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Oh those emotions!

Human emotions are the biggest enemy of any trader. I fight emotions all the time. Actually, in fact, the emotions fight me. And I suffer. Just today, I had a panic attack when watching the market. And it was utterly unreasonable and stupid.


What Happened?


I had two trades on. One was set to expire today, and the second one (I just opened today) was set to expire in two days. And I was relying on a lazy market going nowhere or slightly up. You know, it’s vacation time. Investors are at home stuffing their bellies with Christmas cookies, fish, or ham, and markets have no volume. Great for Iron Condors.

And if you look at the chart below, the market was going nowhere the whole morning.

emotions in trading

But at noon, it suddenly dropped. That large red candle made me panicking. Before I knew it, the market was losing -0.20%. It went from +0.05% – 0.10% down to -0.20%. Remember what happened on December 20th? The market lost -1.36% in a few minutes when everyone was selling. News media reported the end of the winning strike, the Santa Claus rally, and the end of other things, like the world itself.

Here is the memory refresher of that doomsday:

emotions in trading

The recency bias kicked in, and I panicked. Are we, again, going to see the same drop? Is this really the end of Santa Rally? A reversal that would wipe out my open trades, and all put spreads will end in the money? That would suck!


Why Do We Reacted That Way?


  1. Fear of Loss: The most common psychological factor in trading is the fear of losing money. When the market moves against your position, especially when an expiry date is close, this fear intensifies.

  3. Uncertainty and Lack of Control: Markets are inherently unpredictable. This lack of control can be unsettling, and sudden market moves exacerbate this feeling.

  5. Recency Bias: If you’ve recently experienced losses or heard of significant market drops, your mind might be predisposed to expect the worst, leading to heightened anxiety during market dips.

  7. Pressure of Time: The fact that one of your trades was expiring soon added time pressure, which can amplify stress and lead to panic.

emotional trader


What Can We Do To Avoid Panicking?


  1. Develop a Trading Plan: Have a clear strategy before entering a trade. This plan should include entry and exit points and what to do in case of market volatility.
    I developed a solid plan over the years. It took me a long time to get where I am today. And I was only sometimes profitable. I started being profitable just recently, and the memory of struggles and losses is still alive, and that can cause the reason for panicking.

  3. Set Stop-Loss Orders: This tool automatically closes a trade at a predefined level of loss. It can help limit your losses and reduce the stress of monitoring the market constantly.
    I do not use stop losses as they do not fit my trading plan. I sell options for premiums and want my trades to expire worthless for a full profit. I plan to hold to expiration, and if the market goes against me, roll or adjust. It is, however, sometimes a nightmare itself.

  5. Practice Emotional Discipline: Try to separate emotions from your trading decisions. Acknowledge your feelings, but don’t let them dictate your actions.
    This is easier said than done. So, what can we do to practice emotional discipline?

    1. Mindfulness and Meditation: Regular mindfulness practices can help you become more aware of your emotional state and give you the clarity to make decisions calmly. Meditation can reduce stress and improve focus.

    3. Journaling: Keep a trading journal not just for trades but also for your emotional state. Document how you felt during each trade and what triggered any panic. This can help identify patterns and triggers for emotional responses.

    5. Cognitive Behavioral Techniques: These techniques can help you identify and challenge irrational thoughts and fears that may lead to panic. Replacing them with more rational, evidence-based thoughts can be beneficial.

    7. Simulation Training: Although you have extensive experience, running through various market scenarios in a simulated environment can still help. It’s not about the mechanics of trading but about experiencing different market conditions and practicing maintaining emotional control.

    9. Routine and Rituals: Establish a pre-trading routine that helps you to center and calm your mind. This could be a series of stretches, a short walk, or a breathing exercise.


  6. Stay Informed, But Don’t Overreact: Keep abreast of market news and trends, but avoid knee-jerk reactions to every market movement.

  8. Regular Breaks and Stress Management: Regular breaks from trading can prevent burnout. Practices like meditation, exercise, or engaging in hobbies can help manage stress.

  10. Educate Yourself: The more you understand the markets and trading, the more confidence you will have in your decisions, which can reduce panic.

  12. Consider Paper Trading: Practice trading with a simulation to build confidence and test your strategies without financial risk.

  14. Seek Professional Advice: If you’re frequently panicking, consider talking to a trading coach or a psychologist specializing in trading psychology.


I developed a good journal in Google Spreadsheets, where I write all the metrics about each trade. You can see a sample here. To work on my emotions, I need to add a section describing emotions and eventual outcomes and solutions, or at least think about what can be done next time to handle emotions better.


Understanding the Markets


I have heard this phrase from experienced traders all the time. To be successful in trading, one must understand the markets and know how they work. And that is a territory I have yet to explore.

To deepen your understanding of the markets and improve your reaction to market movements:

  1. Economic Analysis and Market Theory: Books and courses on economic theory, market behavior, and financial analysis can provide a deeper understanding of why markets move as they do.

  3. Behavioral Finance: Explore this field to understand how psychology affects market outcomes and individual decision-making.

  5. Advanced Trading Books and Seminars: Look for materials that go beyond basics, focusing on market dynamics, advanced strategies, and real-world case studies.

  7. Networking with Other Traders: Engaging with a community of traders can provide insights, support, and different perspectives on market movements and trading psychology.

  9. Consult Financial News and Analysis: Follow reliable financial news sources and analysis for real-time information and expert interpretations of market movements.


Managing Stress and Taking Breaks


  1. Scheduled Breaks: Integrate scheduled breaks into your trading plan. This could be a day off each week or a few hours during the day.

  3. Physical Exercise: Regular physical activity can significantly reduce stress and improve mental clarity.

  5. Hobbies and Interests Outside Trading: Engage in activities unrelated to trading to maintain a healthy work-life balance.


Trading is as much about psychology as strategy and market analysis. By understanding and managing your emotions and having a clear, disciplined strategy, you can reduce panic and make more rational, effective decisions in the trading environment. Remember, even the most experienced traders face losses and have to manage their emotions. The key is consistent learning and emotional resilience. Improving emotional discipline in trading is an ongoing process. It involves continuously learning about the markets, understanding oneself, and developing strategies to manage emotions. By addressing these aspects, you can work towards becoming a more confident and emotionally resilient trader. Remember, it’s not just about the trades themselves but also about managing your reactions to them.


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