Learning to Leverage on Your Trading Emotions

Trading Happy

Here’s a topic that I love – Emotions – and, in fact, this is one of the first few questions that I would ask when I start a coaching session. This is an important area because it is inevitable that emotions will always be there. That’s because you and I are human beings and emotions are part of our DNA – this is part of Mother Nature’s creation – and we should learn to accept our emotions in every part of our lives.

Because we have emotions in every aspects of our life, the same applies when we are trading the financial market. So, when bringing this into the context of trading, we should also learn to accept our emotions as part and parcel of trading. In fact, I would argue that much more effort is required because trading the financial market can get intense if you don’t know how to manage your trades or when you just started trading.

The analogy that I often use is that traders are asked to compact, squeeze and box all their learning, actions, experiences, financials analysis and self-talk all within a few trades, and this can all end very quickly if the market does not go in your favour. You can see why this can get intense, can’t you?

With that, let’s figure out how we can learn to accept, embrace and, beyond that, to leverage on our trading emotions.

How does our Emotions Interact with us?

Before I move into the details, I’ll start of by making sure that we are all in the same page.

interactionDo you remember the last time you were happy, sad, angry, fearful etc? Do you remember the last time you felt a feeling? Do you remember the last time you had an emotion?

I’m sure you do. But here’s the thing, the last time it happened, did you realise that you only became aware of the emotion after you had the emotion? Did you realise that there was no switch to turn on/of the emotion and it usually is an automated process because of a certain trigger?

In case you’re not aware, let me elaborate more. Very often (though not always), emotions are spontaneous and they are feelings that appear out of nowhere. In fact, for many, emotions can appear without warning and the only thing we know is that there is usually atrigger.

Think about it, remember the last time you were very angry and you were fuming? You probably heard of an unfavourable news (the trigger) and then you burst out in anger. That’s usually fine until you cooled down and you realised that you were being irrational – you were angry over something really insignificant and it was not worth it. Unfortunately, you were only able to detach yourself and realised what had happened after it was over.

That’s not an uncommon example and it’s because the emotion was pretty strong.

Here’s a less drastic example – annoyance. For someone who was annoyed, the person would first get annoyed, feel uncomfortable and then become aware of it their emotions. Once you are aware of it, you can easily detach yourself and start to rationalise the situation. Just to be clear, all these happened very quickly as the process of rationalising is usually pretty fast. For some, you could even skip straight to the solution without realising that you have detached yourself consciously.

In both the examples, you usually manage to detach yourself after you become aware of your emotions.

Note: Just to be clear, experiencing emotion and being aware of that same emotion are two separate thing, and that’s the point that I’m trying to make here.

Learn to Create Awareness

Using the examples above, I’ve highlighted that the common denominator between them was detachment (from your emotions) and you want that as quickly as possible. As a trader and coach, my emphasis to you is to always be aware of your emotions because that is the step you need immediately before you detach yourself. This is even more important because you can start rationalising your emotions before you react to it irrationally.

However, the real challenge for many traders is – how do you become aware of your emotions when you are in such an intense situation?

Well, the honest truth is that there is no hard and fix rules to creating self-awareness as everyone is different. Nonetheless, here are some tips that you can use to get the ball rolling:

1. Trading Journal

I have mentioned about this in the past (see related article) but let me put this in a slightly different perspective.

Do you remember the last time you wrote a love letter to your partner? Do you remember writing a thank you note to your parents or loved ones? Do you remember writing your wedding vows? Well, if you don’t remember, go do it again. Because each time you do it, you actually need to dig deep within yourself to find those emotions. Once you find them, you have to analyse and rationalise them.

And here’s the beauty of it, the entire process will force you to detach yourself from the situation before you can rationalise it in a comprehendible manner. Isn’t this similar to the less-drastic example that I used above?

It probably is because as you do it consciously and in a structured manner, you too are finding a solution as you write.

2. Emotional Thermometer

Checking on the strength of your emotions is another good way to monitor your emotions. And the most extreme example that I gave in the past was to use a heart rate meter (see article).

Well, some of you might think that this can be slightly ridiculous but when I heard of it, I thought it was a brilliant idea. You see, you should always be flexible and be experimental. Because you want trading to work, you should consider EVERY option as long as it works, right?

So, my advice is to go try out every method that you know (and search for more if you don’t have many). In my new trading psychology program (yet to be launched) I explained some very unconventional examples because I truly believe that there is no such things as unconventional as long as it works.

3. Paying Attention as a Rule

This is probably the most simple yet more practical method that you can use. Make your emotional observation a trading rule.

By that, I mean that you should watch your emotions each time you take a trade. If you are not in the right state-of-mind or if you are emotionally unstable, then close the charts and come back another time.

In other words, make it a rule to measure your emotions. Once you have this rule, you will always be aware of your emotions.

Leverage Your Emotions

leverageNow that you can create the necessary trading awareness, I’m going to take this one step further to suggest that we can transform our emotions into trading assets too.

Yes, by that, I mean we can leverage on our trading emotions because our emotions is a way our unconscious mind is expressing itself outwardly to us consciously. And this can be a useful learning.

Not sure what I mean? Here’s an example. When we are angry, the thing that causes you to become angry is usually a simple trigger – like a news, a word (that someone said) or an event that happened. However, the trigger is not the reason of anger because it’s just a trigger. The underlying reason for anger could be due to something that went against your values or beliefs and you struggled to accept it (it’s some form of conflict).

This is usually not obvious because you are so attached to the trigger or the emotion that you fail to detach yourself. However, once you identify the conflict, you can choose to work on it. This could be a certain belief that you hold or may be you are forcing yourself to take a trade that does not meet your rules. The possibilities are endless and that’s because it is only unique to you. When you find it, more often than not, it becomes a learning that you can use for future trades.

Again, as a gentle reminder, the key to all of it goes back to (1) creating the awareness you need in order to (2) detach yourself, before you can (3) find the learning. This is a step by step process and without the initial parts, leveraging on your emotions becomes a challenge.


Is this article making you re-think how you manage your emotions? If yes, great.. and that’s the whole idea because this goes beyond learning from your mistakes (see related article) – which is equally important but different.

So, make sure to take some time out to think about your own emotions and how you are managing it. Emotions are part and parcel of our DNA and it will be silly to ignore it. Once you can create the emotional awareness that you need (when trading), you can proceed to leverage on those trading emotions and identify any learnings to make yourself a better trader.

When you can achieve the above, believe me, you are already leveraging your emotions without realising it consciously.



  • Ian Simpson

    June 27, 2014

    Hi, great article and so important to keep our emotions under control during and after a trade with some useful tips to help realise what we’re likely to feel before it happens, which will enable us to be better prepared and hopefully not ‘self destruct’. Also, this can be bought into our everyday life!

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