Trading Psychology
The Neuroscience of Trading Fear
You know what to do, but when money is on the line you hesitate, cut winners short and skip good setups. Fears are not random. They are projections of specific events.
You know what to do, but when money is on the line, fear changes how you trade. You hesitate. You cut winners short. You avoid good setups.
There Is No Such Thing as a Fear of the Unknown
Traders often say they have a fear of the unknown, that they do not know what their fear actually is.
Every fear is the perception that at some point in the future you are going to experience an event you believe will have more negative than positive. That is all a fear is.
Your Fears Are Mirrored From Past Resentments
Early in a trading career you accumulate experiences of losses that were bigger than expected. Those log as resentments in the subconscious mind, with an association between the trade hitting your stop and a painful experience.
And they are not limited to trading. You can go back through your career, your relationships, your schooling, your teenage years and childhood, and find experiences logged as resentments toward losing. A perceived loss playing sport as a child, with criticism or pain attached to it, logs the same way.
The brain mirrors past experiences into the future. The fear is the fear of reliving those unresolved resentments.
Which gives you a question you can actually use. Whatever the content of the fear is at the moment you feel it, ask: what experience in the past does this resemble as a resentment? The specific past event is what is projecting forward.
What Happens in the Brain
Because of the accumulated association between losing and pain, the brain runs a survival response whenever something in the present resembles it.
A trade hits your stop. It resembles those stored painful experiences. The amygdala fear response fires, and the prefrontal cortex, the executive part of the brain, shuts down.
The blood glucose and oxygen that were there get reallocated to the amygdala. You have signalled to your brain and body that there is a threat in front of you, and your brain primes you for fight or flight. Blood moves from the internal organs to the periphery, into the muscles. You are literally primed to fight or flee.
That is why you get red hot. That is why you cannot just accept the loss and walk away, and why you feel you have to go back and avenge it with more risk. It is the survival mechanism firing, doing exactly what it was designed to do.
An untrained mind simply reacts according to that response. The traders who move past it are the ones who did the work on the fears and resentments underneath, which is what lets the prefrontal cortex stay in charge under pressure.
There Is No Fear Without Greed
There is no such thing as fear without its complementary opposite. We fear losing, and we fear missing out on what we are attached to.
If you are putting a win up on a pedestal, the fear of not getting it is built into the same act. Which is why working on fear alone never finishes the job.
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Frequently asked questions
Why am I afraid to enter trades?
Because something about the setup resembles a previously logged painful experience, and your brain projects that past resentment forward as a future fear. The hesitation is not about this trade. It is your brain anticipating the reliving of something specific it has already stored.
Can you have a fear of the unknown in trading?
No. A fear always has specific content in your mind at the moment you feel it. When traders say they fear the unknown, they simply have not yet looked at what that content is. Once you look, the fear turns out to point at a specific past event.
What happens in your brain when you take a trading loss?
If the loss resembles stored painful associations, the amygdala fear response fires and the prefrontal cortex effectively shuts down. Blood glucose and oxygen reallocate to the amygdala, blood moves from the internal organs to the muscles, and adrenaline and cortisol prepare you for fight or flight.
Why does a small loss feel so much bigger than it is?
Because the brain dramatises and exaggerates it on purpose. Amplifying how bad the loss is is how it raises adrenaline and cortisol to produce the survival response. The size of the reaction reflects the stored association, not the size of the loss.
Is fear in trading the same as greed?
They are two sides of one thing. There is no fear without its complementary opposite. You fear losing, and you fear missing out on what you are attached to. Working only on the fear leaves the attachment that generates it untouched.
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