Page 6 - Newsletter July - Sep 2020__

PERSPECTIVES BY SKC
Article
The Demons of the Mind
Imagine being a hedge fund trader in a bear market, where you have lost 30% of your holdings. How do we think and act when this happens?
Brooding. The natural behaviour is a primal one: Absolute Fear. Petrification. Getting cowered into submission. It has closed its eyes to the fear – that’s how intimidated it is by the imagination of that fear. The trader thinks the markets are in a free fall. There is panic all around. This is the time to exit the markets, thinks the brooder. All positions must be liquidated. So what if I have to take a 30% haircut? This is karmic. My destiny. Perhaps I wasn’t born to be a trader. Of course experience is a tool, but a tool unconsciously invoked to limit the potential of the trader. So experience tells him to liquidate all positions. Wait out the storm. The faculty being used is the emotional. Nothing but a deluge of emotions. Each flooding the earlier and pushing the brooder further into submission. Brooding is pure animalistic survival.
Thinking: stepping into courage. If the trader chooses to look his fears into the face a little, thinking kicks in. Something begins to question the primal fear. Something asks the primal fear whether it is really as bad as the raw emotions make it out to be. That something, let’s call it “courage”. Courage begins to look fear in the face, its tools are logic, but it is still afraid of what it sees. The trader sees the market participants cowering but does not see beyond that. He assumes that shorting the market will fix his problems. But he does not budget for his own fears. Over the next few sessions, the market begins to rise. The trader cannot believe how his thorough analysis of the market is being proved wrong. Courageous thinking gives way to the absolute fear of the past. He now takes a 50% haircut and liquidates his position. There may be a monetary loss, but this is the beginning of the human instinct: the stepping into courage.
Contemplation. The phase of self-doubt. The phase of despondency. Now the trader begins to contemplate on the fears further, but still from a standpoint of being afraid. The despondency hasn’t left yet – but there is a hint of depth. What have I done to make such massive losses and errors? Is my education bad? Am I a bad trader? Is trading not for me? Notice the self-doubts. It seems that the trader is lost... all at bay... but this is the starting of looking into where the problem is: the trader himself. True freedom is just about to loom up.
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