Mental & Emotional Biases In Trading

by Billy Williams

Traders are typically very competitive and have been successful in another field before they begin trading stocks and options. For example, it is very typical for successful attorneys to open a trading account with the intention of carrying the success they have in the legal field into trading stocks and options.

However, what often makes a person successful in another field does not translate into success as a trader. Often, the success they experienced before in whatever area they come from will cause them to fail unless they adopt a new paradigm or a new set of mental and emotional skills to trading.

Lawyers that are the most successful in their respective legal specialties are almost always extremely hardworking and have tremendous amounts of mental and emotional endurance to fight for their clients. They are also very resourceful as they are capable of going the extra mile to protect the interests of their clients. They hate to lose because it can hurt their confidence and affect their reputation with present and future clients.

Now, if someone with a legal background brings these traits into trading they could find themselves getting crushed by the market. For example, a good attorney may hate to lose because it brings the pain of letting a client down or simply because he is so competitive. Bringing that ''hate to lose'' mindset to trading can keep the same attorney from taking a loss in the market.

Once experiencing a loss in the market, the same attorney may resort to trying to ''make something happen'' in the market because that is what he has done his whole legal career. His proactive traits in the markets however can result in even more losses because that trait in the extreme can hurt a trader's equity because you have to be more patient and wait for the market to setup for you to trade.

These mental and emotional biases that an individual can bring to their trading can work against them. It's important to spend some time keeping trading records that detail your thoughts for entering your trades. If you're having a rough time it may not be your trades so much as your biases affecting your trading judgment.