Why you give it all back- A trading mind

“Trader state of mind.”

  • Goal for session: Understand why traders often “give it all back” after a run of wins, and learn how to use emotions intelligently.

2) The Problem — “I was winning, then I lost it all”

  • Many traders begin optimistic (freedom, financial independence).
  • Early success → confidence → then an unexpected losing streak.
  • Typical pattern: small losses → panic → revenge trading → blow up.
  • The paradox: intellectually we know losses can happen, but emotionally we act as if we must recover immediately.

3) Key Metaphor — The Caveman & the Threat

  • Image: a caveman (20k–100k years ago) facing a sabertooth tiger.
  • Core idea: Evolution wired our brain to avoid loss because loss historically meant death.
  • Caveman doesn’t know “money” — he knows life or death. That’s how our primitive brain interprets financial loss.
  • Consequence: when modern traders lose, this ancient survival response (panic) is triggered.

4) Two Dangerous States (both rooted in evolution)

  1. Fear / Panic (after losses)
    • “I must get it back” mindset.
    • Triggers fight/flight reactive behavior.
  2. Euphoria / Overconfidence (after wins)
    • Dopamine reward: feeling “I’m in the flow,” “bulletproof.”
    • Leads to loosened rules, more risk — the “kiss of death.”

Both states are driven by the primitive brain and both destroy disciplined trading.

5) Dopamine — The Reward Trap

  • Wins release dopamine (reward chemical) — feels like a “high.”
  • Dopamine causes euphoria and overconfidence.
  • Behavioural effects:
    • Ignore stop-losses and rules
    • Take larger positions
    • Trade impulsively (risk increases)
  • Outcome: eventual “pop” (loss) followed by panic and large drawdown.

Analogy used: hitting the dopamine system is like “snorting cocaine” — euphoric and dangerous.

6) The Emotional Storm — How Quickly It Happens

  • Emotional responses are biological action potentials: they fire in nanoseconds and change perception.
  • Any change in the chart = change in emotional state → potential storm.
  • When the storm hits:
    • Thinking brain (neocortex) is bypassed.
    • “Knowledge you possess” disappears temporarily.
    • You act like a primitive caveman — impulsive, reactive.

Key line: It happens that fast.

7) Brain Wiring — Why the Thinking Brain Loses Control

  • Evolution built the emotional/mammalian brain first; the thinking brain grew on top of it later.
  • Communication from the thinking brain back to the emotional brain is weak (analogy: a few old telegraph lines).
  • Result: the thinking brain has little direct control over the emotional brain in high stress.
  • Therefore the thinking brain must learn methods to manage or domesticate the emotional brain.

8) Fight–Flight in Trading (Concrete Behaviors)

  • Fight: Revenge trading, increasing risk, trying to “win it back” quickly.
  • Flight: Closing winners too early, avoiding trades, hesitation, freezing.
  • Both are survival responses — not rational trading decisions.

9) The Real Danger: State-Dependent Knowledge Loss

  • Knowledge and rules are state-dependent: you have them when calm, lose access under stress.
  • Emotional hijack = you can’t access your trading skills when you need them most.

10) Practical Takeaways

  1. Recognize the cues: wins → euphoria; small losses → panic.
  2. Label the feeling: name the emotion (e.g., “This is dopamine euphoria”).
  3. Pause & breathe: slow diaphragmatic breath to reduce emotional charge.
  4. Keep rules visible: hard-coded rules reduce “in-the-moment” decisions.
  5. Train for state control: practice responses to losses in low-risk settings (paper trading, pre-defined drills).
  6. Domesticate the beast: treat the emotional brain as an animal to manage, not ignore.

11) Bullets points

  • “You win a few trades, dopamine spikes — suddenly you feel unstoppable. That feeling is dangerous.”
  • “Your primitive brain equates losing with threat. Money becomes life-or-death to that part of you.”
  • “An emotional storm can wipe out your knowledge in nanoseconds — trading skill becomes unreachable.”
  • “When the storm hits, the two typical reactions are fight (revenge trading) or flight (closing winners early).”
  • “The work is not only trading systems — it’s learning to manage your state so you can use your system under pressure.”

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