Why I lost money trading today ?
Psychological Journal entry :
reading references :
'The hour between Dog and Wolf - risk taking, gut feelings and the biology of boom and bust' by John Coates
'The Undoing Project' by Michael Lewis
part 1
This is an entry on the last trading day of the financial year, and I am getting into more 'tender' subjects. Probing the belly of the beast. The mind naturally wants to avoid these subjects, that's an interesting observation. So if the mind does not wish to look at something it probably means that it needs to because it's a weakness that should be addressed. As I am really serious about success as a trader - I realize I have to go there. If I don't confront weaknesses they will hang around causing continuous problems.
Obviously, when we a trading we're not always going to win and the reason for not winning can sometimes be unconscious. It might be some 'programming' from the past, a Mal-adaption to avoid pain. So, without getting to deep on the subject ( note reading references above), our body-mind is connected biologically and both depend on each-other in many influential respects. If you read " The hour between dog and wolf', it describes the autonomic responses of stress on the body in various situations producing certain hormones. Hormones are produced to regulate our body without us thinking about it and this affects our moods. For instance, if we are in a real world scenario such as being attacked by a man - the fight or flight response is triggered, certain hormones flood our blood such as testosterone, adrenaline and cortisone which affects our metabolism such as heart rate, blood glucose, and sympathetic stimulation for action. When this occurs blood is diverted from some areas of our brain to our muscles which definitely affects our ability to think clearly. This is important to appreciate because there are areas of our brain disengaged that normally are responsible for higher level thinking. Stressful situations can occur within our internal mental world too depending on our own subjective experience.
So if we are a trader and looking at an intra- chart of crude oil prices during a US news announcement it will move quite erratically, quickly, and be hard to trade. If we decide to enter a position and it does against us suddenly and we are losing money - this is going to be a shock to our mind-body system. So we are likely to react with a similar 'fight or flight response even though just sitting at our desk. For that reason, in the heat of this battle we may not be able to hold onto the more objective clarity of thinking we are normally accustomed. We are more prone to break our trading guidelines or rules. We may abandon a more rational course of action and just blindly follow our habitually ingrained tendencies which operate from our unconscious mind. This is exactly the same response as if we are being physically attacked by a man. This is obviously not desirable. We are going to make expensive mistakes, such as not getting out of the losing trade quickly enough. We are like a 'deer caught in headlights', unable to execute. Holding on to losers too long tends to be a beginners response because of an inability to accept a loss on paper. 'Hope or 'fear of banking a loss' steps in to seize the day and the trader does not act because in the world of our ancestors it may have been more pro-survival to hang on and not give up in stressful situations. This does not work in the world of trading however, if you want to be successful. cutting losses short is an axiom most traders have heard and for good reason. The' doing of it' is much harder in reality however - because of our hormonal responses to a large extent. Even if a trader is attempting to follow a good trading plan developed when real money was not on the line ( DEMO account success?) the autonomic responses hijack this preparation. It's like Mike Tyson states,
'everyone has a plan, until they get punched in the face.'
part 2 next to be continued.....