Mindset

How emotions impact your trading success

Trading the markets can be a rollercoaster of emotions. Many traders are unaware of when their state of mind leads to underperforming trades and why it happens. Our Performance Analytics tool offers you the opportunity to identify what causes that behaviour and help you perform at your best.

Every trader is unique, and understanding the type of trader you are is essential to your success. Traders can spend a lot of time studying technical indicators and strategies, but understanding the psychology driving your trading decisions is just as important.

For example, we found that 41% of City Index traders had a volatility ‘edge’, meaning they approached the markets differently in volatile conditions. This was a positive edge for some traders as they performed better in high volatility, by limiting risk while still taking advantage of larger market movements. However, others had a negative edge and performed worse in high volatility. These traders often displayed herd instinct – copying others without conducting their own analysis – or overestimated their trading skills after a profitable trade. You can avoid the same missteps by using Trading Edges in our Performance Analytics tool to discover how you perform in volatile markets.

Our tool helps all traders gain greater insights into their strengths and weaknesses, as well as learn how their trading patterns emotionally influence their mindset. For instance, our data tells us that over a third of traders have an edge in their first trade of the day. This is a common negative edge for eager traders who start their mornings by immediately jumping into the markets. Meanwhile, hesitant traders are more likely to have this as a positive edge as they mentally prepare themselves and research their opening trade. Performance Analytics helps you uncover the type of trader you are and better manage the emotions of trading.

This is important as our perceptions about how we’ve performed in the past can negatively affect how we might react to opportunities in the future. “We take losses much harder than wins,” explains Ann Hunt, CEO, Chasing Returns.

The ability to change how you respond to losses is critical to improving your performance. Traders who consistently perform well have established a resilient mindset to the markets and likely don’t let emotions cloud their judgement. Mark Douglas, author of ‘Trading in the Zone’ explains, ”If you can learn to create a state of mind that is not affected by market’s behaviour, the struggle will cease to exist.” You can start building a resilient mindset today by examining an in-depth scorecard of your trades, as available in our tool, to pinpoint when you might be trading emotionally instead of analytically.

Refine how you think about trading

This is where data insights come in. By analysing your previous trades, you can set the foundation for a new approach to the markets. Our tool offers a data-driven perspective into your trading history to help you uncover your most effective trading behaviours and build a path towards profitability.

If you learn that you have had success trading forex on Thursday afternoons, you can use that insight to examine your trading environment and try to repeat any unique aspects of that day across the week. Similarly, data suggesting that you struggle with your first trade of the day would likely cause you to consider sizing down to minimise your losses.

Additionally, you might discover that you perform better when focused on one product at a time, or that you thrive when markets are highly volatile. Much like how Saracens coaches use data in gameplans to maximise their players’ effectiveness, you can identify how to improve your win-loss rates and make the most of your own trading personality.

Performance Analytics also empowers you to identify patterns within your trades and replace emotional biases in your trading approach with metrics. As Ann explains, “You can go in and look at the good trades you did… and build muscle memory for how you found those trades.” Equally, you can use these critical insights to learn why certain markets have historically underperformed for your portfolio.

Stay in control of the emotions affecting your trades – open an account today and analyse your trading habits with Performance Analytics.