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The Trading BrainThe Neurotic MarketPeople are neurotic and the market, because it is a large collection of people, is also neurotic. We are neurotic because we are in constant conflict with ourselves.Our primitive brain "thinks" it sees danger and wants us to turn and run. Our new-age brain is analytical, calculating and rational. Every time our primitive brain says "Yes, yes, yes", the rational brain says "No, no, no. Don't do that because it is dangerous, makes no sense, is self-destructive, is not in the best interests of you or your family or society, is not smart, could cause you damage, is illogical, etc." The Result is Bad Trading DecisionsWe are hard-wired to make bad trading decisions because of our limbic primitive brain. It is not capable of evaluating risks and projecting them into the future. It reacts immediately, instinctively and without thought.Inexperienced traders (and even some of the most experienced) when faced with a conflict between rationality and emotions will act on emotions. The old brain wins the battle and it wins over and over again. The fear of risk makes a lot of sense from an evolutionary standpoint when we were in the jungle running from wild animals, but makes no sense whatsoever in the markets. When we see a position falling our brain reacts as if we are being threatened. Dumping a position when you see it falling is like running up a tree because you THINK a lion might be lurking. Running up a tree won't hurt you, but dumping a position on emotion can wipe you out. That is panic selling. How often have you panicked out of a position only to see it turn around in minutes to days? That is your primitive brain in charge and your logical brain completely taken over by emotion. It also works the other way. When you see a trade going up and up every day, your old brain tells you that it will continue to go up and you better get in now because you are missing out. This is panic buying. You get in and the price starts to fall so you panic out of it as well. This is why most traders buy high and sell low. Their brain takes over and they are powerless against it. The old brain wants results NOW. The new brain is patient and waits and analyzes. So What Do We Do?The solution is to take control of the situation with your trading brain that can think rationally and next week I'm going to show you how to start that process.Wishing you trading success,
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