What the research can and cannot say
Swipe the table sideways to see all columns →
| Area | What it can say | What it cannot say |
|---|---|---|
| Naming emotions (lab experiment) | In a lab, putting words to emotional images was linked to a smaller response in the amygdala, a brain area involved in emotion. | Whether naming your own feelings about trades has the same effect, or changes your decisions or results. |
| Trader emotions and performance | Day traders with stronger emotional reactions tended to do worse (a correlation in 80 traders). | That emotion caused the worse results, or that labeling emotions would improve them. |
| Disclosing thoughts and feelings (experiments) | A review of experiments found a small positive effect on average. | Whether it applies to a trading log, or to trading results or money losses. |
Here is each area in turn.
Naming a feeling changes the brain’s response (lab research)
Psychologists have long suspected that putting feelings into words, called affect labeling, helps people handle difficult emotions. In 2007, Lieberman and colleagues reported an fMRI experiment (fMRI measures brain activity through changes in blood flow) in which people viewed emotional images.[1]
What they found: Compared with other ways of processing the images, labeling the emotion reduced the response of the amygdala and related regions. One region, the right ventrolateral prefrontal cortex, showed increased activity, and its activity moved opposite to the amygdala’s. The authors suggest a pathway through the prefrontal cortex that turns the amygdala’s response down.
What it cannot say:
- This was a lab study measuring brain activity while people looked at images. It did not study feelings during real trading.
- It measured the brain’s response. It did not look at trading decisions or money results.
- Labeling the emotion in an image is not the same as writing down your own feelings in a journal.
Trader emotions and performance
(a) A physiology study. Lo and Repin recorded skin conductance and pulse measures from 10 professional securities traders while they traded live.[2] These measures changed significantly around market events and in high-volatility periods, and the responses differed from trader to trader. The authors suggest these differences may relate to trader experience.
(b) A study of 80 day traders. Lo, Repin and Steenbarger had 80 anonymous day traders answer daily surveys about their emotional state for five weeks, and compared them with daily profit and loss.[3] Traders whose emotional reactions to gains and losses were stronger, on both the positive and negative side, had significantly worse performance. The study also found no single “trader personality” in the personality tests.
(c) A study of traders at London banks. Fenton-O’Creevy and colleagues did a qualitative study of traders at four investment banks in the City of London.[4] They concluded that emotions and how traders regulate them are central to trading decisions. Traders who reframed a situation before an emotion built up did better than those who mainly suppressed their reaction after it arose (this was a qualitative interview study, so it cannot show cause and effect).
What these cannot say:
- Study (b) is a correlation. It cannot tell us whether strong emotions led to worse results or worse results led to stronger emotions.
- All three are small or qualitative studies. The samples were day traders (80 people) and investment bank traders. They may not apply to retail forex traders in general.
- None of them tested labeling emotions or keeping a log. They do not show that putting feelings into words improves trading results.
Disclosing thoughts and feelings: a review of experiments
Experiments in which people disclose their thoughts and feelings have been run for a long time. Frattaroli reviewed 146 randomized studies and reported that this approach had a small but statistically significant positive effect on average (r = .075, a very small effect).[5] The review asks whether disclosing thoughts and feelings about personally meaningful topics benefits psychological and physical health.
What it cannot say:
- The effect is small, and it does not mean it works for everyone. The effect varied with study conditions, which the review also examines.
- It looks at the effect on mental and physical health of disclosing personal matters. It does not look at trading logs or trading results.
- A trading log is a few short lines. That is probably different from what people did in those experiments.
So why log feelings in a trading journal?
None of the research above says that writing down feelings improves results. The reason to log them is not a research finding. It is what the log lets you do.
- A feeling log is material you can count later. How many trades did you mark “rushed”? Did you keep your rules in those trades? You count from your own records.
- Whether your emotions and your results are linked is something your own records can show. Whether these studies apply to you can only be checked in your own data.
If you try it and nothing changes, that is also a result. Whether to keep going is up to you.
An example of how to log
One line next to your profit or loss. Write just three things.
- One word for the feeling: “rushed,” “bored,” “need to win it back,” “calm.” The word does not have to be perfect.
- Intensity, 1 to 5: 1 is hardly at all, 5 is very strong.
- What you did before and after: for example, raised the size, moved the stop-loss, or closed as planned.
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| # | Feeling (one word) | Intensity (1–5) | Action before / after | Kept my rules? |
|---|---|---|---|---|
| 1 | Calm | 1 | Entered and closed as planned | Yes |
| 2 | Need to win it back | 4 | Entered right after a loss, with a bigger size | No |
| 3 | Rushed | 3 | Moved the stop-loss | No |
(Made-up entries as an example. You do not need to follow this table exactly.)
After a week or two, count by feeling: how many trades, and how often you kept your rules. You may find that rule breaks cluster at intensity 4 or 5, or that intensity makes no difference. With only a few entries, a pattern may be chance, so hold off on conclusions until you have more.
A notes app, a spreadsheet or voice input works as well as pen and paper. A full guide is in what to write in a trading journal, and the overview is in the trading journal guide. For the bigger picture of emotional habits, see trading psychology. The urge to win a loss back right away is covered in how to stop revenge trading, and how losses feel in loss aversion. To see a day’s trade count and losing streak, the daily trading tracker can help.
In Tiltnote you can record a feeling tag and whether you kept your rules for each trade, then line up counts and profit or loss by feeling from your own records.
About this page
This article is not medical or psychological advice, and it does not recommend any trade. The studies here are mostly lab experiments, small samples or correlations, and none is a study of retail forex traders. The findings may not apply to you. If money or trading is causing you distress, or you find it hard to stop, please don’t carry it alone: talk to someone close to you or a support service where you live.
Sources
- Lieberman, M. D., Eisenberger, N. I., Crockett, M. J., Tom, S. M., Pfeifer, J. H., & Way, B. M. (2007). Putting feelings into words: Affect labeling disrupts amygdala activity in response to affective stimuli. Psychological Science, 18(5), 421–428. https://pubmed.ncbi.nlm.nih.gov/17576282/
- Lo, A. W., & Repin, D. V. (2002). The psychophysiology of real-time financial risk processing. Journal of Cognitive Neuroscience, 14(3), 323–339. https://pubmed.ncbi.nlm.nih.gov/11970795/
- Lo, A. W., Repin, D. V., & Steenbarger, B. N. (2005). Fear and greed in financial markets: A clinical study of day-traders. American Economic Review, 95(2), 352–359. https://doi.org/10.1257/000282805774670095
- Fenton-O’Creevy, M., Soane, E., Nicholson, N., & Willman, P. (2011). Thinking, feeling and deciding: The influence of emotions on the decision making and performance of traders. Journal of Organizational Behavior, 32(8), 1044–1061. https://doi.org/10.1002/job.720
- Frattaroli, J. (2006). Experimental disclosure and its moderators: A meta-analysis. Psychological Bulletin, 132(6), 823–865. https://doi.org/10.1037/0033-2909.132.6.823