Breaking Down the Emotional Cycle of Traders

In today’s episode, we will be breaking down the emotional cycle that traders must understand in order to deal with the challenges that they will face in the live markets.  Different market cycles tend to challenge the emotions of those traders and investors that choose to participate. In fact, these market participants are the reason that these market cycles exist; because traders are human and humans are emotional beings!  Fear and greed drive the markets so not only do we have to learn how to control our own emotions, but we also have to recognize what the collective crowd is thinking.  By understanding how the collective crowd thinks and reacts during certain market cycles, we can start to read market sentiment a bit more clearly and even learn to identify our own emotional states with more clarity in the real-time.  So what are the emotions that make up the stages of the cycle that we will be discussing today?

1. Optimism
2. Excitement
3. Thrill
4. Euphoria
5. Anxiety
6. Denial
7. Fear
8. Desperation
9. Panic
10. Capitulation
11. Despondency
12. Depression
13. Hope
14. Relief

These emotions drive market sentiment at different stages of the market cycle! Emotions will also creep into your trading once you pull the trigger and can affect your decision-making processes! You will walk away from this episode with a deeper understanding of each stage of this emotional cycle so that you can easily identify where you stand at any point in time and implement a means of managing the emotions that are present.  In This Episode You Will Learn

• The fourteen emotions that make up the trader emotional cycle 09:25
• Why euphoria is the point of maximum risk in the cycle 20:20
• How fear of crystalizing losses can lead to sabotaging your trading plan 26:05
• The point of the cycle where traders lose the most amount of money 28:28
• How going through the lows of the cycle builds your resilience as a trader 36:52
• How this emotional cycle plays out over the course of a trade 42:55

Some Things We Discuss

• How the study of cycles applies to the stock market 06:15
• Why we tend to remember bear market cycles more clearly 11:22
• Why your reaction to panic and fear go to the subconscious level 23:30
• The point when capital and wealth transfers from the retail to institutional portfolios 32:15
• Where do we think the stock market is currently at in this cycle 51:40

Resources

• Connect with our community online: Trade Pro Academy
• Catch up with our earlier episodes: Mind Over Markets Podcast
• Check out the book "Cycles - The Science of Prediction" by Edward R. Dewey & Edwin F. Dakin on Amazon