Trading Psychology: Waiting for an Ambush?

I have a question for you this week: When you are trading, do you feel like you are waiting to be ambushed?

It wouldn’t surprise me if that’s the case because markets are highly random and difficult to predict, so active traders get ambushed all the time.

An ‘ambush’ is when the market suddenly does something adverse and costly that you did not expect. It could be news driven or the result of a stop run… or both.

Ambushes happen much more often in trading than in general business or other aspects of daily life. And because all trading losses come as a surprise, in some sense every trading loss is an ambush… it’s just a matter of degree.

Here’s the thing: ambushes can be traumatic.

If you get bit by a dog when you are young, the trauma might make you permanently afraid of dogs. If you have been repeatedly hurt by the market you might find yourself in a state of perpetual high alert when trading. It is called the threat response.

STUCK IN HIGH GEAR
In this case, your brain is like a traffic light stuck on yellow. It’s like having the sound of a police siren always in the background. It often means literally having your finger on the mouse ready to get you in or out in a few milliseconds.  

This is an overly intense way to trade and there are consequences. If you are mostly feeling defensive, it’s like you are driving with your foot on the brake. You are focused on risk and you are likely to cut winners short.

If you are mostly feeling aggressive you are driving with your foot only on the gas. You are focused on reward… and you are likely to hold losers too long.

And some traders operate with equal amounts of defensiveness and aggression,
which is the most chaotic combination. Gas, brake, gas, brake…etc. In this case you will cut winners short and hold losers too long. 

Bottom-line: If you trade in a state of perpetual alert due to the threat response your decision-making process when managing a trade will tend to be counter-productive. You will be expending a lot of energy and getting nowhere.

SOLUTION
To change this, you need to actively practice a different mental focus and new behaviors. One simple way to quickly improve your mindset is with the daily practice described here:

Daytradingpsychology.com/mastermind