Portrait of the Angry Trader

Holding on to anger is like grasping a hot coal with the intent of throwing it at someone else; you are the one who gets burned.
- Buddha -


When your money is on the line, it's hard not to get a little emotional. It's natural to want to seek out complete control. Who wants to lose? If you could control how the markets behave, you would have no trouble winning. It would all be so easy. The markets don't always cooperate with you, though. The markets can move in one direction during one week, and then suddenly go a new direction the next. The reasons are endless. It may be biased media coverage, or economic indicators that are hard to ignore; the masses may become a little concerned about the trade deficit, for example, and act out of fear. If you were counting on a particular response of the masses that didn't happen, you could not help feeling a little upset. Sure, it's not personal, but it often doesn't feel that way at the time. Regardless of how it happens, frustration, stress, and anger can interfere with approaching the markets with a calm, rational mindset.

In a recent issue of the "Journal of Behavioral Decision Making," Professors Jennifer Lerner and Larissa Tiedens have outlined a portrait of the angry decision maker based on a review of scientific research on the influence of anger on subsequent decisions (Lerner & Tiedens, 2006). Anger influences perceptions, beliefs, ideas, reasoning, and choices. When you are angry, you have a sense of certainty or confidence about what has happened and about what the cause of the event was. Anger is a dangerous emotion for traders. Research suggests that angry people are indiscriminately optimistic about their chances of success. They are careless in their thought and eager to act. Once you become frustrated and angry, the anger lingers and it influences the subsequent decisions you make.

Angry traders don't think clearly. They don't carefully look at situations carefully, and are quick to react on impulse. They believe they are likely to win even though no solid evidence suggests that they will win. Why do people act so irrationally? It may be that some traders are fearful of losing, and rather than run away, they want to stand up and fight. Feelings of anger can be empowering. The angry trader feels in control, optimistic and invincible. It may be a great feeling at first, but it has long term negative consequences. Traders who impulsively put on trades without carefully considering the possible losing consequences will not manage risk adequately, and after a series of trades will mount losses.

Don't trade while you are angry. Trading is frustrating and stressful, and it is natural to feel angry when you encounter a setback. But trading in an angry state of mind will lead to impulsive trading decisions, and losses. It's vital that when you get angry, you stand aside. Wait for your anger to go away. Calm down, regroup, and approach the markets with a rational state of mind. You'll find that you will make more profits when you trade with the proper mental edge.