Nearly 1.8m adults in the UK have become day traders since the pandemic, pouring into stocks and digital currencies from the comfort of their own homes with varying success.1 Whilst investing has soared in popularity, challenging market conditions, chronic uncertainty, or a history of trading losses have led to rising levels of stress amongst traders.2,3 With this in mind, City Index commissioned a survey of 3,000 participants to delve deeper into the trading psychology of new traders.
Key findings:
- More than one in three traders surveyed feel frustration and disappointment as a reaction to losses in trading (31.6%)
- 41-60 year olds investors are most likely to have their trading decisions consistently influenced by emotions (35.4%)
- The age group most likely to engage in risk-taking was those aged 61 and above, with almost a third saying they do so to recover losses quickly (31.4%)
- Brainworks Neurotherapy comment on the impact of negative emotions on decision-making, with City Index sharing how this can be overcome with the use of Performance Analytics
Q1: How often do emotions influence your decisions?
| Answer | Responses | Percent |
| Always: My trading decisions are consistently influenced
by emotions, and it’s a significant factor in my approach. |
79 | 2.6 |
| Very Rarely: I am usually able to make trading
decisions without being influenced by emotions |
257 | 8.6 |
| Frequently: Emotions often impact my trading
decisions, and I am aware of their influence |
607 | 20.2 |
| Occasionally: Emotions play a role in some
of my trading decisions, but not frequently |
999 | 33.3 |
| Sometimes: I find that emotions influence
my trading decisions on a moderate basis |
1,058 | 35.3 |
City Index can reveal that over a third of traders find that emotions influence their trading decisions on a moderate basis (35.3%), which is the most common response amongst all investors surveyed. Similarly, three in 10 traders reported that emotions play a role in some of their trading decisions, but not frequently (33.3%).
One in five traders felt that emotions frequently impact their trading decisions and are aware of their influence (20.2%), however, less than three in every 100 reported that their trading decisions are consistently influenced by emotions—with it being a significant factor in their approach (2.6%).
The age group most likely to have their trading decisions consistently influenced by emotions were 41-60 year olds, with this sentiment selected by over a third of this demographic (35.4%). In comparison, just 10.1% of 18-24 year olds surveyed considered emotions to be a significant factor in their trading approach.
James Roy, Neuro Expert at Brainworks Neurotherapy, commented on the psychology of trading and how negative emotions can influence our decision-making:
“Market participants frequently grapple with the repercussions of negative emotions, such as fear and greed. These emotions can distort rational decision-making by activating the amygdala, prompting impulsive actions and clouding judgement during periods of market volatility. The evolutionary roots of these emotional responses, tied to survival instincts, contribute to the challenges traders face in maintaining a disciplined and strategic approach.
Recognizing and managing these emotional triggers is imperative for traders seeking to navigate the complexities of financial markets. Strategies that integrate emotional intelligence can help mitigate the impact of negative emotions, fostering a more rational and deliberate decision-making process. Acknowledging the psychological nuances inherent in trading allows individuals to cultivate a resilient mindset, promoting sustained success in the ever-evolving landscape of finance.”
Q2: How do you react to losses in trading?
| Answer | Responses | Percent |
| Increase risk-taking to recover losses: In an attempt to recover
losses quickly, I increase my risk-taking to increase my gains. |
118 | 3.9 |
| Seek external advice or opinions: I seek advice from peers,
mentors, or financial experts to gain insights on how to handle losses. |
212 | 7.1 |
| Hold and wait for recovery: I may hold onto losing
positions, hoping for a market reversal or recovery. |
297 | 9.9 |
| Emotional impact, requiring time to recover: Losses have a significant emotional impact and it Takes time for me to recover to regain confidence. | 397 | 13.2 |
| Cut losses immediately: I tend to cut my losses
quickly to minimise potential damage to my portfolio. |
428 | 14.3 |
| Re-evaluate and adjust strategy: I reevaluate my trading
strategy and make adjustments to avoid similar losses in the future. |
601 | 20.0 |
| Feel frustration and disappointment: Losses evoke feelings of
frustration or disappointment, but I try to learn from the experience. |
947 | 31.6 |
The majority of traders feel frustration and disappointment as a reaction to losses in trading, with one in three reporting this emotion (31.6%), however they do try and learn from the experience. One in five respondents will re-evaluate and adjust their trading strategy to avoid similar losses in the future (20%).
