A fascinating topic for anyone; for traders it is an imperative field of study.
Sway discusses the importance of understanding how this primitive portion of our brain stem behaves as a pleasure center. Addictive behavior to drugs, sex and gambling is typically experienced through this area of the brain.
Under stress, as when we are reacting to financial gain or loss, our primitive, emotional side over-rides our rational, logical self.
For a trader caught on the wrong side of the market, heading for the sidelines as soon as possible when the predetermined stop loss is hit should be the game plan. This eliminates the overstimulation of the nucleus accumbens, allowing the logical portions of our mind to regain its composure and presumably make more rational decisions.
Imagine your hand caught in a meat grinder. The handle is being turned slowly, and each turn pulls your arm in a little more. First the fingertips, then the hand, wrist and eventually you are in up to your elbow.
What begins as mild discomfort soon turns to fear, anxiety, and eventually terror and panic.
How can you possibly think intelligently under those circumstances?
Extracting your hand as fast as possible seems to be the obvious solution to avoiding this excruciating pain.
While they operate unemotionally, the computer algorithms know how to push our buttons.
It’s like playing a game of chess against Star Trek’s Mr. Spock.
Disengaging this ancient mechanism is a must if we are to avoid inevitable self-sabatoging behavior.
Use stop losses, biologically it seems it seems to be the only way.