How does stress and anxiety affect your decision making when it comes to trading.
The perception is that the elite seem to trade without fear…so is that really the case.
Most traders have seen the show Billions, and if they have, they probably remember the scene where the character Wendy Rhoades, a Psychiatrist by profession, is in a therapy session with a character called Danzig, and she says -
“You are tuned in to the one yelling at you over the loudspeaker that you are fucking stupid and your performance blows and you are ignoring the quiet one, inside, telling you where the alpha is. Now, that’s the voice that got you here and it’s still there if you are willing to listen. What’s that voice telling you?”
My job is fundamentally the same as Wendy’s - it’s my job to help you stay calm and therefore make better decisions, and because of that ultimately make more money.
However although I have been called “The Real life Wendy Rhoades” many times, in fact some clients do just call me Wendy, there are a couple of significant distinctions between myself and the character in the show.
The main one being that on top of the traditional psychology I use in my sessions, I also use some pretty mind blowing techniques – oh and the other, is that I don’t tend to get you standing up and thumping your chest!
These techniques are based on recent neuroscience research, and they are so powerful they have since earned me a different nickname - “The Wizard”.
Of course it’s not always a Portfolio Manager having a confidence crisis – although obviously that is not uncommon - and you can absolutely see why when you apply neuropsychology to any area of investment and trading at banks, or hedge funds.
It’s the other stuff where this style of work can really make an impact. The stuff that you all experience on a regular basis; fear, and on occasion panic.
Fear of missing out, fear of walking away too soon, fear of losing; and in the long run, it’s this that causes some major losses.
So when fear strikes, and it does, even to the veterans. You can be so measured, calm and collected, but then you’re hit with a ‘perceived threat’ (the market moving and not in the direction you need) and it kicks in. The connection to your Prefrontal Cortex (your rational intellectual part of the brain) is highjacked - and when that happens, your strategy, rules and logic all go out the window!
You are then making decisions emotionally and that’s why in these times, the moves you make are not your greatest!
So why is it that some players seem to have the ability to keep calm…even when it hits the fan. They can sit it out. They don’t feel panic. There’s no self-doubt – they back themselves 100%.
They have manged to create a mindset that is optimum for the role - a place that seems impossible.
The human brain is designed to respond to uncertainty and ambiguity, by trying to create some certainty. So if you get out of a position, when you were meaning to be holding it, you will get an instant feeling of ease, it feels instantly better, for a brief moment – until you think “what the hell did I do that for
So that is where I come in… I can stop that fear.
We work with the brain processes - and that is a really important distinction here, in that we are working with the brain, not the mind.
So when there is a ‘Perceived threat’ – the primitive brain, produces adrenaline; a helpful hormone when it comes to fear, as it helps keep you alive, but it also has the ability to suspend both logic and reason.
A valuable hormone in the day when we often came face to face with a sabre-toothed tiger. Instead of having around to consider if the tiger looked hungry, you just got the hell out of there. Not so helpful in your current day, at the same time that logic goes out the window, along goes your strategy and your rules too.
You are now making decisions emotionally, prior to the conscious logic and input.
The pressure for a trader is immense, every day you are either winning or losing. If you are constantly monitoring the market, you are essentially sending a signal to brain to say “watch out” - so you can feel like you are continually on high alert.
So if you can learn to trade in a calm state, you will have the upper hand, the ultimate psychological edge.
The trouble is, you cannot do this yourself, because the mechanism in your brain is too fast. It happens before you even know it is happening.
There are several areas of your brain involved in the early processing.
The Brain Stem, the Amygdala, which is where our fight and flight response gets switched on, and our Cerebellum.
The Cerebellum is really the brain’s secret powerhouse, it is our central processing unit, it is packed with more neurons than all the other brain regions put together and home to a superfast wiring system.
It always looking at data, ie; your surroundings and your situation, to check if it is ‘safe’, ‘unsafe’ or ‘needs further checking/information’ ie; ‘Uncertain’
It does this by continually referring back to every single event that has ever taken place in your life, without you knowing or being aware, as this is all happening prior to your Cortex (the logical rational part of your brain) even receiving the data.
So if when any data that is similar to any previous ‘emotionally charged’ data it will perceive another threat and turn on the fight and flight response.
If that previous data is seen to be ‘unsafe’ this is where conflict arises. You think you know what you should do, but you feel you have to do something else, to go against that. You might just instantly make a rash decision, and then afterwards think “why did I do that?"
By removing fear, you learn to distinguish intuition from impulse, and you think more clearly.
Decisions are no longer driven by emotions such as fear of missing out, fear of regret, or more personal narratives, such as the need to be smart.
You start to make better decisions, even under extraordinary pressure – you are able to fully execute your strategy and achieve next-level success.
Your brain is your most valuable asset - maybe it’s time to invest in it.