Good Emotions Gone Bad

There's this really big delicate balance between risk taking and irrational exuberance. You can see it all the time. There's a lot of traders. When you start out really well, you start laying down some really good gains. You start having a really consistent pattern, and you start feeling good. And that feeling good, you just want to feel good. The reward centers of the brain are rewarding you for good behavior. And at that particular moment in time, though, is what has to be really worked with for a trader, or really anybody who is really managing peak performance is the delicate balance between risk taking, which is really very much about the male hormone testosterone, and remaining disciplined and impartial.

You're rewarded for risk taking, okay? And every time that you win that reward.

The brain centers for reward are triggered and suddenly dopamine is added to the cocktail. Now you have testosterone and dopamine, and that's an enormously powerful cocktail. The closest similarity to it would be like the drug cocaine, which we don't want to do. But in cocaine, what happens is that it actually stops the neuron, the space of neurons, the synapse. It stops the uptake of dopamine in it. In doing so, you get higher and higher concentrations of dopamine. It feels really good. You feel on top of the world, okay? You feel good. How many times as a trader have you done that? You feel good. The problem is that it becomes a slippery slope. The slope is that the more the brain feels reward, the more it wants the dopamine. The more it wants the dopamine, the more euphoria comes online, and suddenly you have irrational exuberance. This is where I want you to see the slippery slope between rational risk taking, exuberant risk taking, those reward centers. You've won. Let's just say you've won. You've been on a good win streak, okay? And you've had a lot of substantial gains. And you're going, wow, look at this. I'm on top of it. I'm in attune to the. I'm in attune to the markets. What you don't see is that more and more dopamine, more and more dopamine. Now the neurotransmitter, dopamine, you will know it as euphoria. You will know it as that irrational exuberance. It feels good, so you don't even notice it. You don't even notice that euphoria as an emotion is compromising your ability to manage risk. What euphoria does, okay? And this is this cocktail, dopamine, and Testosterone on a chemical level, the emotion euphoria that comes out of it is causing you to believe with certainty that the good times are going to roll on and the risk is okay. Unfortunately, what happens is usually there is a moment where the risk taking no longer achieves the reward. Suddenly there's a crash, and in the crash you want that reward again. You want that reward again. And getting that reward again causes you to revenge Trade. You've started over trading to begin with because the dopamine reward system is beginning to cause you to believe that really the significant risk isn't there and that you can win this. Okay? In professional traders, you have a risk manager that's putting a brake on that system. And the professional trader rarely knows that they have a problem. They're wondering, hey, the victory's right around the corner. That's how drunk they are with euphoria. Okay, now what happens though if the risk manager is not there to break it? Say you're a retail trader and you have a trading account. You go, I want my money back. And you start going, it's just around the corner. It's just around the corner. What I want you to make the distinction about is this is not fear of loss. This is not revenge trading based on fear of getting your gains back. This is an, this is an activity. This is a brain based on euphoria that doesn't see the risk. That's the piece there. It's very different than fear based trading. This is euphoric based trading. And once you grasp it, you go, oh my God, Wow. How do I manage this? How do I manage the need for testosterone to produce risk taking behavior? Okay? And yet stay rational, to be able to manage the risk and not get absolutely sucked into the vortex of euphoria and start making bad risk reward decisions. The key begins with emotional intelligence.

You begin by saying, I need to learn more about this. I need to learn what my body's doing. And what a really good professional trader is learning is that the moment that he still starts feeling euphoria, feeling good, he knows he has a problem. He doesn't let it, bill, bill, bill. Till it gets out of control, Till he's on the slope and he slipped all the way. What he does is he realizes I have to maintain a disciplined impartiality. Feeling good is for after the trade day is over, when I'm trading, I can see my risk. I need to manage it from discipline, impartiality, which generates the chemistry that allows you to manage risk and probability. So the first thing is you start noticing. I need to notice when I start feeling good and I need to start coming back down to a calm, disciplined, impartial mind. Okay? That's the first thing. Then you start noticing what your body does and you start using diaphragmatic breathing and relaxation and noticing your heart rate so that you can see the acceleration of the emotion and you calm it down. More powerful is when you add the mindfulness awareness of what's going on inside mine, of chasing that trade. Of chasing it. Of chasing it and recognizing that you've lost the position of waiting the trade to come to you. And now in your euphoria, you're stepping out and you're chasing the trade because you believe it's there and you can make it. So there you go. You go from this delicate balance that at first, and a lot of professional traders, a lot of retail traders make this mistake. They don't see euphoria as dangerous. They think, oh, fear. I've gotten over that. Euphoria is what separates the really professional trader from the guy just knocking a few hits and just winning. You're talking about the big things, the consistent winning percentage here. What you're saying is, I know how to manage it now. I know that there's a delicate balance. I need the testosterone. I need to be able to have that presence so I can take the risk, but it has to be managed. And I have to see the point. I have to see the delicate balance. The delicate balance between me going off the side of a cliff and me being able to take risks from a very, very rational state of point. There you go. It starts with mindfulness and breath. And then you start developing the power to know. I can maintain this mind based in discipline and impartiality. I don't have to go to euphoria. I know that it's not good afterwards. It's a new ball game. It's time to have fun. I thank you very much and I hope you've really gotten something out of this where you see that the risk taking and the euphoria have to be managed to be able to produce the professional trading mind. Thanks a lot.