I received an email this morning from a trader named Mark.

Doc,

I was wondering if you could give me some advice. Every time I start to make money the money soon disappears. I’m starting to get really frustrated with myself, its the same cycle that’s been happening ever since I learned how to trade. When I think about it I can often pretty easily make money for a few trades, even a few days, and sometimes longer and then I go on tilt and start to do things that are really stupid. When I start doing the stupid stuff it gets out of control and before I know it, I give back all the money I just made. I love trading, but I’m sick of this cycle happening over and over.

Mark

 

Here’s what I told Mark.

Unless he has a strategy to deal with the vicious cycle that he (and many traders) are caught in its likely the cycle will continue. One of the first steps Mark needs to do to break free from this vicious cycle is identify the conditions setting the cycle in motion. Making money feels good, and your feelings about your P&L are a strong driver in your trading decisions.

What Mark didn’t say – but I suspect is the case – at the beginning of an uptick in his P&L he probably starts to feel a sense of relief and hope as he makes the money back from the last giveback. And then when his account makes a new high or ‘cycle high’ the relief and the hope morphs into over-excitement and possibly fantasizing about how much more money he’ll make.

Biologically and psychologically there’s a lot going on at the point where the hope and relief morphs into over-excitement. I sometimes call this the reward to risk cycle.

Biologically, a few things are happening including an increase in testosterone, and the brain’s reward circuits get activated. One of the things that happens is dopamine levels increase and other self-reinforcing neural circuits come into play, making it more likely Mark will want to continue feeling good; and be willing to take more risk to keep feeling good. Feeling good (or better) is a reward. Although he didn’t say that, that’s what’s happening.

One solution is to take a biological approach to intervene in the brain’s reward circuit. For example, using HRV (heart rate variability) biofeedback – to influence the powerful connection between HRV and brain state.

On a psychological level, Mark begins to fantasize about making a lot of money. His attention shifts from risk management toward ‘how much more can I make?’ He starts to feel better about his trading and himself – at least on a conscious level he feels better. And that leads him to no longer act like a trader, he’s now acting like someone in a casino.

But under the surface, subconsciously, Mark still has fears about ‘not making it’. And this is where Mark may choose to do almost anything to not let the ‘good’ feeling of an uptick in profit slip away. Ironically, this often means ignoring risk and going on tilt. His biology and his psychology will keep the vicious cycle moving unless he has a strategy with a variety of ways to intervene.

What I told Mark is more of the same – getting mad but not doing anything about it-  will produce the same results. You cannot keep doing the same thing and expect one day to be free of the same old problems.

If there is a vicious cycle in your trading and you want to do something about it, consider getting my self-paced Advanced Course in trading psychology that gives you many practical strategies and interventions to end the vicious cycle.  At a minimum, consider signing up for my fee email newsletter that gives you professional trading psychology tips. Ask yourself, what will happen if you don’t do anything? You’ll get more of the same.

I wonder what Mark will do?