Janice Dorn, MD, PhD
Neuropsychological Trading Coach
Janice Dorn, M.D., Ph.D., has been a full-time futures trader since 1994. Doctor Janice holds an M.D. in psychiatry and is board-certified by the American Board of Psychiatry and Neurology in general psychiatry and addiction psychiatry. She holds a Ph.D. in brain anatomy. A graduate of Coach University, she is a pioneer market psychiatrist and financial neurobehaviorist. Doctor Janice has written over 500 articles on the financial markets and coached over 600 traders worldwide. She is the Global Risk Strategist for Ingenieux Wealth Management Group, Sydney, Australia.
|
You got to know when to hold em, know when to fold em,
Know when to walk away and know when to run.
You never count your money when you're sittin at the table.
There'll be time enough for countin when the dealins done
...from The Gambler, sung by Kenny Rogers
Since the time of Aristotle, scientists and philosophers are recognized that there are two functions of the brain which are fundamental to all behavior:
(1) Approaching reward (seeking pleasure)
(2) Avoiding loss (staying away from pain).
The brain systems which mediate these pathways are related to dopamine (in the case of pleasure-seeking) and serotonin (in the case of avoiding loss). Recent studies utilizing fMRI (functional Magnetic Resonance Imaging) techniques in the brain have shown that dopamine pathways (concentrated heavily in the primitive rat brain) tend to go "quiet" in the face of losses, and become active when presented with rewards or the promise of rewards. Think of Las Vegas, casinos and flashing lights with dollar signs and sounds of money everywhere. This is pretty much a dopamine heaven and the dopamine pathways go into full-blast off mode in this environment. Just the "thought" of making money lights up the dopamine system, due to the reward approach. The same thing happens when people buy lottery tickets. Just thinking about the possibility of immense rewards is enough to "light up" the rat brain dopamine tracts.
The same thing happens when you see a stock going up for several days, especially if you are not in it. You are attracted to it by the dopamine drive for reward, and want to buy it. It is the "thought" that you will make money which drives dopamine release. Once you have made the money (actually received the monetary reward), the dopamine levels will drop. This is why people who take profits out of the market always want to get back into something. The gain itself does not feel nearly as good as the expectation of gain. This is another way of saying that dopamine drives greed. Once you get what you want, you move on to something else because you want/need to have that good dopamine feeling again. The drive to get dopamine is addictive and causes people to do things which may not be in their best interest, especially from a financial point of view.
.
And what happens when we lose? The dopamine systems crash and the serotonin systems shut down. This is one reason why losing feels nearly 2.5 times worse than winning. In other words, if you have a 10% gain over here and a 10% loss over there, you actually "feel" like you have lost, even though you have broken even.
It is at these times that one turns to various crutches (drugs, alcohol, prescription meds, sex, overtrading) to try to get the dopamine circuits up and running again. Dopamine is addictive and addiction to dopamine is addictive. It is a never-ending cycle which ends up in a state called crash or burnout. We are held hostage by our dopamine-infused rat brain.
The best traders have trained their brains to act in a manner that is counter-intuitive, i.e. to walk through the casino and not play unless the odds are heavily-stacked in their favor. (I don't know how or when that occurs, but the professional player knows that.) The same applies to the person who walks past the lottery window and doesn't buy a ticket. In the markets, it is the person who has the ability to NOT follow the crowd and to refrain from throwing good money after bad. The professional player and the seasoned trader are totally aware of what their brains are doing to mess them up and they have learned not to act in response to the dopamine-driven rat brain saying to them, “It’s all good, there is no risk, so just go for it! It's more and more money! Come on in, there are only a couple of man-eating sharks in the water today!"
The trader who has reached the level of unconscious competence is not dopamine driven. He or she is almost mechanical and able to recognize a faulty signal as a faulty signal, deception as deception and knows when to hold 'em and when to fold 'em.
The best traders have discipline. They have mastered their dopamine-infused rat brain. Of course, emotions of fear and greed come up for them, because they are human beings and all human beings have emotion. However, they have learned through many years in the school of hard knocks to behave in a "unnatural manner." They have learned to go against the crowd by tempering their enthusiasm and being continually aware of the ways that their dopamine-driven rat brain is out to get them!
Successful trading, in many ways, requires a complete unlearning and then re-learning of hard-wired neurobehavioral patterns. In order to achieve trading mastery, the first step is to know yourself as a human being and a trader. Then, forget about everything you do or have done to be successful in life outside of the markets, then get in touch with that rat brain dopamine system and realize that it will always trick you into being greedy when you should be fearful and fearful when you should be greedy. This is the essence of counter-intuitive thinking and trading mastery. Without it, you might as well go to Vegas. At least you will get free drinks, some hot looking chicks and a couple of fairly decent dopamine blasts. Your rat brain will love you for it, but the hangover can really bite hard! The street word "dope" comes from dopamine. Either you are duped by the dopamine or you are not. The choice is up to you and how much you allow your rat brain to get you!
|
