iv. Root cause of failure/ Essentials of Success- Amygdala hijack
Main reason that makes
trading so difficult and prone to failure is mainly due to an aspect of trading
which is called the amygdala hijack. It
affects the part of our brain called the amygdala or the reptilian brain. It is
an evolutionary knee jerk reaction that triggers
pain or pleasure, fear, or hope. So, if one wins a trade, there is great
euphoria, followed by fantasies of wealth, if one loses, there is great pain,
regret, and frustration, usually followed by anger and revenge (trading).
On
a cognitive level, you can say do this or do
that when standing on the sidelines looking in,
kind a like yelling at the players when watching a game. However, when an individual is IN the game, that objective
perspective is replaced by a very deep and total
animal sense of survival. That is why it is hard
to see the market clearly when one has something at stake in it. You are
mainly just focused on how near or far the market is from your entry point.
So, to be good at trading, more than anything else, a
person must have a great sense of self awareness
and emotional intelligence. Trading is mainly, pattern
recognition, which is very straight forward. In truth 90% of trading is- being able to transcend your emotions
when they arise. This can be done BUT
first you must recognize what the situation is and realize what you are getting
into. Then, once you know the playing field, you can mentally prep yourself
before getting into it and be ready for when the emotions DO arise. This takes effort and lots of practice.
So, the trading is to dissociate (yourself) with the emotions
that arise as you watch the rise and fall of the markets. It is the ability to
realize that what your emotions say is happening, meaning fear of loss (aka
death) or hope of gain (aka safety and immortality), does not actually have any
meaning. That is why the people who have traded and succeeded after a certain
period usually say that making money is rote, meaning mechanical, even boring.
That is because the natural, instinctual sense of life or death that is
hardwired in the amygdala is not kicking in to give one great highs or intense
suicidal lows.
Remember, technical and fundamental analysis both rely on personal
decisions. There is no perfect technical or fundamental buy point. It is all a
range that will be proved right or wrong by the market. There is no holy
grail. DO NOT PAY ATTENTION TO WHAT IS POSSIBLE
FROM MARKET. ALWAYS CONCENTRATE ON HOW MUCH YOU ARE CAPABLE.
So,
to remain successful in trade, never trade (wish) for profit targets every day,
make the right decisions and let the money be a
by-product. It is better to stick one trading system across different market
conditions. Your learning curve will not improve if you keep on jumping from
one strategy to another. Avoid trading when you see a significant drawdown or
when you get a few successive failed trades. Successful
trading is all about probabilities. Many people making good profits even
with a few non-directional trading strategies. Never bet more than 2% in one
trade, and do not lose more than 10% on any trading day. Surviving is most important in trading. "Keep two basic rules about winning in trading as
well as in life: 1. If you don't bet, you can't
win. 2. If you lose all your chips, you can't bet.".
To conclude this section/blog, if a trader does not recognize this very root cause that arises during trading and able to override it, then no technique, strategy or amount of academic education will give success in the markets. To those of us who are willing to dig deep into our own selves, then this will be a journey worth taking as it will not only affect our trading account and financial health, but our overall outlook as a human being, as in the end, we will not be as swept away by the tides of fear and hope as most people are.
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