The 14 Stages of Investor Emotions

The 14 Stages of Investor Emotions. “Master your emotions and you’ll master the market”. 90% of trading is purely psychology. It is the main reason why so many traders fail as they let their trading become over-ruled by their emotions, thus making irrational decisions.

Many traders will never overcome their inherent emotional biases, therefor you should seek to understand the range of emotions we may experience as investors and how it affects our interactions within the market.

1. Optimism: A positive outlook encourages us about the future, leading us to buy assets.
2. Excitement: Having seen some of our initial ideas work, we begin considering what our market success could allow us to accomplish.
3. Thrill: At this point we investors cannot believe our success and begin to comment on how smart we are.
4. Euphoria: This marks the point of maximum financial risk. Having seen every decision result in quick, easy profits, we begin to ignore risk and expect every trade to become profitable.
5. Anxiety: For the first time the market moves against us. Having never stared at unrealized losses, we tell ourselves we are long-term investors and that all our ideas will eventually work.
6. Denial: When markets have not rebounded, yet we do not know how to respond, we begin denying that we made poor choices. Our “long-term” view now shortens to a near-term hope of an improvement.
7. Fear: The market realities become confusing. We believe our positions in the market will never move in our favour.
8. Desperation: Not knowing how to act, we grasp at any idea that will allow us to get back to break even.
9. Panic: Having exhausted all ideas, we are at a loss for what to do next.
10. Capitulation: Deciding our assets will never increase again, we close all of our positions to avoid any future losses.
11. Despondency: After exiting the markets we do not want to trade ever again. This often marks the moment of greatest financial opportunity.
12. Depression: Not knowing how we could be so foolish, we are left trying to understand our actions.
13. Hope: Eventually we return to the realisation that markets move in cycles, and we begin looking for our next opportunity.
14. Relief: Having bought an asset that turned profitable, we renew our faith that there is a future in investing.