How to Protect You From Yourself
The latest developments from brain science suggest that an emotional insult can literally be just as painful as physical injury. Apparently our body does not distinguish between the two and the very same quadrant of the brain lights up whether we’ve been hit by car or are emotionally bitch slapped at party by our best friend.
That new discovery has massive implications for us as traders. Scientists now believe that in order to perform well and live healthy we need to protect our psyche as much we do our body. After all no one seriously tells you to “walk it off” when you break a leg, yet we are constantly told to shake off emotional pain like it’s a minor nuisance.
When it comes to impact, apparently nothing packs more painful emotional punch than rejection. Scientists view it as remnant of our tribal past when ostracism from the group literally meant death on the savannah. Indeed, to this day loneliness is the single biggest non-physical killer of human beings.
Of course in trading nothing says rejection like a stop out. That is basically the market’s way of bitch slapping you silly. It triggers all those horrible fears of being voted off the island as your money dwindles and you can no longer be “part of the group”.
What’s even worse is that these emotional pangs of pain cause us to lash out wildly at the world. Just like you have almost a reflexive need to punch a wall after you hit a bedpost bruising your leg, so too when you are emotionally hurt you have a need to “hit” the market. In all those cases of course you go from bad to worse. In addition a sore leg you know have busted knuckles and probably even more losses in your trading account.
So what’s to be done?
Psychologists don’t have any great answers, except to tell you to be much more mindful of your emotional state and treat your emotional health just as seriously as your physical well being. One trick that seems to work is to distract yourself with a completely different task whenever your feel emotional pain. Scientists have discovered that even 2 minutes on a non related activity like doing the dishes can really calm the psyche and mitigate the worst effects to emotional pain.
Distraction is a valuable tool in trading as well. Certainly it’s worthwhile to step away from the screen, do 20 push ups and maybe go buy yourself a cup of coffee before engaging with the market again. But who are we kidding? Stops usually come during the most hectic times of the day in the market and even a kitchen fire couldn’t drag us away from our screens during high volatility action.
That’s why distraction is not enough. To protect yourself emotionally from the daily cruelties of the market we need abstraction as well. We have to stop thinking about trading as money. We have to even stop thinking about it in terms of percent return. We just need to focus on pips. Each trade is a pip won or a pip lost. Don’t focus on anything else. Your job is just to make pips, like assembling bricks for a building. Sometimes bricks crack, but you just keep building the wall.
About four months back I stopped trading my real account. I simply attached it to my master account which literally trades the smallest possible size -- a dime a pip. In my master account I never care about money or return or even being stopped out -- because frankly it is ridiculously miniscule regardless of what I do. I just care about pips. But here is the interesting thing -- once in awhile (maybe every 6 weeks or so) I’ll glance at my real account and am pleasantly surprised at how it’s grown. That’s of course because I never trade it. I created an abstract layer and build a tool to protect me from myself.