The importance of emotion in trading

First blog post! Yay!

Let me start by introducing myself. I’m Shrey, I’m 14 years old and I have recently discovered a passion for trading, and, more broadly, finance in general. I’m in the process of setting up a club about the market in general in my school and have read 2 books so far, the first being Rodney Hobson’s Shares made simple and the second Cat Davey’s Making Money from Trading.

Without further ado, let’s get on to my first post!

What makes trading exciting for young people like me is the excitement as prices move up and down, losing or gaining large amounts of money in a matter of seconds. In this technological age, no one can be bothered to sit at a computer screen and wait weeks and even months for prices to slide up or down by pennies. In a nutshell, it’s the spontaneity that excites me.

But while some see trading as just a complicated mesh of mathematical mumbo jumbo and complex patterns, I think that emotion is just as vital a component in being a successful trader than knowing all the tricks and flicks.

Reading Cat Davey’s How I made money from Trading only reinforced this opinion. Let me give you a brief synopsis of what she went through:

After putting in an initial deposit of $13,000 and having learned all the graph patterns, being an analyst herself, she, in the space of 10 days, lost almost half of her deposit. After about a week, she began to go to neurolinguistic therapy (NLS), which “programs the mind to change its thinking patterns, changing your outlook.” 

She proceeded to make $17,000 more, and I firmly believe that this was because of her outlook being changed and her thinking more positive. In the process of making this vast sum of money, she was careful not to make an “ego trade” and step into “Waterworld” (an obscure movie reference). What this meant was that far too often, traders let their ego get the better of them and think they know more than the market.

This is where most losses occur.

In my relatively few hours of trading, I have realised that, while it’s easy to write about not stepping into “Waterworld”, actually doing it is very difficult. I know the feeling of knowing that you’ve had a hugely successful trade and then launching into another one off the cuff, and then that sinking feeling in your stomach when you see your position going further into the red – it hurts, trust me.

While anyone can learn about complex financial patterns, very few tend to have the mental fortitude to actually weather the losses, set stop-losses rather than just mental ones, and keep fighting after that initial margin call.

That mental fortitude is what makes someone a born trader. And while I’m still yet to discover whether I have it or not, I realise that that, and not just technical analysis, is what you need to be a successful trader.

Thanks for reading! I hope my first blog post was alright and not too long winded. Please share if you enjoyed and monitor my blog for my next post! 🙂

By Shrey Srivastava

A finance and economics enthusiast, and someone who wants to share his views with the world.


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