The Myth of Emotionless Trading

Popular thought among traders is that emotional people aren’t suited to trade in the stock market. But is that really true?

The Myers-Briggs Test and Trading

When I took the Myers-Briggs test to see what I would come out as, my reading was an INFP.

• I – Introversion
• N – Intuitive
• F – Feelings
• P – Perception

Notice that I have the “feelings” rating which most traders would freak out by if their tests came back as such. Feelings tie in with emotions and emotions is what historically leads to bad decisions by traders.

Do emotions help traders? Let’s explore that some more here, because I actually think it is a good thing.

The Advantage of Emotional Awareness in Trading

Having a “T” instead (thinking) would be equated with a trader who doesn’t “feel” and thereby doesn’t have to worry about their emotions at all. I would disagree though and say that for traders a personality that is more inclined toward the feelings side of the coin would suggest to me the increased likelihood of someone who actually recognizes the role of his/her feelings in trading and recognizes how they can affect one’s trading decisions.

Personal Experience with Emotions in Trading

I’ve been on the side of trading where emotions get the best of me, and over the years I have had to learn how to harness their affects on my trading. The thinker may never realize the role of emotions in their trading, even though those emotions still exist, they simply are not acknowledging any role that they might have in their trading.

Managing Emotional Extremes

I know that I can get angry at a series of losing trades, and I have to make sure that I don’t project those feelings towards my next trade. Or when a trade doesn’t go right for me, I have to make sure that frustration doesn’t cause me to shut down and ignore the market all together.

On the flip side, when in the middle of an incredible winning streak, I have to insure I don’t get overwhelmingly cocky and over-confident and start thinking that that I can win on any trade and then suddenly find myself trading UVXY and TVIX or something crazy like that.

The Drawbacks of Over-Thinking in Trading

As for the “thinking” trait, I actually think this hampers traders more than they might care to realize. I can’t tell you how many traders that I have met and trained over the years that are major thinkers and how much that gets in the way of them trading profitably.

Common Pitfalls for “Thinker” Traders

• They can’t trade using a simple approach
• They often find themselves victimized with paralysis by analysis
• Every chart they look at comes across as bullish and bearish at the same time

This isn’t good. The market doesn’t reward traders for being good thinkers. In fact, that is why, historically, lawyers doctors, scientists, etc. make for horrible traders – they simply think that they can out-think the market, when in reality it is always the market that gets the last laugh.

Balancing Emotions and Analysis in Trading

So whether you are a thinking or feelings kind of a person, don’t let your dominant trait be exploited by the market. Instead, recognize it for what it is, keep the emotions at bay, and don’t overthink your trades.