Friday, May 01, 2009

Reflections on Frequency of Trading and Emotional Distress

Suppose the distribution of good and bad trades for any particular trader followed the distribution of returns from financial markets. This leptokurtic distribution would be high-peaked (many average trades) and fat tailed (a larger number of very good and very bad trades than one would expect in a normal distribution).

If this were the case, how would the frequency of trading impact trading psychology? Wouldn't frequent traders sustain larger numbers of unusual positive and negative runs than less frequent traders, suffering overconfidence, frustration, and disappointment as a result?

Does emotional upset create trading problems, or could it be that some forms of trading are incubators of emotional distress?

Why do I find emotional disruptions so much more common among frequent traders than less frequent ones? More drama, more trauma.