One great mistake the man makes who watches the ticker all the time is that he trades too often…William D. Gann

There is a Zen Koan that says: Don't just do something…sit there.

How appropriate for these markets!

The most difficult thing for traders to do is to sit there and wait. Why? Because, we live in a society that is on a total dopamine, hypomanic binge. This is never more clearly manifest than by those who absolutely have to be in the markets at all times, desperately need to be trading and simply cannot wait. They are human do-ings, rather than human be-ings.

At one level, this is a type of addiction to excitement, mediated in part by the neurochemical called dopamine. It is the thrill of the game, and the rush that comes from the anticipation of reward. "I have to get in NOW because the price is running away from me. If I just chase it this once, it should be OK because it makes me feel so good when I see the price going up, and I am convinced that I can make a killing on this one. Why should I wait for the price to come to me? Maybe it won't, and then I will have missed it all. There's no fun in that. "This sounds all well and good, and the dopamine brain pathways, which are activated by potential for reward, kick into high gear. The dopamine neurons are firing on all cylinders, and the feeling is one of pure exhilaration. It's all good and wonderful…until it isn't.

Suddenly, the position starts to turn against you. You chased, it came back in and now you are looking at a drawdown. How do you feel, and what do you do?

Well, there's no fun in losing, either. The dopamine reward pathways of the brain shut down, and the brain connections that mediate fear start begin to activate. This is trader volatility, as emotions rush back and forth from highs to lows. Markets do this to unseasoned and impatient traders who are greedy when they should be fearful, and fearful when they should be greedy. The end result is confusion, frustration, blaming, self-sabotage, addiction and systemic toxicity. All of these drain the trader and leave him feeling empty, confused, disillusioned and just plain worn out.

There is a wonderful advantage to waiting for the right entry and exit points. This allows you to be neutral, and frees you from looking frantically for bearish or bullish views to justify your positions. Granted, you are not making money, but you are also (and much more importantly) not losing it. You can take time to reflect, study, hone and refine your trading plan, adopt some healthy exercise and dietary habits, and become a better person. Simply waiting, without stress, for the right opportunity, allows you to become a more rational and impartial observer.

Patience frees you from active involvement in the chaotic, and often reckless, behavior of others in the markets, and it puts you and your trading plan into a clearer perspective. It allows you to see yourself as a human be-ing, rather than a human do-ing.

Patience and perseverance have a magical effect before which difficulties disappear and obstacles vanish…John Quincy Adams

When you first started trading, what did you hear constantly? Preserve your capital. Preserve your capital. You heard it, but maybe you did not listen, or did not understand. If you have no financial capital to use, you are out of the game. If you are chasing or getting in just to get in and are getting whipsawed daily; and you are losing, drip by drip, or in larger chunks, you are out of the game. If you are cutting your winners too quickly and letting your losers ride, you are out of the game.

If you wait, take time, assess the situation and then pounce like a jaguar at the right opportunity, your chances for trader longevity increase significantly. You have preserved your financial capital, and deployed it appropriately with a good risk/reward ratio.

However, there is something much more important about capital. It is both financial and psychological.

Your financial capital is critical, of course. Money is money, and money buys stuff and makes some people happy. If you do not have money, you are out of the game. However, money is a by-product of the great game of trading.

Your psychological capital is the essence of the person you a trader, an investor or a human being. The number-one rule of trading is: preserve your psychological capital. This means making yourself emotionally, mentally, physically and spiritually strong and healthy. Stand apart from yourself, and look with a critical eye, almost as if you were advising someone else what to do, how to trade or how to live. When you are able to remove yourself from yourself, you minimize emotional charge. Since emotions are often the greatest enemy of the trader, you then put yourself in a neutral position. You allow the newer, thinking portions of your brain to put the older primitive, dopamine-driven brain into perspective.

This is the most difficult journey you have as a trader. Your psychological capital is all you really have. You can go out and earn more money, you can turn your money over to someone else to manage, or you can stop trading and invest in some new activity. You have infinite choices about what to do with your money. But, you have only one body, one mind and one spirit.

When you are stressed, sleep-deprived, contaminated with continual worrisome thoughts or in a toxic state because of bad trades, junk food, unpleasant environment or dysfunctional relationships, you have nothing but despair, self-loathing, anger or depression. You are in a state of mental and physical dis-ease and whipsaw, and should absolutely not be trading.

In the end, if you lose your health, you lose everything. Money might be able to assuage this misery, somewhat like putting a bandage on a large, gaping wound.

However, the wound breaks open, becomes infected and just gets systemically worse unless you deal with the source of it. As always, you have the power to be the best you can be in every aspect of life. It's really quite awesome when you think about it. You are the problem, and you are the solution. Find the freedom and serenity that accrue to you when you refurbish and restore your psychological capital.

If you want to get a true picture of who you really are, what you are capable of doing and becoming as a trader and a human being, then stop looking outside of yourself. Go within, as the answers are all there. I promise you that it will be the most amazing journey of your life.

There is the plain fool, who does the wrong thing at all times everywhere, but there is the Wall Street fool, who thinks he must trade all the time. No man can always have adequate reasons for buying or selling stocks daily---or sufficient knowledge to make his play an intelligent play. I proved it…Jesse Livermore


©Copyright 2006 Janice Dorn, M.D., Ph.D.
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The Trading Doctor