How our Fight or Flight Instinct Works Against us in Trading

How our Fight or Flight Instinct Works Against us in Trading

How our Fight or Flight Instinct Works Against us in Trading

What preserved us for millennia can be a burden for trading

Depending on multiple factors, from fixed ones like age and gender, to more variable ones like social status and life experience, we tend to approach the concept and act of trading in different ways. Some have more patience, others are quick to get a temper. Some are more analytical and good with numbers, others rely on instinct to tackle the challenges of the market. But we all share the basic instinct to protect ourselves deep within our brain – a universal reaction that lies beneath the surface and shows itself only when there’s real pressure.

The problem, or maybe challenge, here is that this particular part of the brain is quite active when it comes to trading. Risk isn’t an everyday occurrence as it was for our species not long ago. Our everyday lives have changed in a small period (in evolutionary terms) from one where threats surround us and we have to carve out a niche between them just to survive, to one where almost everything that involves risk has been removed and some of us begin to crave risk as a sign of reality. It all boils down to the level of fear and uncertainty we have.

See how fear and uncertainty go together. But they shouldn’t. Not in trading. Fear is the strongest reaction we have for self-preservation. Our inner caveman is still within us when we enter positions and stop-losses and acts like he’s under physical threat when they turn red. This feeling can be quite overwhelming (whether we admit it or not) and affects the rational part of our brains – the one responsible for handling complex operations, such as entering and exiting a trade, its amount and duration.

We are influenced by our limbic system to revert back to a more simplistic mode, one that doesn’t have a preset trading plan and acts on impulse when managing risk should be done in a calculated fashion. If you do see some of this behaviour in yourself, don’t immediately take it as a mistake or something wrong. It’s how we’re hardwired and it takes training and conscious self-observation to overcome it.

This is actually no easy feat, as the dangers are two-pronged. Fear fuels uncertainty and anxiety, but the instinct to stand and fight, because there is nothing to lose, is also a risky behaviour. It’s best illustrated with all-or-nothing trades, where the whole available account is placed in a single trade whose owner is either looking to get his losses back, or is trying to win big with one big master stroke. We all know how that usually ends.

Coping with this requires experience and molding your mindset to what is best for trading. Hesitation and doubt will be things you’ll just have to take, especially compared to almost any other daily activity you are involved in. Feeling anxiety and having a fast pulse during the execution and duration of a trade will happen with a strong intensity, especially once you begin on the trading path. They are the signs of your primal instincts meddling in the process.

But your aim should be to see them decrease and even fade away. This can be achieved through your conscious expectation that they will happen at one point or another. Then comes their management. It’s how you look at trading – never can it be only about the instrument, the trend or the news. It’s about you under pressure and being able to quell fear and understand uncertainty.

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