Scared Money is Lost Money
By: Thomas Zoeschg
Tags: Mindfulness, Trading, Fear, Meditation, Finance

Scared Money is Lost Money

Why fear plays such a crucial role in the financial markets and how to manage it

Unsplash | JP Valery

“In the market, the fear of losing one’s fortune is every bit as intense as the fear of losing one’s life from an attack by a wild animal. I don’t think I could put the difference between consistent winners and everyone else more simply than this: The best traders aren’t afraid.” warns Mark Douglas in “The Disciplined Trader”.

And, “The brain is hardwired to prevent you from interfering with its fear circuits, its core defensive and reactive processes. Unfortunately, in trading this means you will feel much more fear than necessary.” says Kenneth Reid, Ph.D.

So why is trading so scary?

From Neurofinance (studies that explore the relationship between the brain and money) we know that trading activities stimulate the same primitive centers in our brain that are also responsible for self-preservation. These centers are defensive layers that do not respond to will power or self-talk. In fact, the brain is hardwired to prevent you from turning off its primal circuits which are made up of its core defensive and reactive processes.

It is extremely difficult to control and manage these instincts which are causing so many traders to underperform and eventually fail. Even though these instincts have great survival value, when these ancient instincts take control, you will often find yourself doing the exact opposite of what your consciousness intends. It may feel like betraying and sabotaging yourself but it is not evil; it is biological.

And what to do about it?

A very effective and often newly practiced methodology is “Mindfulness”. Mindfulness is the basic human ability to be fully present, aware of where we are and what we are doing, and not overly reactive or overwhelmed by what’s going on around us. We all are capable of mindfulness, but it is more readily available to us when we practice it.

Whenever you bring attention to what you are directly experiencing through your senses, you are being mindful. There is growing research showing how you can restructure and remodel the physical structure of your brain through mindfulness training. When we practice mindfulness we are practicing the art of creating space for ourselves: space to think, space to breathe, space between ourselves, and our reactions.

Unsplash | JD Mason

One very effective way to practice mindfulness is to get a short meditation in, right when you wake up. Set a timer for five minutes, find a comfortable place to sit, and close your eyes. You begin by becoming aware of your thoughts, you let your mind wander wherever it wants to go but stay aware of where it goes. You will notice your brain jumping all over the place which is actually an asset. Without judgment, this gives you a chance to gently bring it back to the here and now.

If you repeat this exercise daily, you will be able to be more conscious of your actions, thoughts, and feelings. While the goal is not to alter your brain's workings, we are attempting to be more aware of the moments when our primitive side takes over. And as a result, be able to manage those crucial moments better.