4 psychological factors that affect your trading

Ted Capwell

In the financial trading world, emotions are the biggest barriers between traders and success. According to many experts’ studies, the most significant difference between a profitable trader and an unprofitable one is how they manage their emotions. If your emotions are well-controlled, you already have 60% chance of becoming a successful trader.

With that being said, controlling emotions is always easier said than done. Crappy tips like “you have to control your emotions” or “you have to strictly comply with a trading system” are always overwhelming on the internet, but they don’t say how to do those things in detail.

The best way to control your trading psychology is to understand the psychological risks you face when trading. In this article, we will provide you with a detailed description of the psychological factors that affect your trades and methods to control them.

The role of Psychological factors in trading

Psychological Factors That Affects Your Trading Results

People are an entity associated with emotions. Like it or not, you still have to deal with your emotions every day. You will still lose your temper when unexpected events occur, or be touched when watching a movie like Titanic. You will still get angry when you are slandered, and will feel sad when you are abandoned.

The above things are perfectly normal because emotions are one of the things that maintain human existence. However, in trading, emotions do not bring many benefits. They affect your ability to make rational decisions, leading to a poor trading result.

There are many different types of emotions such as happy, sad, angry, afraid, and others. However, they are mainly made up of 4 psychological factors: greed, fear, hope, and revenge.

1. Greed

Greed is the most dangerous psychological factor that hinders a trader from success. The most obvious expression of greed is when a trader no longer appreciates risk management in trading.

For example, as a general rule, a trader should only risk up to 2% of his account balance on each order. However, because he is overconfident in his predictions, he increases the risk to 5% with the hope to make more profit. That is when greed begins to ruin his trading results in the long run.

The long-term effect of greed is that the risk increases significantly.

2. Fear

The second psychological factor that seriously affects your trading results is fear. Try remembering, have you ever cut an order early just because you had feared that it would not have reached the profit-taking level?

The long-term effect of fear is that profits will be smaller than risks, resulting in balance shrinkage.

3. Hope

Hope is the third psychological factor that ruins your trading results. The expression of hope is when a trader holds on to losing trades with the hope that things will be fine in the end.

Hope and fear are a perfect couple keeping you stuck in the small profitlarge loss loop, which will kill your account at the end. Trading professionals rarely hold on to losing trades; they have a habit of cutting losses early and letting profitable orders run.

4. Revenge

Last but not least, revenge is the fourth psychological factor that negatively affects your trading results.

Most beginner traders experience revenge trading, especially when they have a series of losing trades. They always want to regain their losses from the market; hence, instead of taking a break to calm down or reduce the position size, they constantly open new orders hoping that they will get something back.

In most cases, revenge trading makes traders get deeper into losses.

As a trader, you will always face these 4 psychological factors throughout your trading career. They are the source of negative emotions like anger, boredom, anxiety, overreaction, and others. You will not be able to remove them completely; however, you can learn how to control them.

Methods to Control Emotions When Trading

To control greed, you will need to keep in mind the importance of risk management. Always remember that trading is a game of probability; if you risk too much on an order and lose, your chances of having future profitable orders will be reduced. Therefore, always comply with risk management principles when trading.

To control your fear and hope, remember that you will never know what will happen in the market. You should establish your setup carefully and let your order run until it hits stop-loss or take-profit. You can also trail your stop-loss levels towards the entry point when the order is profitable, to minimize risk and preserve profits.

To avoid revenge trading, you need to keep a cool head. Whenever you feel that you are losing your temper, just leave the trading platform and take a break until you calm down.

Maintain a work-life balance

Work-life balance is a term used to describe the balance between work-related and life-related activities of a person. Failure to maintain a work-life balance not only negatively affects your concentration and ability to make correct trading decisions, but also harms other areas of your life.

A bad trading result is the consequence of an unhealthy mind. So, to keep your mind healthy, you should try to maintain a work-life balance.

Believe it or not, revenge trading is closely related to a symptom called “trading addiction”. According to the legendary trader Steenberger, trading sometimes “becomes a vehicle for destroying mind and soul“. A trader may be considered addicted when he lets the trading work negatively affect his health or financial ability.

Trading addiction is also considered one of the factors causing a work-life imbalance. If you think you are being addicted to trading, try abstaining from it for a while or seek help from experts.

Apart from this, to ensure balance in life, you also need to maintain social contact with your family and friends. Besides, take time for sports and exercise; they are great ways to reduce stress and keep a healthy mind.

The Bottom Line

Trading psychology management is extremely important for every trader. No matter how good your trading system is, you will not succeed if you let emotions affect your discipline.

Greed, Fear, Hope, and Revenge can be controlled in different ways. However, the most effective way is to keep a work-life balance and a healthy mind. Trading is a lonely and stressful profession; therefore, you should prioritize rest and outdoor activities to balance your life.

If you find it difficult to control your emotions, Finmax’s specialists can help. At Finmax, you will be supported directly by account managers and financial experts, who have years of experience in the market. They can give you useful advice on managing trading psychology, or at least company with you in your trading path.


“General Risk Warning: Binary options and cryptocurrency trading carry a high level of risk and can result in the loss of all your funds.”