I’ve gotten a lot of emails from people who get into a position, then get out of the position far too quickly and the stock ends up going in my favor (either to the upside or downside) instead of where I projected or predicted.
Why am I getting out of these positions too quickly?
If you know and understand human behavior and the way our brain process works, you’ll get an idea of why this is happening to you.
Three Brain Theory
Over hundreds of thousands of years, humans have evolved, changed and gotten more complex.
First we had the Reptilian Brain which was tiny and mainly responsible for:
Fight or flight response (survival mode)
We still have this part of our brain in use today – mostly in survival situations or mating.
Then we an emotional part of the brain grew on top of the Reptilian Brain – we call this the Limbic (Mammal) Brain. It is responsible for:
Control of emotion
Experiences connected with emotion
Finally, the Neo-Cortex grew on top of the Limbic Brain to create a more analytical, strategic brain. It is responsible for:
During trading – all three of the brains are used in certain situations. Most often, the Neo-Cortex is utilized for the strategy, analysis and planning. When someone becomes panicked during the trading process however, the Reptilian Brain kicks on and causes that fight or flight response. You have a panic sell order too quickly because of your panic and survival mode.
One way to overcome and combat this is to become aware that you’re in the Reptilian Brain mind-frame. If you recognize that you’re entering the panicked fight or flight mode, you’ll be able to calm yourself down enough to use the Neo-Cortex part of your brain to make rational decisions instead. Instead of making trading decisions based on fear, when you calm down and use your Neo-Cortex brain, you’ll be able to make strategic trading decisions. Some people do use their Limbic Brain to make these decisions as well, but if you would like to be more consistent in your trading decisions – it’s best to stick with the Neo-Cortex part of your brain.