We have had choppy action in the major indices this past week, In such an environment, the market often zigs when we expect it to zag. This unpredictable behavior naturally puts us on high alert because both Danger and Opportunity seem to arise quite suddenly.
We are either waiting to pounce or waiting for an ambush.
This is a stressful state of mind for a trader and it arises because we have allowed ourselves to get over-coupled with Mr. Market. Over-coupling means we are too reactive to the behavior of the other. (I was once in a relationship like that. How about you?)
In the over-coupled state of mind we tend to over-focus on details, as we look for clues about what’s going to happen next. There is a subtle shift in our trading method from clean execution toward trying to predict market behavior in order to lower risk. That’s a trap.
When we are over-coupled, we are primed to react quickly. Our thinking process becomes streamlined… but that’s not necessarily a good thing. The over-coupled trader is likely to make snap decisions that have little to do with one’s trading plan.
In the over-coupled state of mind, time is compressed because we shift to a brain circuit that bypasses the forebrain (the seat of executive function). Instead, our thinking, if you can call it that, shifts to the lightning-fast instinctual track of our reptilian brain.
This Fast Circuit is all about survival. It was developed to help us deal effectively with ambushes by predators. When you allow this circuit to be activating in your trading, you are telling your brain that you are back in a primitive, high risk situation and you need to prepare for an ambush.
Additionally, in an over-coupled situation our focus on micro-movements in price results in micro-managing trades, which degrades any edge we may have had from our pre-planned strategy. You won’t be able to stay in a trade to target.
Moreover, our response will often be disproportionate to the significance (amplitude) of the signal.. In other words, we start to trade noise. Then, trading becomes stressful, unproductive and mentally-emotionally exhausting. The harder we try the worse we do.
It’s possible to train yourself to stay in a different and more productive mindset while trading.