Emotional Reactivity on the Financial Performance - Essay Example

Results showed that the experienced traders had a lower physiological reactivity to disturbing and abrupt information. Additionally, Oblechner (2004) discovered "emotional stability is equally important for a successful trader." Traders whose emotional reactions to losses and gains on the extreme positive or negative sideshow poor trading performance meaning a negative relationship between emotional reactivity and successful trading behavior. (Lo and Repin, 2005) Overconfident traders have a tendency of trading too frequently and appear to ignore danger signs concerning their positions.

According to Biais et al., 2001, overconfidence is related to sub-par performance amongst traders in an experimental environment and that overconfident traders stay with underachieving stock for a long time and sell their winning stocks too early leading to underperformance in the market.Self-discipline, on the other hand, associated with how we handle our impulses. Self-disciplined traders have a better chance of controlling and channeling their impulses towards goals. Biais et al. (2001) discovered that traders who scored highly on impulsivity evaluation (the antonym of self-discipline) directed more trades, without bettering performance.

Self-awareness is an increased consciousness of one's own emotional and physical state. Traders who have self-awareness have logical reasoning behind all their behaviors and choices. Traders with self-awareness have a high emotional intelligence associated with long term success rate. (Biais et al, 2001) Emotional reactivity best appears to predict profitability as compared to the personality trait. All good trading behaviors must be planned, conceived and executed in a rational manner.