I’ve noticed in my male clients, and in myself, a tendency to chase price. It’s the primitive hunter in all of us. Chasing was what we had to do when we lived on the Savannah because animals fled at the sight of us and our weapons had a very short range. Unless your ancestors were gathering tubers, you have a “Chaser” in your blood.
In trading, the thought process goes something like this.
“The market is moving and I don’t want to miss out. I know if I bought here, this would be buying high and I’m not supposed to do that, but I’ll just make this one exception to that rule because my gut tells me that this is going to be a good trade. Therefore, I can justify breaking my normal rule, which is to wait for a pullback. In this case, waiting for a pullback would cause me to miss out, so I’m going for it!”
JUST DO IT?
This argument seems to make sense in the heat of the moment, but it’s the “heat” that distorts our thinking. The “hotter” we feel, the dumber we act.
The sense of urgency comes from deep-brain dopamine circuits. Dopamine is the neurotransmitter that motivates hunters to “chase right now” and not give up. Dopamine is a very powerful, mentally-activating compound, but it doesn’t increase our operational IQ. Quite the reverse.
Rather, dopamine is a primal motivator. A flood of dopamine is released by drugs like cocaine. We might feel smarter, but the brilliance is an illusion. The discriminative part of the brain is turned off and we are thinking and acting more like an animal, an emboldened, hungry animal that happens to have access to our trading capital.
The Bottom Line
When you feel the urge to throw your rule set out the window and chase the market in order not to miss out, your Inner Neanderthal has just hijacked your trading. Find some other way to keep him amused and interested (I take him to the tennis court almost daily), while you apply your pattern recognition engine to extracting money from the market.
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