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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The strangest and most fantastic fact about negative emotions is that people actually worship them…P.D.Ouspensky
As another year comes to an end, we continue to count down with Trading Wisdom. So far, we have covered Acceptance, Dedication/Determination and Intuition. Today, we look at what I believe to be among the most important and least understood aspects of successful trading—Emotions. Because of the critical importance of this topic, I have decided to make this Part 1 of 2 on emotions.
So many times we are told not to have emotions. We hear about this or that trader who sits calmly and quietly through large periods of drawdown. We hear of a legendary hedge fund manager who shows no emotions whatsoever even when winning or losing millions of dollars a day. Such individuals are exceptions to the rule and in the extreme. The majority of traders and investors go through each day like they are on some kind of emotional roller coaster. When their portfolio is up in value, they are usually happy and feel good about themselves. I say “usually” because many are not satisfied, thinking they could have had more if they had held on longer or if they had chosen another stock or option to trade. There is always something they coulda, woulda or shoulda done that they didn’t do. Yes, they made money, but it was not enough. It’s never enough for the "rat brain."
When their portfolio is down in value, they are usually angry and upset. This is when the blaming of others and the anger and resentment come through. The consequences of this are so detrimental to mental, physical and financial health because of the acting-out behavior that occurs. Traders who lose that day may turn to alcohol, substances, revenge overtrading, or anger and irritability toward others. They lost and that was not good enough. In fact, it was horrible and that makes them horrible people. They can’t deal with the reality, nor are they able to truly accept personal responsibility for this, so they turn on others and the blaming begins. It’s never enough for the rat brain and more drama ensues.
When traders are up on one position and down an equal amount on another position —i.e. at breakeven —they are twice as unhappy. Once again, this is a hard-wired component in the rat brain that weights losses twice as heavily as gains. Thus, even though they are at breakeven, it feels like down to them and they become upset, angry and act out dramas and sagas in order to satisfy the rat brain’s constant longing for stimulation.
Money is the last great taboo of our culture. In over 25 years of practicing psychiatry, I have learned that people will tell me everything (including the most intimate details of their sex lives), but they will not be honest with me about their attitude toward money. Part of the reason for this taboo is that there is no legal substance as rewarding as money. Traders and investors have intense and complex relationships with money, and this leads to strong emotions. It is impossible to trade without emotions unless one is a robot.
The point that I have made repeatedly over the years in Trading Wisdom is that your rat brain is always out to get you. What this means is that the emotions a trader holds about money are never far from the surface. The rat brain loves the excitement of both winning and losing, because the rat brain is wired for immediate gratification. Traders get gratification from winning, of course. As challenging as this may appear, at least 50% of traders have a subconscious desire to lose. Thus, both winning and losing give the rat brain what it wants and needs —instant everything. Whatever it wants, it wants it all and wants it now.
The rat brain has been around for hundreds of thousands of years, and it is not going away. The task for the master trader is to be absolutely in touch with his or her emotions at all times. By denying the emotional rat brain, by attempting to push down the feelings that come flooding through during the trading day, the trader becomes confused and exhausted. Rather than push down these feelings, it is critical to be absolutely present with them. Allow yourself to feel whatever feelings come to you while you are trading. Then, take those feelings and use them as part of your synaptic strategy to coordinate your emotional rat brain with the logical and non-emotional cortical areas of your brain. Do not act on your emotions, rather use them as a signal to guide you and as a sign to tell you that you are about to do something that might be detrimental to your equity curve. This is how to begin the process of training your trading brain for success.
Next week, I will conclude this two-part series with a discussion of two emotions that you rarely hear about but are more important for your trading than the usual “market mantra” of fear and greed.
Negative emotions tend to narrow our attention, speed up the decision process, and lead to impulsive actions… Stephen Robbins
Until Next Time,
Good Trading and 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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