People desire security in financial income, but trading is inherently uncertain. As per recent data released by SEBI, 93 per cent of traders in the Futures and Options segment lost money between FY22-FY24.
Stress and anxiety are significant concerns for traders, among other mental health concerns. Due to the uncertainty, inexperienced traders will likely face more stress than experienced traders. Several studies indicate that the percentage of Indian adults suffering from moderate or high levels of anxiety is close to 11 per cent. Stoxmind.ai, a psychometric assessment service for traders, estimates the number of traders with the same concerns to be around 18 per cent. A 2023 study by Mumbai-based GOQii estimated that 17 per cent of Indians were stressed due to financial instability. Stress and anxiety can be triggered by the chances of losing money, making wrong decisions, market volatility and family pressure.
Traders feel strong emotions such as fear, greed, euphoria or demotivation. There is a constant fear of missing out on opportunities or losing money. They face the emotional ups and downs that accompany profits or losses. The psychological pressure to succeed in a highly competitive and uncertain environment can lead to various mental health concerns.
Traders are also susceptible to cognitive biases stemming from making assumptions from a large amount of available information. Such biases are bottlenecks for objective decision-making. For example, recency bias causes one to perceive undue weight to a recent win or loss.
Negative self-talk is yet another mental health concern. It includes dwelling on past losses or doubting one’s abilities. Trading requires a high focus on analysing data, executing strategies, and managing trades. However, negative emotions act as a distraction to maintain focus. Negative self-talk can undermine confidence and lead to shying away from self-reflection - through journaling, psychometric tests or seeking feedback from a mentor.
Strategies for Well-being
The importance of self-care cannot be overestimated in a risky profession like stock market trading. Self-care can include yoga, meditation, gym exercises, and quality time spent with loved ones. Being physically active is essential not only to keep the body fit but also to support cognitive abilities. Maintaining a healthy lifestyle can help traders to stay sharp and make better decisions.
A support network can be crucial for treading objectively in the trading journey. Support networks can include personal relations, peer traders at the same level in their journey and senior traders. A support system can provide encouragement, advice, and a sense of camaraderie. Talking about trading experiences can help process emotions before they become overwhelming.
Traders need resilience - the ability to sustain setbacks and adapt to challenges. Trading is a journey with ups and downs; coping with losses and setbacks is essential. Building resilience involves cultivating a positive mindset, avoiding unhealthy coping activities, and maintaining a long-term perspective. Perception of losses can be reframed as learning opportunities for growth.
Cultivating self-awareness through introspection is the key to growing a strong mindset. It is crucial to pay attention to the psychological factors that inhibit trading, such as fear of taking losses or lack of confidence. It is better to be honest with oneself about the motivations for trading and what one feels rather than trying to suppress or hide those feelings. Self-reflection helps to play on strengths, manage weaknesses and identify areas for growth. Psychometric tests, journaling, mentorship, or professional guidance can help develop self-awareness.
Conclusion
Trading success is predominantly driven by psychology, surpassing the importance of market analysis and trading strategies. Understanding and managing emotions, cognitive biases, and an objective mindset is crucial for making sound trading decisions and achieving consistent profitability. Traders often make the mistake of focusing solely on technical skills while neglecting the significant impact on their mental state. Seek support from peers, mentors, or mental health professionals when needed.
(The writer is the Psychological Coach at Stoxmind.ai, a free trading mindset assessment tool.)
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