Traders have Emotions.

Market players, both new and seasoned, take great pride in asserting that their emotions don’t cloud their judgement when it comes to trading. Even though discussing emotions in relation to stock market trading is rather taboo, traders are still humans, and humans have emotions.

When it comes to emotions, our autonomous nervous system, which is also a member of our peripheral nervous system, is what causes them to develop. Epinephrine and norepinephrine, which circulate throughout the body and trigger physical changes like an accelerated heart rate, are generated by the sympathetic nervous system.

Whether or not we accept that emotions are what propels the stock market, they have the potential to shift the trend from bullish to bearish or vice versa. While making financial decisions, every trader experiences a range of emotions. Even while traders may believe they know what will happen, they don’t since the financial market is full of surprises and is dominated by tails or outliers. This crucial aspect of trading known as emotions is not highlighted by either fundamental analysis or technical analysis.

When the market fluctuates, emotions shift in a manner similar to this:

Anger or fear:

If the market shifts in an unfavourable direction, traders will likely experience fear and rage. They will enter fight or flight mode, which will cause their sympathetic nervous system activity to increase. As their level of anxiety rises, their blood pressure and heart rate will also rise. The adrenal gland produces the chemicals norepinephrine and epinephrine, which cause the eyes to dilate, muscles to tense up, and the breathing rate to rise. They make hasty judgments as a result of all these bodily changes, and we all know that one mistake may completely alter the trajectory of a portfolio.

Calm and unwinding:

The parasympathetic nervous system, which aids in storing and building up physical energy by lowering the heart rate and blood pressure, tends to become active when the market changes favourably. However, this relaxation response can occasionally result in some poor financial judgments. Nevertheless, the calm traders make wiser choices when compared to those made in a condition of panic.

Greed:

The human want for more is boundless, and traders’ greed drives the stock market as everyone desire for increased profits in their portfolios. But being greedy leads to making choices that serve your personal interests, which is not optimal. Although our desire for greed causes us to want to treble or even quadruple the size of our portfolio, no trader can keep up with the market’s constant change. If the plan succeeds the first time, the trader becomes even more avaricious. Since the trader might lose all he has made if the technique fails the second time, humility is a valuable trait to have when trading.

 Lack of patience:

According to “The Psychology of Money,”. One of the primary reasons traders lose money is a lack of patience. When the market is unstable, they go into flight or fight mode, and the majority of them elect to sell their stocks. To become a skilled trader, though, requires a lot of patience. Even though you can experience losses in the near term, having patience and following through with your trades will result in significant gains over the long term. This is a notion that should always be kept in mind. Successful traders like Warren Buffett have been able to achieve remarkable success by holding onto their equities despite numerous historical economic downturns like September 11th, the dot-com bubble, etc.

Lastly, there is nothing improper with stating that every trader has emotions that influence their choice of actions. Emotions shouldn’t be viewed as taboo; in fact, traders who are aware of the fact that they influence their financial decisions and who acknowledge this truth tend to outperform those who live in denial since they have superior control over their emotions. Experiencing and managing our emotions helps us become more aware of our strengths and shortcomings, which may ultimately enable us in making better decisions in the long run.


By - Ms. Bhumika Goswami
        TY BSc (Hons) Economics

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