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💸 Series 2: Stock Market Basics

📊 Day 6: The Role of Emotions in Stock Trading

Let me be honest with you—when I first started investing, I thought the key to success was numbers, charts, and analysis. I believed that if I could just “figure out the formula,” I’d never lose money again. But over the years, I realized something that completely changed how I look at the stock market: emotions, not logic, drive most trading decisions.

Fear and greed are two of the most powerful forces in the market. They can make smart people act foolishly and confident traders second-guess themselves. Today, I want to talk about the emotional side of investing—the part no one likes to admit influences their decisions, but it’s the most important one to master.

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Why Emotions Matter More Than You Think

Every time you buy or sell a stock, it’s not just about data—it’s about how you feel in that moment. Do you feel excited because everyone is buying the same stock? Or nervous because prices are dropping fast?

The truth is, most market movements are emotional reactions. When investors feel confident, prices rise. When fear takes over, prices crash. The market isn’t just a machine—it’s a reflection of human psychology.

And if you can understand your own emotions, you’ll have an edge over most traders.

The Two Biggest Emotions in Trading: Fear and Greed

Let’s talk about the two emotional giants that control the market:

1. Fear – This is what causes people to sell when they should hold. Fear makes investors panic when the market dips. You might think, “What if I lose everything?” and sell too early—only to watch prices bounce back later.

2. Greed – This is the opposite emotion, but just as dangerous. Greed makes us hold on too long, hoping for more profits. It whispers, “Just a little higher,” even when all signs point to a correction.

Both emotions are natural. The problem is when they start controlling your actions instead of your strategy.

How Fear Shows Up in the Market

I’ve seen fear take many forms:

• Fear of Loss: The most common one. You buy a stock, it drops a bit, and your first instinct is to sell before it falls more.

• Fear of Missing Out (FOMO): This one is sneaky. You see a stock skyrocketing and feel pressured to jump in, even if you missed the early move.

• Fear of Being Wrong: Sometimes we hold onto losing stocks because admitting a mistake feels worse than losing money.

Here’s a simple truth: every successful investor has faced fear. What separates the winners from the losers is how they respond to it.

How Greed Takes Over Without You Realizing

Greed often feels good—at first. When prices are rising, it’s easy to believe we’re geniuses. But that’s when greed quietly takes the wheel.

• We buy more of the same stock even when it’s already overpriced.

• We ignore warning signs because the profits look too good to stop.

• We forget our plan and start chasing bigger wins.

The market has a funny way of humbling greedy traders. Just when you think the profits will never end, the tide turns.

Why Emotions Can Trick You

Emotions are tricky because they make us believe we’re acting logically when we’re not. For example, when the market is crashing, your brain says, “Get out before it’s too late!” But that’s often the worst time to sell.

When prices are soaring, your emotions say, “Buy now before it’s too late!”—but that’s usually when prices are highest.

In other words, emotions push us to do the opposite of what we should be doing. That’s why mastering your emotions is often more important than mastering technical analysis.

The Psychology Behind Market Moves

The market moves in cycles, and those cycles are emotional. Here’s what usually happens:

1. Optimism – People start buying. Prices rise.

2. Excitement – More investors notice. Everyone starts talking about it.

3. Euphoria – Prices skyrocket. “This time it’s different,” people say.

4. Anxiety – Prices start to wobble. Some investors take profits.

5. Fear – Prices drop faster. Panic sets in.

6. Capitulation – Everyone gives up and sells at a loss.

7. Despair – Prices stay low. No one wants to buy.

8. Hope – A few brave investors start buying again.

This emotional rollercoaster repeats again and again. And if you learn to recognize where the market is on this cycle, you’ll know when to stay calm while others panic.

How I Manage My Own Emotions

Let me share something personal. In my early days of trading, I’d get so nervous that I’d check my stock prices every few minutes. A small drop would ruin my mood for the day.

