The Emotional Dark Triangle of Trading Emotions

At the core of negative Trading Emotions, fear, greed, and hope thrive

At first glance, many of you might look at the headline and think “fear and greed are bad, but hope? Isn’t it good to have hope?”

In most instances, sure, hope can be a very positive motivator. For example, before you start trading, you might have a strong hope to become a great, successful trader. In this context, hope is a productive, positive feeling. This positive, productive hope is not the kind we’re going to talk about in this article.

The Negative Side of Hope

The negative hope that we can lump together with fear and greed is the kind of hope that irrationally grows out of a losing scenario. This is when a trader finds themself in a very bad losing situation with all indicators working against them. There is one thing though that keeps the trader dug in and looking for a miracle. This is holding on to hope despite all odds and conditions showing a losing position and no real potential to turn it around. 

Simply put, the positive hope scenario is motivated by potential success whereas the latter scenario is perpetuated by fear. In this way, negative feelings of hope are strongly linked to the fear of failure or further, insurmountable losses.

Greed as a Deadly Trading Sin

Unlike hope, which has a good side and a bad side, greed is almost exclusively a negative emotion. To be exclusively driven by the desire to make money above all else is not a level headed, sustainable motivator for a trader. 

As we’ve written about many times before, trading is about so much more than just making money. It’s a work intensive profession that requires patience and a development of skills before any profits can be made. It’s also a profession where you’re going to lose and probably lose a lot. 

If you’re motivated simply by greed, it won’t be pleasant when you run into failure. At any and all roadblocks, that greed will turn to anger, frustration, and other negative emotions. These negative emotions will derail even an experienced trader. Traders should trade out of a love and respect for the craft, not a hungry desire just to make a profit.

Other Negative Trading Emotions to Avoid

When we fall into a losing streak or even after one bad loss, it’s easy to let the negative emotions run wild and derail our brains for a while (or longer). Emotions such as shame or guilt can hijack our psyches and make it impossible to overcome difficulty and persevere. 

There is nothing productive about beating yourself up and punishing yourself for a bad trade or string of bad trades. This will only dig you in deeper and make success that much harder. Letting negativity take over can cripple you as well as spill over into your world beyond trading. You risk becoming spiteful, losing sleep, and being downright unpleasant to be around. 

It is important to acknowledge the negative emotions but to then learn and move on. Dwelling on failure is not productive and a sure fire way to keep racking up losses.

Positive Trading Emotions that Might Turn Negative

This may sound a bit counterintuitive but many positive emotions can be reclassified as negative emotions when applied to the trading psyche. 

For example, let’s take two of the biggest, most positive emotions – joy and elation. On their own, these two words make us think of happiness and goodness and couldn’t be further from negativity. However, when these two emotions come on too strong during the trading day, the results can be just as disastrous as when negative emotions take hold of the mind. 

Imagine for a moment a trader who has a great string of trades. This positive feeling of joy should be a great thing and it is until it makes the trader complacent. A trader might start to think they know best and can disregard their discipline and trading and follow their gut instead. As we know, deviating from the trading plan is a recipe for disaster. Excessive confidence will destroy the rational, calm, disciplined trader.

The Bottom Line with Negative Trading Emotions

When it comes down to trading, almost every emotion can have a positive or negative impact on success. Negative emotions that are unleashed and end up controlling a trader’s mind are disastrous but negative emotions that are used to strengthen the mind and become a better trader are productive.

This same holds true for positive emotions. Happy feelings can motivate and energize a trader but when they become too large a part of the brain’s feelings, they can really hurt performance. Traders need to work very hard to balance out all of their emotions in order to become successful, well rounded traders.

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