Emotional Hijacking In Trading

When emotions dominate Traders decision making,Trader become subject to emotional hijackings—episodes where your trading actions are completely emotion driven.As markets go against the trader, confidence withers and emotions become even more prominent in decision making. It causes feelings‐driven actions that seemed correct at the time, but objectively and, of course, in hindsight, were obviously wrong. 

As a Trader You will observe

1. High levels of arousal,
2. Intense emotions,
3. Focusing on Only current price

It is also important to recognize that, when in this state, actions become rigid and restricted to a narrow range of patterned responses.

Traders seem to be able to take only limited actions:
1. cut a winning trade short,
2. jump into a trade,
3. fail to pull the trigger,
4. persist in holding a trade,

They are unable to initiate more appropriate trading actions. When the hijacking is over, you feel as if something had possessed you and you were not quite in control of yourself.Sharing an Incident which happened with one of My Student who is taking Psychological and Performance Coaching

Raj Trading Style is to Do Swing Trading. He saw Reliance Industries  stock shoot up dramatically, easily clearing recent resistance and got a “TIP” from his friend its going to zoom in soon. Raj bought Reliance Industries as it closed above the Resistance and also giving more preference to his Friend TIP  as shown in below chart. He did not saw the stock is closing on resistance at Low volumes but  he acted impulsively and bought almost 4 times of his normal trade size. The next few days saw the stock moved higher, though the stock was no longer moving swiftly as it did before.

A week after Raj entered this market long, it started to react against him. Raj wasn’t concerned as it came near its Reistance zone and next 2 days rallied again.
But Once it broke its support zone and saw a swift decline and Raj was under big loss as position of 4X its normal size. He became tense and anxious. He couldn’t look at other stocks while Reliance was losing money. As it went lower, Raj’s focus narrowed as he watched every tick of the chart. His attention was riveted to the smallest of intraday time frames searching for any evidence that the market was starting to move higher but Stock continued to fall.

Although he put stop loss orders in the market each day, as the market approached them, he moved his stop lower to avoid taking the loss.

He told me the following

  1. My stomach was upset,Had Butterflies in my Stomach
  2. My mouth was always dry,and was not feeling energetic
  3.   I thought I might become sick.
  4. I really felt out of control.

When price started to trade underneath the low of the Breakout day on which he bought, Raj was sure the market would now fall swiftly. But due to larget position size he was not able to do. Once he exicted as he was not able to pay the margin Stock was up more than 30% from the breakout level.

This is Not Emotional Hijacking works in trading. It starts when initial trading decisions were made on an emotional basis rather than in accordance with trading plans One’s trading process is completely abandoned. If you are also going through the same you need to get back on drawing table and work on your trading plan and strategy.