Anger and trading don’t mix – Trade like a Stoic

Anger is a part of us…an intense emotional response to something that we view as a perceived threat, or a pain or hurt that we feel has been inflicted upon us.

Scientists think that anger is a needed emotion for our very survival.

Charles Darwin:

Arousal of anger…has survival value and enables animals to freeze, flee, or fight when they recognize anger in others. Therefore, the expression of anger communicates to potential enemies that the animal or person is angry and preparing for aggression. The communicative features of anger may drive off potential intruders.  Thus, for Darwin, defending against and repelling attackers is the primary motive behind anger.

Understanding Anger Disorders Raymond DiGiuseppe Raymond Chip Tafrate P. 61

The Stoics have an answer to anger

One of the core tenents of Stoicism is to keep a rational mindset, to analyze a situation and make a decision based upon logic. 

We kinda need logic and analysis when trading right?  🙂

When you are angry, rationality is completely thrown out the window.  To a Stocic, inyour moment of anger and rage, you are temporarily insane.

Think of this expression… “Blinded by rage.”

When you are in that state of mind, is that any way to trade?

What do the Stoics tell us about anger?

For he who is excited by anger seems to turn away from reason with a certain pain and unconscious contraction. – Marcus Aurelius

Meditations – Book 2

The outcome of a mighty anger is madness, and hence anger should be avoided, not merely that we may escape excess, but that we may have a healthy mind. – Seneca

Letter 18

Anger – A Chemical Martini in the Brain

It has been determined that a majority of emotions come from two structures in the brain, about the size and shape of almonds, called the amygdala.  The amygdala are in a part of the brain called the lymbic system.  This is where all of emotional memories and reactions are stored.

Anger and stock trading don’t mix

This part of the brain is underneath the more recently developed part of our brain, the outer cortex called the cerebral cortex, which is responsible for rational thought. 

When we become provoked, the amygdala jump into action (it has been shown to occur even before the prefrontal cortex even has time to notice) releasing stress hormones into the brain (epinephrine and norepinephrine) that essentially are the flight or flight response reactions.

Basically, the brain and body are now ready for a fight! 

When your mind and body are in this state, what happen to reason?  What happens to logic?

Problem: Anger > Logic

…none of which are good for trading:

  • Angry decision makers dont stop to thing about alternative options before acting (Bodenhausen et al., 1994; Lerner et al., 1998; Small & Lerner, 2005; Tiedens, 2001b; Tiedens & Linton, 2001).
  • Angry decision makers feel negatively about past events, yet also make optimistic predictions of their likelihood of success (Fischhoff et al., 2005; Lerner et al., 2003; Lerner & Keltner, 2000, 2001).
  • The increased optimism derives primarily from a sense of certainty and predictability, as well as from a sense
    of control over outcomes (Lerner & Keltner, 2001).

And as if that isn’t bad enough…there’s more. 

After an anger event, there is a decreased level of serotonin in the brain.  Serotonin is the chemical that makes us feel good…feel happy and positive.  After an anger event, the decreased level of serotonin can last hours…the rest of the day.  

The research revealed that low brain serotonin made communications between specific brain regions of the emotional limbic system of the brain (a structure called the amygdala) and the frontal lobes weaker compared to those present under normal levels of serotonin. The findings suggest that when serotonin levels are low, it may be more difficult for the prefrontal cortex to control emotional responses to anger that are generated within the amygdala. – Cambridge University study

All of these chemical reactions  caused by anger sit in the body and brain and stew away…at a low boil.  As a result, because of the reduced level of serotonin, we become more quick to anger at the slightest trigger.  Our decision-making and emotional well-being are impaired…for days.

Clearly… Anger and Trading Don’t Mix!

I bet you can think of no shortage of scenarios in trading where anger rises up inside of you….I know it does for me. Here are a few typical examples that I have found to stir up anger inside of me…

  • Entering a trade at what you know to be the “perfect” entry point, only to watch it quickly move in the opposite direction of what you had expected, resulting in an immediate paper loss.
  • Exiting a trade with a handsome profit, only to watch it continue to rocket higher.  I could have had even more of a profit!
  • Suffering a string of losses.
  • Waiting for a trade to come to you, but it narrowly misses your entry point and then goes in the exact direction you expected, but you are not onboard because your entry trade wasn’t executed.
  • Watching others rolling in profits while I struggle with losses.

I could go on and on, and I’m sure you could as well right?

The point is, when it comes to trading, anger is your enemy. It pulls away from thinking in a rational, logical way. Anger is the enemy to trading. 

Charles Darwin says that anger is the key to our survival, but it will not help you survive at a trader!

What can we do about anger and trading?

We can look to the core principles of Stoicism to help control and mostly eliminate anger.

Recognize that it is not the “bad” event that disturbs us, it is our opinion about it.

Take away thy opinion, and then there is taken away the complaint, “I have been harmed.” Take away the complaint, “I have been harmed,” and the harm is taken away. – Marcus Aurelius, Book 5

Determine what you can control and what you can’t control.
  • You can’t control the movement of the market. 
  • You can’t control what happens after you are in a trade. 
  • You can’t control an oil strike on Saudi oil production when you just shorted oil.

Expecting to control areas that are outside of our control is futile, meaningless, and a guarantee of unhappiness…and anger.  It doesn’t mix with trading.

  • You can control how much to risk on a trade…your position size.
  • You can control your entry point.
  • You can control your exit point…click that button right now, sell.  Set your right now, click.  Done.

If you find yourself getting angry, realize it. 

Watch yourself.  Take a timeout.  Stop trading.  Realize that cash is a position too.

Becoming angry is not going to do you any favors when it comes to trading, or in life!

Next steps

I am in the process of creating content focused on the most important part of trading. 

YOU. 

That’s right…You…your mindset, are the most critical part of trading.  

I have found that it is not a trading system, or an indicator, or a trading platform that makes for a successful trader.  It is mindset and a solid set of fundamental principles that make for a successful trader.

Over the years I have found that the principles that make a successful trader can be found in the Stoic approach to thinking that I’ve outlined in this short blog post about anger. 

If this post made sense to you and you found it valuable and you would like to improve as a trader, please sign up specifically for my Stoic Trader content [free].

Add yourself to my email list (if you are a current subscriber, you can modify your settings by clicking on any recent email that I’ve sent you and click on the “Update your preferences” link at the bottom and add the “Stoic” group.

You will find that Stoic principles will drastically improve your trading and even more importantly, other areas of your life! 

I can promise you it is a liberating and helpful way to approach your trading and the rest of your life!

-Glenn

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