September 28, 2014

Why Trading Stocks is the Best Therapy in the World

I’m writing this post in an effort to condense numerous lessons I've learned from several different sources I've studied in the course of trying to become a better trader.

Trading options and futures is a zero sum game--there is a winner for every loser. Equity trading isn't much better.

Moreover, most traders fail (you can also consult the Google for several research papers that further support this point).

Failure invokes powerful emotions and memories, that, as a result, invoke future behavior that tries to avoid failure at all costs.

Furthermore, fear and greed become more commonplace--which insidiously undermines traders by influencing them to avoid the very trading rules that gave them an edge in the market in the first place.

Any edge in the market can be easily and effortlessly undone by emotion.

Emotions are a function of the trader’s mental state--which itself is constantly responding to stimuli around it, such as the stock market (price action, time and sales tape, and level II), social media (Twitter), and the news (CNBC), etc.

Stocks are volatile and mostly unpredictable--which the human brain now perceives as a threat--which activates the body's endocrine system (the flooding of hormones into the blood stream that influence trader decision making). These hormones essentially tell your body and mind to get the hell out of a trade or avoid trading altogether--a.k.a. the fight or flight response.

When the human brain activates the flight or fight response, it diverts blood and brainpower away from the pre-frontal cortex, a.k.a. the part of the brain responsible for rational decision making--executive functions. Therefore, you physiologically cannot think rationally because blood and brainpower has left the part of your brain that performs rational thinking.

Instead you think and react emotionally--devoid of the necessary rational thinking that keeps you focused on sticking to trading rules and the stock chart.

All of this sounds so horrible, so why is trading fun or helpful, let alone the best therapy in the world?

Trading forces everyone--from the sharpest and most successful white collar workers to the poorest and hardest working blue color workers--to know themselves.

You cannot succeed in trading without activating a calm and rational mindset. A calm and rational mindset is a function of your brain’s perception of threats around you, real or not, physical or immaterial.

Moreover, your brain’s perception of the environment around you is heavily influenced by emotional experiences from your past, especially trauma.

Consequently, certain emotional experiences from your past likely force you to behave in patterns in the here and now. These patterns are automatic reflexes of your mind.

For example, if you drank tequila in college and had a horrible experience with it, so much so that you had to spend a night at the hospital for alcohol poisoning, you probably now get a mental knee-jerk reaction every time you hear the word tequila.

The point is, you will have to address any emotional/psychological trauma in your past in order to understand and mend your automatic mental knee-jerk reactions/patterns of behavior of today.

Once you identify the root cause of your patterns of behavior today, you are able to dissect it and take the steps necessary to cope/solve it. Only then can you begin to adjust your automatic mental knee-jerk reactions in the present time.

Once you are able to cope with past emotional trauma as well as adjust your automatic mental knee-jerk reactions--and when you have a definite edge/methodology to exploit in the stock market--you are like a fully trained US Special Forces operator. The best trained and most bad-ass dudes on the planet!

You've realized the importance of being open and honest about who you are and where you've come from. You are at peace with yourself and with the world.

You've learned the importance of practice, preparation, learning from mistakes, and focusing on your strengths. There is nothing stopping you from achieving your dreams.

So that is why Trading Stocks is the Best Therapy in the World, because you will know yourself, be honest with yourself, and learn to trust yourself, when you devote time and energy to becoming successful at trading stocks.

And as always, let me know your 2 cents in the comments below and thanks for stopping by FTG!
Jory

7 comments:

  1. "The point is, you will have to address any emotional/psychological trauma in your past in order to understand and mend your automatic knee-jerk mental reactions of today."

    How is this properly done?

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  2. I would suggest consulting a professional. I would also recommend reading the multitude of helpful posts by Dr. Brett Steenbarger over at his blog: traderfeed.blogspot.com, and his very helpful YouTube talk here: https://www.youtube.com/watch?v=2LKW1fbDNOo

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  3. I am 70% through Brett's blog posts and find them very useful. Thanks for the reply and the link; I will check it out today.

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  4. This comment has been removed by a blog administrator.

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  5. Congratulations, your blog is appealing and informative. Going through your Information, I found quite a few new ideas to implement.

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  6. I would augment my original statement slightly, "You will have to address any emotional/psychological trauma in your past in order to understand and mend your automatic mental knee-jerk reactions/patterns of behavior of today."

    Not only does past trauma/psychological injury play a major role, but present ones as well. And I think this is important to point out so that people don't exclusively focus on their childhood or something that happened a long time ago. What's hurting you now or recently is very much just as important as older trauma to understand and cope with in order to become a better trader/investor.

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