Flint Sky : Those people in the forest, what did you see on them?
Jaguar Paw : I do not understand.
Flint Sky : Fear.
Deep rotting fear.
They were infected by it. Did you see? Fear is a sickness. It will crawl into the soul of anyone who engages it. It has tainted your peace already. I did not raise you to see you live with fear. Strike it from your heart. Do not bring it into our village.
Evolution has endowed all humans with a continuum of innate, hard-wired, automatically activated defense behaviors, termed the defense cascade. Arousal is the first step in activating the defense cascade; flight or fight is an active defense response for dealing with threat; freezing is a flight-or-fight response put on hold; tonic immobility and collapsed immobility are responses of last resort to inescapable threat, when active defense responses have failed; and quiescent immobility is a state of quiescence that promotes rest and healing. Each of these defense reactions has a distinctive neural pattern mediated by a common neural pathway: activation and inhibition of particular functional components in the amygdala, hypothalamus, periaqueductal gray, and sympathetic and vagal nuclei. Unlike animals, which generally are able to restore their standard mode of functioning once the danger is past, humans often are not, and they may find themselves locked into the same, recurring pattern of response tied in with the original danger or trauma.
In 1915, Cannon wrote his landmark book, Bodily Changes in Pain, Hunger, Fear and Rage, describing the bodily changes that occurred in the context of emotional excitement. That work is best remembered for elaborating the concept of fight or flight.
In 1920, Rivers (a physician working with officers suffering from shell shock during the First World War) described five danger instincts: flight, aggression, manipulative activity, immobility, and collapse. Subsequent research with animals determined that, depending on the degree of threat and the distance between the predator and prey, distinct responses - freezing, flight or fight, tonic immobility, and quiescent immobility - proceed sequentially along a continuum, termed the defense cascade.
It is very important to get familiar with fear if you want to succeed as a trader. Many people warn against the dangers of hubris and euphoria, and with good reason, but hubris and euphoria can be wiped away very quickly once a loss is incurred, while fear is far nastier, because fear can take roots and dig deep, and persist even after the threat has faded. Not enough is written about fear in my opinion, and in the end, one must get familiar with his own body, chemical response and brain patterns, and deal with oneself, reading books and articles is not enough. Just like training muscles, one must deal with fear to learn how one responds to it or succumb to it, and master fear.
The goal is not to get rid of emotions, or become a zen monk. Emotions are very important, define part of what we are as humans, one must simply be aware of them - for our scope, in trading - and being able to factor them in the equation of our trading actions.
When we have an “existential threat” in our trades, for example we take a big position and immediately the market goes the other way and we see big flashing red upnl numbers, or worse in case of a sudden crash (or pump if short), most people are familiar with two immediate reactions our body offers: fight or flight.
In our case, be stubborn in our convinction or worse adding fuel to the fire (I’ll just DCA!!! This is temporary) if fighting, or panic immediately and close the position at a loss if fleeing. Note that cutting early if wrong is cited everywhere as the best practice a trader should learn for when he is wrong. In fact, one should have a clear thesis invalidation established before taking the trade, and I put thesis in bold because it is not just a price level (even if it translates into that), but there should be some reasoning behind that support invalidating our thinking, eg. “if market goes here instead, it’s probably a move to x or y or whatever next and I’m wrong”.
But.
But there is a far nastier and vicious third reaction that doesn’t get explored enough in my opinion: freezing.
Far too often, and even for experience traders, our body and mind freezes, and we seem unable to take any action: we can’t bring ourselves to cut the loss and close, nor we add margin, we just witness powerlessly our pnl going into the red, we see the candles piling up, the twitter timeline in absolute shambles, and we just stare at it, feeling a sense of dread but an inability to act on it. It feels like we are 20,000 feet underwater on the bottom of the ocean, chained to a block of cement and oppressed by 20 bars of pressure and darkness. Nobody is there to lend us a hand. Noone is coming.
What can one do to prevent this, or to be more ready in advance?
Journaling.
One should journal the reason for taking a trade, what is the invalidation, what is the r:r entering the trade, what are the tp levels and why, and one’s emotional state when taking the trade. Yes, it sounds boring, yes it’s effort, yes you think you’re gonna lose precious seconds - lol, as if - but it is very imporant.
See, when your trade starts going to shit, and you begin to panic, you just take your little journal and read what brought you to take that trade. If your entry reads like:
ahah I saw a photo of Cobie’s dog turd and it was green, gana long 50k on doge #yolo #fuckpoverty #dogearmy
maybe you weren’t thinking hard enough about your trade, and maybe you’ll feel more supported by your past self to act on it and cut. If your entry reads like:
Taking a 3R trade here 0.25x lev because x and y, clear invalidation at yyy, check if we tap into the ema25 on the h4, I am calm and well awake after a good night sleep
then maybe wait for the market to do its thing and flush late entrants and then go your way.
Journaling is important, and can save you when no one else will come to help you.
No one else is coming.
Works cited:
Fear and the Defense Cascade: Clinical Implications and Management
Cannon WB. Bodily changes in pain, hunger, fear and rage: an account of recent researches into the function of emotional excitement. New York: D. Appleton, 1915. [Google Scholar]
Rivers WHR. The danger-instincts. In: Instinct and the unconscious: a contribution to a biological theory of the psycho-neuroses. London: Cambridge University Press, 1920: 52– 60. [Google Scholar]
I like this, thank you.