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Euphoria

The elated, invincible state after a run of wins, in which risk feels theoretical and size decisions get made by mood.

The mood around a market cycleA price path rising to a peak and falling to a trough, labelled with the feelings usually attached to each stage of the round trip.PRICETIMEOPTIMISMEXCITEMENTEUPHORIAANXIETYDENIALPANICCAPITULATIONDESPONDENCYHOPEOPTIMISM RETURNSMAXIMUM FINANCIAL RISKMAXIMUM FINANCIAL OPPORTUNITY
The mood around a market cycle. The same price path labelled with the feelings that tend to travel with it, from optimism up to euphoria and down through panic to despondency. Confidence is highest where the most money is already committed and prices are highest.

Euphoria is the mirror of panic and does more damage to good traders. Fear stops people trading; euphoria makes them trade more, larger, and outside their rules, precisely when conditions are most extended.

The markers are recognisable from the inside if you look for them: checking the account for pleasure, planning what the money will buy, telling people about the position, feeling that the usual limits are for other conditions. Each is a signal to reduce rather than to press.

Write the rule while flat. After a defined run of wins or a given percentage gain, size is capped and reviewed at the weekend. See house-money-effect and position-size-creep.

Related: house-money-effect, position-size-creep, market-cycle-emotions, hot-hand-fallacy

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