When I first started trading I trained with a trader who had made, lost and made many millions of dollars. At the time I thought his success must be in technical analysis, a secret sauce so to speak, and his favorite technical indicator was what he was selling. What I eventually noticed is he really didn’t give a sh*t what happened when he entered a trade. He was completely separated emotionally from the trade and fears of loss or the greed of a whale trade. That was his secret sauce.
The attitude was of indifference and nonchalance and was to the extreme so much that I was somewhat disturbed. Did this guy even care? Only after time in the trading driver’s seat did I realize what an asset this really was to him and to others who use it to make their fortune.
Today we explore your personal risk management strategy using a brain based point of view. We know that keeping a clear prefrontal cortex (PFC) in trading with pure focus is essential. Cleaning your slate of distractions by maintaining your performance stage located within your PFC completely free of bias for or against a position and simply observing the markets is essential. Maintaining your calm and composed state when all else have lost theirs, who can say that this is not trading greatness.
Maintaining your calm and composed state when all else have lost theirs, who can say that this is not trading greatness.
S.D.H.
Your PFC executive center maintains a calm peace over your reactive and reflexive regions of your brain in your amygdala region and removes to a large degree its physiological responses throughout your body generated from your midbrain. Noticing any changes in your perspiration, breathing, sighing, blood pressure and anxiety feelings is step one to mastering your PFC and your trading. Over time the body responses to perceived fears of loss or missing out (FOMO) are diminished by training and repetition.
Your risk management is always in play, recognizing when a trade is working against your position. Accepting that you were wrong in your trade is effortless, as your ego is in check. In fact, it is so in check you often enter an opposite trade of what you previously entered. You go with the flow.
You may choose to set preset stop points or a line in the sand for a trade to remind you that its time to exit, but overtime you just simply know, “I was wrong”. You exit with ease and only one word comes to mind, “Next”.
Being consistently aware of your mental state is key. Here are some questions to ask yourself.
- Is my PFC clear and focused?
- Am I distracted by other opinions, news stories, Fed talk, elections and all the rest?
- Am I observing the market from a calm neutral perspective, almost like I have no trades currently in the market?
If you can truly answer yes, you are at your trading best!
Brain based trading is a new concept. It explains how successful traders carefully use their own understanding of their innate neural patterns to their own advantage while trading. Careful observation and awareness of your own patterns and responses leads to better more profitable trading.
Enuf said.