Traders! Work with Your Monkey Brain!

“What did you do that for! You’re going to miss the biggest trade of your career!”

And so on and so……… My monkey brain was in full bloom after I exited all my shorts……… only to see the S&P and Russell 2000 have another big drop!

In my years trading coach, showing traders how to work with the monkey brain has been one of the biggest challenges. The fact is, we are hardwired with a fear monkey. It is the oldest part of our brain. There was a time when it served a useful purpose: ensuring our survival.  And while it’s still useful for those occasions when our life is threatened, it now comes at a cost.

You see, we are also hardwired to interpret pain as “bad, unsafe, dangerous” etc., etc. Moreover, when danger threatens, the monkey brain responds with fear. Part of that fear is regret.

So what does this have to do with trading?

The trading environment is one where we act with uncertain information and a lack of control over the results. We can do everything right and lose money; we can do everything wrong and make money – at least on a trade by trade basis. The uncertainty and lack of control send the monkey brain into a tizzy of regret. To succeed, we need to learn to work with it.

Unfortunately, the normal way of denial, repression, avoidance – only ensures that the monkey will erupt unexpectedly and with more force at some future date. A. C. T. has shown that a better process is to accept and defuse.

In my case, I partner with the monkey brain by adopting a simple process:

• Have an emergency plan in the event the early exit does not work. In this case, I would normally have re-entered my shorts on acceptance of the spike lows of December 21. However, given:

1. The oversold conditions, and
2. The two major unknowns: the FOMC decision and the political uncertainty, I had decided not to re-enter.

• Visualise the early exit not working and emotionally accept the consequences.
• Review the trade after completion to see what I can learn from it.

  This process, especially the visualisation step, allows me to focus on “the present” when trading. In turn, it allows me to manage the monkey brain to prevent the fear of missing out resulting in an impulsive trade.

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