Get Your Feelers Out
How Emotions Influence Your Trading
The way we process emotions influences not only our decision-making but also the strategies we use and the cognitive biases that afflict us.
There are two types of feeling: introverted and extroverted. Introverted feeling (Fi) traders follow their inner values, making decisions based on what feels right to them. Their trading style is personal and reflective. They prefer to operate independently and follow strategies that align with their core principles and they tend not to care if these strategies are unconventional or counter to popular trends. This makes them immune to herd mentality but also makes it difficult for them to understand what the crowd is thinking. Cognitive biases Fi traders may face include confirmation bias (seeking information that supports their personal views), and emotional attachment (holding onto losing positions due to a personal investment). Unchecked, this emotional attachment often leads to escalation of commitment, where the trader continues to back a losing position because they feel personal investment in being "right."
Extraverted feeling (Fe) traders, however, are more attuned to, and actually value, the emotions of the market. They make decisions based on what others are feeling or thinking. Fe traders are able to read the emotional tone of the market and adjust. Their style tends to be pragmatic and action-oriented—taking quick, decisive actions, particularly when they sense a shift in market sentiment. The cognitive biases Fe traders may experience include herd behaviour (prioritising consensus and external validation over critical thinking), and overconfidence bias (believing their ability to "feel" the market is enough to make successful trades).
Both Fi and Fe traders bring valuable strengths to the market. Fi traders thrive when they trust their inner values and work on perfecting their ideas in niche corners of the market. Fi traders are not contrarians, as such, but they easily avoid the emotional chaos of the crowd. Although Fe traders are prone to bandwagoning (because they know and value what the crowd is thinking), with an adjustment of perspective they make amazing contrarian traders and help to keep the markets efficient by correcting the crowd.
By recognising these biases and understanding our own feeling functions, we can develop a more effective trading approach.
