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.
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Money is a singular thing. It ranks with love as man’s greatest source of joy, and with death as his greatest source of anxiety...John Kenneth Galbraith
Little did I know when I wrote “The Man in the Green Bathrobe” how soon I would be re-visiting this most interesting color. This time, however, it’s not about green bathrobes. This is about the color of money, specifically the money that is literally pouring into the portfolios of subscribers to www.trending123.com. Every day I hear from someone in our www.trending123.com family who is making “more money than I have—EVER!”
Since the time of Aristotle, we have known that the human brain is in a constant synaptic struggle between two opposing forces. These biological, brain-based drives compete with each other and are constantly in action. Every one of you will recognize them in yourself because these struggles produce internal conflicts. These two forces are (1) the approach to reward (pleasure-seeking) and (2) the avoidance of loss (pain-avoiding). Our nervous system is hardwired to overweight reward and underweight loss. Although there are exceptions to this general principle, it can be safely said that the majority of people want to be rewarded and do not want to be in pain.
Those of you who have been reading the Trading Wisdoms over the past years are familiar with the concept of the rat brain. The rat brain is the big-game hunter in the search for rewards and pleasure. The rat brain wants it all and wants it now. If it feels good, the rat brain will do it. It can’t wait and doesn’t understand the word “No.”
The rat brain is a dopamine playground (dopamine is the chemical that underlies the search for pleasure, rewards and gains). Release of dopamine in the brain serves another function that is related closely to rewards. Dopamine makes us feel volatile and emotional. The larger the perceived reward, the greater the amount of dopamine released into the brain and the more volatile and emotionally unstable we become. Up to a certain level of dopamine, there is a warm, happy sensation felt throughout the entire body. This dopamine release can actually be seen in human beings. In tests where money rewards are involved, live imaging scans of the human brain now show the areas that respond to the mere idea of making money. People describe their bodily feelings at these times in terms of warm, happy, soothing and tingling.
When the money tasks are changed in such a way that rewards are given on an intermittent basis, dopamine goes into a kind of overdrive. It pours out more and more in response to the possibility of getting a reward. Then, when the reward is not given, the dopamine shuts down completely—it crashes. The next time a reward is promised, dopamine in the brain increases several-fold. It is almost the same as saying, “I didn’t get it this time, but the next time I am going to get more.”
This fluctuating cycle of dopamine, no dopamine, more dopamine, less dopamine and more dopamine is the basis for the panoply of feelings that rush through the trader every day. Dopamine is the chemical basis for addiction, fear and greed. The rat brain is the dopamine faucet, turning on and off in response to gains and losses. Now you know more about how your rat brain is always out to get you!
Of all legal substances, none is more rewarding than money. People will do almost anything to get money, including exposing themselves to situations (such as reality TV shows) where they sign “humiliation contracts.” They allow themselves to be put at risk for public humiliation and shame in the hope that they will receive money, fame or both.
We trade to make money. That is the bottom line. Anyone trading the market who tells you that he or she is not in it to make money is being less than truthful. Trading and investing have at their very core the search for rewards and the turning away from losses. Making money is a celebration, and losing money is miserable. There is not one single person trading today who has not felt the pleasure of monetary gains and the despair of losing money.
But losing is a part of winning in trading. In order to feel good and keep the dopamine in balance, traders must learn to cut losses quickly before they get into a state of dopamine whipsaw. By cutting losses quickly, the trader does not give the dopamine time to “crash” completely. In other words, the trader does not allow his or her dopamine system to get into a state of dysfunction. The trader is able to maintain a relative sense of equanimity and internal calm under these conditions. This is the brain basis for such terms as trading in the flow or trading in the zone. You are neither too hot nor too cold. You are a kind of Goldilocks trader. This is the ideal way to be present in the markets. Anything else is emotional and financial whipsaw, getting partially or completely off balance and allowing your rat brain to do its dopamine thing on your mind, body, spirit and portfolio.
We cut losses because we don’t like feeling pain. Underneath this action is a basic biological survival mechanism that is activated in the brain. That is, we cut losses to preserve ourselves from the curse of dopamine. We cut losses to remove ourselves from the possibility of getting totally out of control and making what are called “boneheaded” trading errors as a result of dopamine dysfunction.
Over the next few weeks, I will write much more about money and its meaning and conflict within you in terms of brain science and the health of your mind, body, spirit and equity curve.
The surest way to ruin a man who doesn’t know how to handle money, is to give him some…George Bernard Shaw
Until Next Time,
Good Trading and (Revitalized) Brain On!
Janice Dorn, M.D., Ph.D.
janice@thetradingdoctor.com
P.S. Every week, I send you a Trading Wisdom designed to make you better, smarter, more balanced traders. Today, I want to ask you, “How are you doing?” Please join me and your fellow traders at the message board and tell us which of my Trading Wisdoms have been most helpful in getting you on a path to profitable trading. How have you used my methods and insights to make big money or avoid huge pitfalls? Tell me what you think, and your favorite Trading Wisdom may be featured in my upcoming book! Stop by today!
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