How To Control Your Emotions When Trading And Investing

Good traders make rational decisions. They don’t let their emotions impact their buy, sell, and risk management choices. This is especially important when the market is choppy.

Choppy markets tend to lead investor/trader thinking. Traders tend to become bearish AFTER the market tanks, and traders tend to become bullish AFTER the market surges. This means that these traders are no longer thinking independently or rationally. They are just following the market.

Why you cannot let emotions control your portfolio

Warren Buffett said “be greedy when others are fearful and be fearful when others are greedy”. This is easier said than done because we are all human. No one is perfect. Most traders and investors tend to “be greedy when others are greedy and be fearful when others are fearful”.

Humans are social animals. We cannot live in isolation for long periods of time without going mad. That’s why other peoples’ thoughts impact our own thoughts. Even I get a little greedy when the market goes up and a little fearful when the market goes down. Feeling these crowd-driven emotions is just a part of being human.

But you cannot let these emotions determine your trading decisions.

The best traders have a clearly defined strategy. Trading is about probability. Simple, cold, hard math. It isn’t about following a hunch or “gut feeling”. Your emotions will control your “gut feeling”.

Every human has an innate “fight or flight” instinct when faced with danger. And when a danger that you cannot fight such as a market crash comes along, every human’s innate instinct is “flight”. This isn’t logical. If the market is falling a lot but the fundamentals are solid, that isn’t a time to cut losses. That is a time to double down on your position because the market will mean revert soon.

How to control your emotions when trading or investing