who are used to a constant control of the situation and have high self-esteem, take longer to accept negative feedback and to respond accordingly. The theory holds true for unpredictable environments, like stock trading, where people are too confident and thus less receptive to negative feedback.
Being able to take charge of our emotions and monitor them is one of the most important characteristics of a good trader. However, many traders don’t wait for an emotional crisis to emerge and consider eliminating emotions altogether. That is why we see a rise in AI trading technology. However, this approach of eliminating emotions leaves traders emotionally unintelligent. Trading is an elaborate human ecosystem. Being aware of the rules of the game makes us more receptive to the feedback and turns us into adept traders.