Did you know that no one knows for sure how many “basic” (irreducible) emotions there are? Many scientists have long believed in six, a new study indicates four and a growing body of work by the teams emerging from Lisa Feldman Barrett’s labs makes a very credible case for only two – approach and avoidance or “want more”/”want less”.
While I think the latter is probably technically correct, human and trading experience add complexity or what can be thought of as spices to the dish. Even if approach/avoidance are the core elements, we “taste” more complex versions in our daily trading experience.
This list of four therefore is an excellent place to start if you want to capitalize on the trading psychology strategy of “emotions as information”. Scanning oneself for anger,fear, happiness and sadness on a regular basis – say after EVERY trade – can become the routine that helps a trader avoid an impulsive or compulsive series of trades.
If you detect that any of the feelings are occurring, you can decrease the odds of “doing” the feeling (acting it out) by asking what it is exactly and where did it come from? In other words, you want to turn your attention away from price and onto yourself. Introspection can be profitable. Identifying a feeling and connecting it to its source can often be enough to circumvent blindly acting on it!
Yes, the feeling of fear of missing out on a price move will inevitably come up. No one thinks they have the time to tend to the instrument they are playing (themselves). Yet tolerating the “FOMO” while practicing self-awareness in order to avoid trades motivated by unrecognized emotion will indeed increase your bottom-line.