But I learned over time that the more I reacted emotionally, the worse my results became. So, I made a few rules for myself:

1. I only invest money I can afford to leave untouched for years. That removes pressure.

2. I set a clear plan before I buy. I decide when to take profit and when to cut losses.

3. I avoid checking prices too often. The less I react, the better my results.

4. I write down my emotions. It sounds strange, but journaling helps me notice patterns—like when I tend to act out of fear.

These habits helped me stay calm even when the market went crazy.

The Power of a Trading Plan

Having a trading or investing plan is like having a map in a storm. It keeps you grounded when emotions try to take over.

Your plan should include:

• Why you’re buying a stock (the reason and logic behind it).

• When you’ll sell (profit target or loss limit).

• How long you plan to hold it.

Once your plan is written down, stick to it. The hardest part is not the plan—it’s the discipline to follow it.

Don’t Let Social Media Control Your Feelings

In today’s world, it’s easy to get caught up in hype. You scroll through social media and see people bragging about 200% returns. Suddenly, your slow-growing investment looks boring.

But here’s the truth: no one posts their losses. Everyone shows the highlight reel. Comparing your journey to others only stirs up greed or fear—and both lead to bad decisions.

Stay focused on your own path. Real wealth takes time, not viral moments.

How to Train Your Emotions Like a Muscle

You can’t get rid of emotions, but you can train them. Think of emotional control like going to the gym—you get stronger the more you practice.

Here are some ways to build emotional strength:

• Start Small: Trade with small amounts until you’re used to the ups and downs.

• Take Breaks: If you’re feeling emotional, step away from your screen.

• Review Past Trades: Look at your past decisions. Were they based on logic or emotion?

• Celebrate Patience: The best investors don’t react fast—they react right.

Over time, your emotions will calm down. You’ll stop seeing every drop as a disaster and every rise as a jackpot.

The Science Behind Emotional Investing

There’s a psychological concept called loss aversion—people hate losing money more than they enjoy gaining it. That’s why losing $1,000 feels worse than gaining $1,000 feels good.

This bias makes investors sell winners too early (to lock in gains) and hold losers too long (hoping they recover). Recognizing this helps you make more rational choices.

Remember, investing is about probabilities, not emotions. Even the best investors lose sometimes—they just don’t let their emotions make things worse.

My Golden Rule: Feel It, But Don’t Follow It

It’s okay to feel fear. It’s okay to feel excitement. The key is not to act on those feelings immediately.

When I feel emotional about a trade, I pause. I take a deep breath, maybe even walk away. If I still feel the same way a few hours later, I’ll reassess. Most of the time, the emotion fades, and I make a much better decision.

Patience is your superpower in the stock market.

Key Takeaways

• Emotions drive most market movements.

• Fear makes people sell too early; greed makes them hold too long.

• Recognizing emotional cycles helps you stay calm when others panic.

• A clear plan reduces emotional decision-making.

• You can’t eliminate emotions—but you can train yourself to manage them.

If you master your emotions, you’ll have something even more valuable than money: control.

Final Takeaways

The stock market is more than numbers—it’s a mirror that reflects our behavior. The better you understand your emotions, the better investor you’ll become.

Remember, wealth isn’t built by reacting fast—it’s built by staying consistent, patient, and calm when others lose their heads.

So, starting today, make this your goal:
Observe your emotions before acting on them.
Next time you feel tempted to buy or sell out of excitement or fear, pause. Ask yourself, “Am I making this choice because of logic—or emotion?”

That one question alone can save you thousands of dollars over your lifetime.

Stay disciplined, stay grounded, and let your emotions be your teacher—not your master.

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I make no representations, warranties, or guarantees, whether expressed or implied, that the content provided is accurate, complete, or up-to-date. Past performance is not indicative nor a guarantee of future returns.

I am an individual content creator and not regulated or licensed by the Monetary Authority of Singapore (MAS) as I do not provide investment services.

All forms of investments carry risks, including the risk of losing your entire invested amount. Such activities may not be suitable for everyone. You are strongly encouraged to seek advice from a professional financial advisor if you have any doubts or concerns.