Three myths in trading psychology

In this post, we will take a closer look at three persistent myths in trading psychology.

Myth 1: You can control your thoughts and feelings

The most persistent myth is that we can control our thoughts and feelings. It’s no wonder this myth has become so prevalent. In today’s society, we are bombarded with messages about trying to get rid of or control troublesome thoughts and feelings. Words of encouragement from friends, self-help books, affirmations, and even some types of therapy all perpetuate this myth.

The problem with this reasoning is that we have very little control over our thoughts and feelings in general. They come and go as they please. If it were possible to control our feelings and thoughts, we would all have chosen to always remain happy and cheerful and never have a negative thought. But that is not the reality. We humans experience a variety of emotions and we cannot choose when to feel a certain emotion or not.

It is incredibly important to understand that it is not the emotion itself that creates difficulties in trading, but what creates problems is that we try to escape from and fight against the emotion. Stress, anxiety, worry, fear, doubt or greed cannot do anything in themselves, they are only emotions that appear in certain situations. It is how you react and act on the emotion that determines whether it affects your trading or not.

Studies that have observed traders show that more experienced traders do not try to control their emotions but instead allow them and use the information from their emotions to make better decisions. Less experienced or less successful traders show less acceptance of emotions and instead try to get rid of their emotions.

In trading, there is a risk that you will get stuck in destructive behavior patterns as long as you try to control your thoughts and emotions. When we try to escape from, get rid of, or control difficult thoughts and emotions, we only create more trouble for ourselves. The struggle becomes the problem, not the solution.

Myth 2: Trading should be done completely without emotions

Emotions are important in decision-making, whether in trading or in everyday life in general. If we were to remove emotions from trading, we would make more impulsive decisions and exhibit a lack of self-control. Trading without emotions would mean that we would not react to changing conditions on the stock market.

Emotions are a central part of adjusting behaviors. If we act in a way that generates a winning trade, we will feel joy/reward. If, on the other hand, we act in a way that generates a losing trade, we will feel sadness/frustration. The emotions we experience after a certain behavior help to create and inform us about our preferences. For example, if we have a strategy and a set-up that has repeatedly produced winning trades, that strategy will be associated with a more positive feeling in the future; we create a preference for that type of trade. But if we had no emotions, we would not know what our preference is or which set-up/strategy we prefer.

Without the help of emotions to adjust behavior, it would mean that I would continue to hold a long position, for example, even though the market is showing a downward trend. I would (in the absence of emotions) not be able to adjust my behavior, because I would miss out on the information that emotions provide. Most studies show the importance of emotions in rational decision-making. We need them. And just like myths 1 and 3, trying to completely get rid of emotions when trading is an impossible battle that we will never win (and should not strive for, for that matter).

Emotions are your allies, not your enemies. Give them space to be there when you trade.

Myth 3: Becoming better technically = not having to feel stress and anxiety

It’s understandable that we end up in this type of endeavor. We think , “If we can just improve the technical side, it will lead to better outcomes, which will then reduce the anxiety and stress of trading.” It’s a tempting line of thinking. But if you already have a good strategy or a good set-up for entering a position, more information or more indicators won’t make much difference. Of course, we need to develop our knowledge and skills in the technical side of trading. But when we try to improve ourselves technically with the sole purpose of avoiding unpleasant emotions, we are engaging in a battle that we cannot win.

Even if you learn everything that has to do with the technical side, it will not guarantee that you will never feel stress, anxiety, worry or doubt in your trading. Rather, it is something to be expected and something that is a natural reaction of all individuals who trade. It is not surprising that we feel stressed and worried when trading, after all, it is about real money and our finances. The fact that you feel stress and anxiety in a trade just shows that you are a human being who functions exactly as you are supposed to, and who is just like the rest of us.

Experienced traders may feel doubt, fear, and anxiety even though they have mastered the technical side of trading for a long time. They have not found a magic button to turn off their emotions. It is not possible, and we should not strive for it either. A person who has an edge in the psychological side of trading has learned to accept their emotions, create space for them, and act effectively in the presence of emotions.

Do you recognize yourself in these myths? Do you want a different approach to your emotions and thoughts where they no longer take over your trading? No matter where you are in your trading journey, there are universal psychological tools that you can practice to strengthen your psychological capital. Click the “book an appointment” button or go to the “trading psychology” tab and fill out the contact form to book a 1-on-1 session to get started!