Let me preface this by saying that I only took a psychology class in college and I am far from being an expert on this subject. This is based on my own experience and self-observation.
In analyzing myself and my trading behavior with the same scrutiny that I analyze the charts, I’ve come to realize that under certain types of stress or duress, the primal or primitive brain tends to take control. I understand this to be survival and instinctive functions of the brain that control the fight or flight response, but beyond that also helped our hunter gatherer ancestors survive during a time when they had to hunt for food and protect themselves from becoming the food for apex predators.
When I’m looking at a trade setup, I am in fact stalking and hunting my prey (money) and my limit order is the trap. Sometimes the prey is better taken down with an arrow or a market entry. And this is how my daily hunt goes in the market. When price doesn’t step into my trap or moves too volatile for me to properly aim my arrow for a kill shot, it leaves me with a sense of fear or fear of missing out, that my prey will get away. That is when my primal brain attempts to take control from my rational brain. I instinctively want to chase after price to prevent it from getting away and to keep me from returning home empty handed from the hunt.
I’m of the belief that the market preys on the primal brain of traders to get us to chase after price or to get us to take a shot that will likely miss. When we chase price, we give up on our plan and start following the bait. We surrender our acceptable entry and acceptable risk. Instead of a kill shot, we end up taking a shot that will only anger price and make price double back to hit our stop loss that is likely also out place because we chased.
My mental paradigm shift is that the process should be my prey and profit is a natural side effect of capturing the process. If my goal is purely process, I will never come home empty handed even if I don’t enter a trade. Consciously deciding to not take a shot that is likely to miss may be more important than taking a shot that may or may not hit.
This shift has made me reinstate my 2 shot rule. Basically, I’m going hunting with only 2 arrows so I have to make each shot count and not waste them on low probability setups. By limiting myself to only 2 shots, it forces my primal brain to allow my analytical or rational brain to stay in control so that a potential shot can be analyzed for being worth one of my 2 arrows.
Beyond making instinctive decisions to enter a trade at a less than desirable time and price, the primal brain can be activated while in a trade and cause us to close winning trades prematurely. The analysis was done beforehand and the rational brain has an expectation of the outcome. As we become stressed over the uncertainty of whether the market will take back the profits gained so far, the primal brain may step in with a flight response to ‘protect’ our gains. The primal brain wants to protect us from loss and can cause us to take a much smaller win than what we would achieve by taking no additional action.
Likewise, when in a losing trade, the primal brain may take over with a fight response in a misguided attempt to protect us from locking in a loss. This keeps us in a losing trade that the rational brain would have decided to close in order to cut losses early. We have all heard it before, ‘cut your losers short and let your winners run’, which makes sense to the rational brain. However, in the heat of the moment, the primal brain may take control and make this obvious and rational task extremely difficult to perform.
While in a trade I continually analyze the developing market structure, a task that the primal brain is poorly suited for. This analytical task allows me to find appropriate levels to trail my stop loss, helps me gauge if the market is still going in my favor or against me, but most importantly forces the rational brain to stay in control.
This is what I recognize that happens in my brain. Maybe no one else has experienced this or maybe others experience it but haven’t considered the root cause. Being cognizant of when my primal brain is likely to activate and what it will do when it takes control has helped me in dealing with impulsive trading behavior that is based on primal instincts.
I hope this helps someone else make a mental breakthrough in their trading.
