How Fear While Trading is a Human Tendency

12/05/2014 6:00 am EST

Focus: STRATEGIES

Andrew Menaker, PhD, of AndrewMenaker.com, outlines how fear in trading is a human condition—the result of the brain’s limbic system—and he shares reasons why the threat responses of fight, flight, or freeze are inherently related to the trader’s fear of losing money or missing out on a trade.

Threat response, it's the human tendency to fight, flight, or freeze in response to intense fear that threatens one's survival.

Threat response is a biologically hard-wired survival strategy and it affects traders (yes, it's true).

First, let’s talk about the limbic system: a complex set of old brain structures and circuits that are involved in self-preservation. The limbic system is involved with the body’s autonomic nervous systems, which controls things like heart rate, digestion, respiratory rate, sexual arousal, and many other things. In simplistic terms, it does this using sympathetic and parasympathetic systems (the gas and the brake pedals of the body).

The neurobiological threat response impacts our higher-level cognitive capacity in many ways. Among many other things, the threat response redirects oxygen and glucose away from the prefrontal cortex (PFC), the executive control area of the brain responsible for higher-level thinking and reasoning.

Losing money, missing out on a trade, and other scenarios traders face on a daily basis may not threaten physical survival, but many traders experience intense anger, fear, uncertainty, or anxiety (or a combination) that can activate the brain’s limbic system.

And here’s neurobiological irony for you: the limbic system not only controls the threat response, it also contributes to the production of laughter.

By Andrew Menaker, PhD, AndrewMenaker.com

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