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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Pride goeth before destruction and an haughty spirit before a fall…Proverbs 18:16
As we approach the end of another year, we are almost done counting down to the last Trading Wisdom. So far, in this Counting Down series, we have covered the topics of Acceptance, Dedication and Determination, Intuition and Emotions, Part 1. This week we continue with Emotions, Part 2.
As you are all aware by now, I believe that the emotional (neuropsychiatric) component of trading is the most important for success and that the brain is your most powerful trading tool. In this regard, I would like to direct you away from the usual talk of fear and greed and into the underlying bases of these emotions that are bandied about, and often mouthed with little understanding of what they really mean. Repeatedly, it has been said that we will always be greedy when we should be fearful and fearful when we should be greedy. How did we, as traders, get to this point and what does this really represent at the very core of our brain processes?
Despite hundreds of thousands of years of progress, our brains are little changed from those of the Neanderthal. It is the Neanderthal rat brain that still sits buried deep within and surrounded by the new cortical brain. The caveman needed this portion of the brain to protect him from danger in order to survive. The caveman had his brain and some primitive tools that he used to hunt animals and bring protein to his tribe. In this way, the tribe could eat, grow strong and be prepared for the dangers that lurked in the wilderness. Such dangers included wild animals, hostile tribes and natural disasters. In order to sustain life and to breed, the caveman needed to hunt.
The hunters of the tribe were selected because they were strong, fearless and successful. They went out hunting every day to bring home the kills such as antelope, gazelle or wildebeest. The hunter that brought back the daily kill was filled with pride. Everyone adored him and looked upon him as a hero. He was filled with pride because he was a skilled hunter—at least for that day. He brought home the animal protein, and that made him a great hunter. He languished in the worship of the tribe and was accumulating pride.
The hunter who came back with no animal was setting himself up to be shamed and shunned. The members of the tribe thought he was not a good hunter and debated if they should send someone else the next day—someone that would bring them the protein they needed. This hunter did not want to be eliminated. He needed to be able to go back and hunt the next day. He had to do something to convince the tribe that he really was a great hunter, but something else happened. What things? There is a litany of things that this hunter could tell his tribe: something happened to my spear; maybe the spear-sharpener didn’t do his job properly; I saw the animal but a bolt of lightening came and frightened it away just as I was about to kill it; the weather was not good in my hunting place that day and the animals didn’t go there. There was an endless litany of excuses used by the unsuccessful hunter, and these were for one purpose only: He had to do whatever he could to avoid taking personal responsibility for the fact that he didn’t get an animal that day. He had to resist regret, and he did that by putting the blame on everyone and everything except himself. If he was good enough at blaming and successful in shunning regret, he got to go out hunting the next day.
The rat brain of the caveman was hardwired for survival through the mechanisms of accumulating pride (confusing luck with skill when successful) and shunning regret (blaming and not taking personal responsibility when not successful).
We have come so far in our evolution since the time of the caveman, yet the primitive rat brain is still with us and working hard to get us and mess with our trading every day. The primitive emotions of amassing pride and shunning regret are the basis of what we see in the markets every day as greed and fear.
If you really did buy that 79-cent notebook and are really keeping track of your trades, you will see the primitive qualities of accumulating pride and shunning regret at work. The rat brain fools us daily because what we must do in order to be successful traders is exactly the opposite of what the rat brain is telling us. We want to believe that our success is the result of skill, when it may just as easily have been luck. Yet, we accumulate pride, think we are great traders and can do no wrong. Everything we touch turns to profits…until it doesn’t, and then we sit there like the proverbial deer in the headlights wondering how we could have been so wrong when we knew we were such great hunters and everything had been going so well.
Then, we look at the losses in our journal and find no shortage of people, places and things to blame for the losses. It wasn’t our fault. It was someone else’s fault. Even if we “mouth” the words (and I have heard this repeatedly) that it’s “my responsibility” most of us do not really believe it. It’s always someone else’s fault (the market, the Fed, the hedge funds, the program traders, the newsletter writer, etc.), but we say this only in hushed whispers or as we scream into our pillows at night.
We are well served as traders to “fade” our rat brains. It is in our best interests to avoid pride and accumulate regret. The Market Mistress will strike you down when you become too cocky and proud. If you do not learn to accumulate regret, accept a mistake as a mistake and use this as a learning experience, you will continue to do the same thing over and over expecting different results.
The take away from this Trading Wisdom is this: Be humble and do not ever confuse luck with skill. Use regret and loss as learning experiences by taking personal responsibility and vowing to not make the same mistake again.
Your rat brain is always out to get you, just like it was out to get the Neanderthal. Once you are in touch with - and truly “get” this, you will feel these emotions coming up for you. “Fade” them, incorporate them as part of your synaptic strategy, to use them in a productive manner to take you on the way to trading success. Humility, gratitude and taking personal responsibility are the hallmarks of a truly great trader.
Next week will be the final Trading Wisdom of the year, and the topic will be the single most odious word for traders and the one word that every trader absolutely needs to embrace unconditionally:
Uncertainty. Now that I think of it, perhaps it will be Unconditional Uncertainty.
Make the most of your regrets. . . . To regret deeply is to live afresh…Henry David Thoreau
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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