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Psychology of Trading
In the face of a perceived threat our sympathetic nervous system activates
physiological changes in the body. This generally happens on a subconscious
level. This means that when the reptilian brain perceives a threat it kicks on the
switch which triggers a chemical reaction in your body that automatically puts
you in fight or flight state. This state of heightened awareness can make you
think faster, run faster and absorb physical blows to your body which may have
little effect on your ability to fight to the death. You as a trader know you are not
in any life or death situation but as you work to control the stress of the
perceived threat (a losing position) your breathing and heart rate change and you
may start to shake. Others can hear it in your voice and time seems to come to a
stop. Your ability to make rational second effect decisions are limited at this
point. I know this because I felt similar reactions in myself and observed it in
others. The amygdala perceives the losing position to be a threat to our lifestyle.
This is because of built in associations with money. In today’s society we
generally need money to maintain the high quality of life we are used to. If you
are taking trading seriously you are putting in extensive time, money and energy;
all of which are generally finite resources. To lose a trade is to trade not only
your capital but also your energy and time associated with that trade. This
translates into a level of stress; enough stress and you trigger the fight or flight
response. The trader no longer sees the original reason for getting into the trade,
he now thinks in terms of woulda, coulda shoulda; fear and greed enter the
picture and perhaps a keyboard gets smashed in the process.
This may be an extreme representation but I’m sure anyone with a pulse has
experience some level of stress when it comes to trading.
Now for the solution.
To trade well you must begin to eliminate the ego. Trading by the seat of your
pants offers great opportunity for the ego to show how great it is and how it