Emotions Are Influencing Both the Market and Your Trading


In this week’s issue of Market Slice, we will delve into how emotions are influencing both the market and your investing.

Confounding All Expectations
“The market’s job is to inflict maximum pain on the maximum number of participants.” – Joe Duffy

It’s safe to say that the market has been doing its job lately… as expectations swing wildly from “Santa Claus rally” to “impending crash,” many traders and investors have been caught off-balance.

Monday’s soaring market once again put the lie to all the bear arguments – Omicron, Fed put, etc. – as Friday’s heavily oversold markets came roaring back. To repeat a point we have made here repeatedly, when everybody fears the worst, the worst is unlikely to happen.


A month ago, CNN’s “Fear & Greed” Index was deep in the green… so, naturally, the markets tanked. Coming into this week, the index tuned red, a sure indication that an upturn was imminent! Of course, tomorrow could bring a different story. One thing that is inescapably evident is that the market is “spooky,” and subject to any kind of sudden shock.

Back to Basics
For several months, we have pointed out that the biggest factor driving this market is the massive liquidity sparked by fiscal and monetary stimulus, combined with the effects of negative real interest rates.

No matter how overvalued stocks may appear to be – and they are, by any historic standard – the question remains: where can capital find its best return?

The answer continues to be in the stock market and speculative asset classes (crypto, real estate)… thus, those markets continue their inexorable upward trend (Bitcoin correction notwithstanding.)

Mindset Matters
Everyone knows that the right mindset is essential for effective trading. The fact remains, however, that it can be a huge challenge to create the right conditions for managing our emotions and avoiding critical thinking errors when we trade.

The problem starts with understanding how the brain works, and where our ingrained thinking patterns come from. These influences can include parents, teachers, family, friends, the environment, society, the media… the list is endless. By the time we reach adulthood, these influences tend to fix thinking patterns that can be dysfunctional or suboptimal. And when it comes to our trading activity, the impact of destructive thinking habits can be devastating. While most traders work relentlessly to find better trading strategies, money management techniques, and similar improvements, very few are willing to look within to find the vast potential improvement that comes from managing your brain state. Most traders tend to think that psychology doesn’t really matter. In fact, even the word “psychology” can evoke a negative reaction.

Instead of seeking to understand *why* we behave in certain ways (especially under stress), there’s a tendency to look to “left brain” concepts such as rationality, being well-informed, and applying the lessons of experience. The problem is that these “fixes” don’t help if the brain is not tuned correctly. So what can we do to get our conscious and subconscious mind to act appropriately? The answer, in broad terms, is to establish a “trading discipline.”

Trading discipline means modifying your behavior in the direction of your desired outcomes, and overcoming the mental resistance and fear that generally get in the way. To effectively develop your “trading brain” requires integrating trading and market knowledge with constructive mental attributes. You need both to overcome the emotional challenges trading presents. Traders who concentrate only on the rational, left-brained aspects of technical and fundamental analysis, entries and exits, etc., will not be prepared for the inevitable distress of unwanted trading outcomes…. For that, a trading discipline is required.

One advantage of working with FFR Trading’s Strategy Team is that you gain an impartial “second opinion” to help you evaluate your choices. This includes all-important “mindset guidance” … just another way we help our clients to the greatest possible level of trading success! Call (800) 883-0524  for a personal strategy call.

The Neuroscience of Trading
Joe Duffy recently conducted a webinar on the topic of The Neuroscience of Trading in concert with FFR Trading. In this webinar, Joe went through several “brain science” factors impacting trading success, including how the brain is wired, what forms our beliefs, the importance of patience, and why neuroplasticity can help you improve your trading.

Here are some of the key “success beliefs” Duffy highlights in his presentation:
Joe Duffy’s Success Beliefs

  • I am solely responsible for the results of my trading.
  • Not taking responsibility sets up two major obstacles in my brain.
  • One it sets up an adversarial relationship with the market and therefore keeps me out of the flow of information the market is constantly providing.
  • Second it can lead to the belief that more analysis is needed.
  • State of Mind not affected by markets behavior.
  • Making money is the by-product of the mental skills to trade my edge (the probability of one thing happening over another).
  • Degree to which I understand and practice this is the degree to which I will be successful.

He also talks about planning for success, with these important mindset tips:

  • Do not try to avoid something that is unavoidable.
  • The degree to which I do not understand and embrace the above is the same degree to which I will self-sabotage my account.
  • The risk in trading does not cause me to lose my focus, stop following my rules, or lose confidence.
  • Accepting the risk allows me to not interpret market information in painful ways and therefore be more open and intuitive about the flow of the market.
  • The degree of conflict between my success goal and my mental environment is the degree to which I inhibit my own success.

To receive a link to the replay of this exciting webinar, contact your FFR Strategy Team at (800) 883-0524. We will email the link right away.

Thank you for joining us for this week’s issue of Market Slice! Visit our Instagram, Facebook, and Twitter for more frequent market updates, trading news, and investment inspiration! Happy trading, everyone!

Leave a Comment

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.