In order to better understand the ways in which our trading decisions and actions are formed, we use the cognitive model of understanding human psychology. According to the cognitive model, our thoughts,emotions, physical bodies and behaviour are all connected and influence each other. In simpler terms, we could see our self as having four components:
The Thinking Self or Mind: It is the part of us that thinks,evaluates, judges, remembers and has certain beliefs about the world around us. A thought could be defined as everything that our mind generates at any given moment. It is our inner voice which a never ceases to speak although we may not be always entirely conscious of its talk. A though may be “I am going to make a cup of coffee”, or “I am not thinking of anything” or “I failed”.
The Emotional Self or Emotions: It is the part of us that feels and experiences emotional states. Common emotions are joy, fear,anger, sadness etc. See below Plutchik’s wheel of emotions to get a more detailed description of the most common emotions.
The Physical Self or Body: Our body is often the ignored part in psychological processes and decision making , however it is a permanent participant in everything we experience. We experience emotions and these emotions always manifest in the body, either we realise it or not. Research has shown, that every emotion has a different impact on our body and activates a series of bodily symptoms. For example, when we are anxious, we breathe faster,our heart also beats at an increased rate, we may get a knot in our stomach, we may sweat, or feel weak.
The Doing Self/Behaviour: Our actions, what we do. Behaviour is not only considered to be the end product of the aforementioned components but also an element that along with the other three constitutes and maintains the cycle thoughts-emotions-physical sensations-behaviour ,also known as vicious cycle when it involves problematic issues.
Throughout the site, we tie in these components with trading and explain in more detail how they are related to our performance and effectiveness as traders.