Fewer than one in 10 respondents will hold and wait for recovery when facing losses, hoping for a market reversal (9.9%), which is a similar level of traders who will seek external advice or opinions from peers, mentors, or financial experts to gain insights on how to handle losses (7.1%).
In an attempt to recover losses quickly, almost one in 25 traders react to losses by increasing their risk-taking to increase gains (3.9%). The age group most likely to engage in risk-taking was those aged 61 and above, with 31.4% saying they do so to recover losses quickly.
Q3: How confident do you feel when making trading decisions?
| Answer | Responses | Percent |
| Very confident: I am extremely confident in my trading decisions
and believe in my ability to make sound choices consistently |
288 | 9.6 |
| Confident: I am generally confident in my trading
decisions but acknowledge the possibility of improvement |
445 | 14.8 |
| Moderately confident: I feel a moderate level of confidence
in my trading decisions, with some room for improvement |
947 | 31.6 |
| Slightly confident: I have some confidence, but there is
a noticeable level of uncertainty in my trading decisions |
1,032 | 34.4 |
| Not confident at all: I feel very uncertain and
lack confidence in my trading decisions. |
288 | 9.6 |
The research highlighted that the majority of traders feel slightly confident when making trading decisions, reporting some confidence but a noticeable level of uncertainty in their trading decisions. This sentiment was felt by over a third of respondents (34.4%), alongside one in three that feel moderately confident in their trading decisions, but recognising the room for improvement.
An equal number of respondents (288) felt either very uncertain and not confident at all in their trading decisions, or reported feeling very confident in their trading decisions and believing in their ability to make sound choices consistently. Fewer than one in 10 traders felt either not confident at all or very confident in their trading decisions (9.6%), revealing a diverse range of confidence levels among traders.
While traders vary in their confidence levels, the reality is that a significant majority of traders can lose money. This highlights the danger of over-relying on personal confidence, and emphasises the need to integrate robust risk management practices and a disciplined approach into trading strategies. Regardless of confidence, effective risk management is essential for safeguarding financial capital in the face of market uncertainties.
Matt Weller, Head of Market Research at City Index, commented on risk-taking when trading:
“If you find yourself struggling to stay in a winning trade, or if you let your emotions take over when things are not going well, you are not alone. Emotions and biases are powerful influences on trading, but most traders are unaware of how much it impacts their performance.
To achieve success in trading, it’s imperative to embrace logical, measured risks, while simultaneously prioritising emotional discipline. Detaching emotions from your trading decisions stands as one of the wisest moves you can make to mitigate potential pitfalls and enhance overall trading performance.
A supporting and psychology-driven tool such as Performance Analytics utilises realistic goal setting, live discipline tracking, and psychological insights to help you overcome emotional trading. Performance Analytics is a digital mentor which arms you with the right tools to achieve all three, so you can trade with confidence.”
How emotional trading can be overcome for improved results
Trading can be an exhilarating journey, offering individuals the opportunity to grow their wealth and make informed financial decisions. The survey from City Index does, however, uncover that some traders grapple with avoidable emotions, such as fear, panic, and greed, often resulting from a lack of knowledge and inadequate emotional management tools.
Amidst the challenges, it’s crucial to highlight the positive aspects of trading. With the right mindset and tools, trading becomes an empowering experience. By embracing realistic goal setting, discipline tracking, and psychological insights, traders are equipped with the necessary resources to navigate the emotional rollercoaster of the market. Trading, when approached with discipline and guided by insights, can foster financial growth and confidence.