THE EMOTIONAL TRAP: UNDERSTANDING THE DANGERS OF TILT IN TRADINGAs everyone knows emotions are one of the main components of success in trading. And not only in trading, but also in life. And the problem is that everyone knows about the negative sides of excessive emotionality, but they still keep making the same mistakes. The mistake is that in the moment of calmness a person underestimates the harm that emotions can cause. They miss the moment when signs of leaving the state of calmness appear and then they have to deal with the consequences of actions made in an unbalanced state.
In trading, tilt is an equivalent of an ordinary argument. A situation in which a person goes out of the balanced state and actually loses control over what is happening. In legal terminology, this is called a "Heat of Passion". But if in law the legislation calls the heat of passion a mitigating circumstance, then in trading the market does not care about emotions - all the consequences fall on the trader.
📍 THE HIDDEN DANGERS OF TILT
The more emotion is eliminated from trading, the more logical and effective it becomes. However, emotions are an inherent part of human character, and it is impossible to completely eradicate them. Statistics reveal that traders between the ages of 20 and 30, as well as those above 50, are most susceptible to emotional influences. This can be attributed not only to their level of experience but also to their ability to manage themselves and remain objective. Young adults, just starting their careers, often exhibit a sense of recklessness, while the older generation tends to become complacent and lose their grip on their emotions.
📍 THE DANGERS OF TILTING IN TRADING ARE:
• Loss of emotional control, leading to impulsive decisions that are not guided by logic or a well-thought-out trading system.
• Emotions, whether negative (such as fear and anxiety) or positive (like euphoria and excitement), can take over, causing mistakes and irrational decisions.
• Emotional reaction to every emergency situation becomes a habit, making it challenging to separate rational thinking from emotional responses. This habit can be difficult to break and can lead to consistent mistakes in trading decisions.
• Tilting can also result in the violation of risk management rules, such as closing profitable trades prematurely or holding onto losing positions for too long, which can have severe consequences for one's trading account.
One common occurrence that can lead to tilt is when a trade almost reaches its target level, only to suddenly reverse, resulting in a loss or lost profit. This can be frustrating and demotivating.
Another scenario is when a trader opens a trade based on an obvious trend, only to see it turn unprofitable. When a trader is 100% certain of their forecast, but it proves to be incorrect, it can lead to an emotional outburst. This emotional response can cloud their judgment and lead to impulsive decisions that worsen the situation.
Interestingly, professionals in other fields, such as poker and chess, have identified similar causes of tilt. In these games, tilt is often categorized into distinct groups. Understanding these causes can help us develop strategies to recognize and manage our own tilt, ultimately improving a performance and overall trading experience.
📍 THE CAUSES OF TILT IN TRADING CAN BE ATTRIBUTED TO SEVERAL FACTORS
1. Bad luck: Despite probability theory suggesting that the outcome of positive or negative events is 50/50, a streak of bad luck can still occur. This is due to the variability in trading systems and the role of luck. A trading system may perform well on one occasion but poorly on another.
2. Unfairness: Unjust market practices, such as sudden spread widening, market maker manipulation from brokers, can evoke feelings of tilt. Cryptocurrency markets, in particular, are susceptible to market maker games. While it's challenging to combat broker injustice, acknowledging and accepting market unpredictability can help manage tilt.
3. Fear of loss: Defeat is an inherent part of trading, but not everyone is willing to accept it. The way individuals perceive loss can significantly impact their emotional response. Some people learn from their mistakes, while others become overwhelmed by emotions.
4. Mistakes: Regrettable mistakes, especially those caused by inattention or failure to acknowledge a correct prediction, can lead to tilt. It's essential to recognize that mistakes are inevitable and develop strategies for addressing them without allowing emotions to dictate decision-making.
5. Uncertainty: Doubts about the accuracy of a signal or fear of loss can prevent traders from taking action, even when they're confident in their forecast. Developing intuition, trusting oneself, and practicing self-awareness through demo accounts or small accounts can help alleviate this type of tilt.
6. The desire to win back losses: The urge to recoup losses at all costs can lead to impulsive decisions and further losses.
7. Despair: This emotional state is characterized by a complete breakdown in judgment, leading to reckless decisions and potentially resulting in the loss of one's deposit and abandonment of trading altogether.
📍 THE CONSEQUENCES OF TILT IN TRADING CAN BE SEVERE AND FAR-REACHING
Some common consequences include:
1. Impulsive and reckless trading decisions, often characterized by haphazardly opening trades without a clear plan or strategy.
2. Emotional fear can lead to premature exits from the market, even when the exit signal is not supported by technical or fundamental factors. This can result in missed opportunities and lost profits.
3. Doubts about the correctness of one's actions can lead to chaotic decision-making, causing traders to hastily change trade volumes, pending orders, and other settings.
4. When a stop-loss is triggered, emotional traders may impulsively open a trade in the opposite direction, often due to a local pullback on a strong trend or market maker manipulation. This is a classic example of emotional decision-making.
5. In an attempt to salvage a large loss, traders may decide to "wait it out" in the hope that the price will eventually break even. However, this approach often ends in a stop-out, as the loss continues to grow.
6. Greed can also be a consequence of tilt, as traders become obsessed with maximizing their profits and take excessive risks. This can lead to devastating losses and damage to the trading account.
Tilt in trading is often more prevalent after a losing trade, rather than after a profitable one. This is because the emotional impact of a loss can be more significant and lingering, whereas a winning trade may prompt a sense of relief and complacency.
However, this second type of tilt, which occurs after a winning trade, can be particularly dangerous. When a trader experiences a series of profitable trades, they may start to relax and let their guard down, leading to a loss of control and discipline. This can quickly snowball into a desire to win back their profits, which can spiral out of control and ultimately lead to emotional exhaustion and burnout.
This phenomenon can be attributed to the psychological principle of "relapse," where individuals who have made significant progress in overcoming their biases or impulses may revert to old habits when faced with success. In the context of trading, this can manifest as reckless behavior, impulsive decisions, and an inability to distinguish between rational and emotional decisions.
📍 CONCLUSION
Ultimately, the responsibility for our actions and emotional state lies solely with ourselves. The key to maintaining emotional control is to stick to our system, regardless of the outcome. This means resisting the temptation to deviate from our strategy, even when we're experiencing a streak of success or facing a series of losses.
It's crucial to recognize that emotions can be unpredictable and potentially destructive forces. When we feel the urge to take action outside of our predetermined plan, whether due to elation or frustration, we must take a step back and reassess. If we're experiencing a series of successful trades, it's essential to take a break before we become complacent and let our emotions get the better of us. Similarly, if we're on a losing streak, taking a break can help us clear our minds and approach our trading with a clearer head.
The ability to control ourselves is often the deciding factor between success and failure in any endeavor. By acknowledging this and prioritizing emotional regulation, we can develop the discipline necessary to maintain a consistent and profitable trading strategy. Remember, self-control is not about suppressing our emotions, but about acknowledging them and making conscious decisions that align with our goals.
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