By now, I hope I’ve convinced you that putting in some effort to improve your emotional intelligence is worth it.
But what does an investor with high or low emotional intelligence look like in practice? And most importantly, how does their profitability differ?
As I hinted at in the introduction, an investor with low emotional intelligence is more likely to do whatever their emotions tell them to do without realizing what’s happening or making a conscious decision.
This is relevant for all kinds of investors — even those who favour long-term index funds might make a rash decision when the market dips — but swing traders are perhaps the most at risk. We frequently have to think quickly to make decisions.
On the other hand, investors with high emotional intelligence are conscious of when their emotions have hijacked them. Instead of acting on whatever their feelings tell them, they’ve learned to remove themselves from the situation and assess everything more rationally.
Note that I didn’t say investors with high emotional intelligence are immune from irrational impulses or that they have better judgment about which trades to make. They simply have a greater awareness of what’s happening and use that to their advantage.
I know from my own experience, there’s a distance created between the trigger event and the emotional reactivity. When I’m really in my zone, I see events in slow motion; the trigger event, the sense that the emotion is rising inside me and then the decision to react constructively.
Circling back to the CFA Institute paper I got the definition of emotional intelligence from; the study found a strong correlation between the level of emotional intelligence and the way investors approach trading.
This isn’t just a nice theory — it’s real life.