Why You Do What You Do
In college I studied behavior analysis which taught me a great deal about the simplistic nature of decision making. As I progressed through trading and life I see the ripples of this topic repeated over and over. At the core we are all governed by pain and pleasure. Now, that might be a simple statement but when it comes down to it, your pain might be someone else’s pleasure. This is where beliefs come in. Pleasure is derived from a past experience or a chemical release in the brain that you associated to a particular event and action. A really easy way to think about this is, take for instance you are hungry? you feel the pain and lethargy of decreased energy. Now imagine that you have never eaten before so now you are trying to figure out what to do so that you can get rid of this negative reinforcer (Hunger). First you lay down, this doesn’t do anything. Then you go outside thinking the sun might make you feel better, and again nothing. Then you do the unthinkable, something that you never wanted to do. You kill something and consume them so that you can absorb their life energy to sustain your own. Your hunger goes away and you feel better. Now this is a ingrained belief for life or at least until you have another situation that killing and consuming something isn’t an option. Then you would experiment within those confines until you find an alternative. Maybe there is another way to sustain ourselves but we just haven’t been exposed to it so we just continue to consume other life energy until we do. Hmm Question everything right?
This is the repeating cycle that we are all in forever. You can see this with anyone and watch as an outsider. For example, if someone gets in a relationship with a person and after 5 years they get bored. Most people don’t like to change due to the unknown aspect of change, (I’ll get into this in another blog). In this case the boredom is a change from the normal they have faced in this relationship and in every relationship they’ve had to this point due to the length of this one. So, they start to try things subconsciously, maybe they pick a fight with their partner to induce instability, maybe they have a nice conversation with a woman in a bar and the excitement flurries again with her. If they venture down that path and it alleviates the pain of being bored their brain associated their current partner with boredom and this new person with the good feeling that they are used to. Not that I like this situation and for me the pain that I have with a new venture and the pain I would cause for my current partner deters me from ever going down this road but that deals with the complex chain specific to me and my history of pain and pleasure. Though, I can see how cheating happens in a scientific sense. Our brains are constantly evaluating things based on what gives us the most pleasure for the least pain pending our already associated levels of pain and pleasure. When investing it is called Risk/ Reward, life really is trading, even our brains are traders. All a trader is is a exceptional decision maker.
How does all of this affect your trading? Well let’s look at something simple for today that we normally wouldn't put much thought into. When you think of Red what does it remind you of. Try to stop for a second and really imagine red things. Maybe a poisonous frog, maybe a stop light, maybe danger signs. Now what happens when you think about Green. I think about money, life, trees, or even a go light in traffic. All of life we have been trained by society and even nature to respect these colors. Now let’s look at a traditional trading platform or even CNBC on TV. When a stock or the market is going down what color do you see? RED for sure and they even make it bright and bold and might even make it flash at you just like a poisonous frog. Naturally you are injected with a little adrenaline like when you see flashing red lights in your rear-view mirror. It might be subtle, but it does affect you. Now Your decisions are all layered with a tinge of fear and adrenaline, if you are already a high stress person like most people in America you will just be hit with a higher dose of cortisol (the stress hormone) making you more tired and defeatist. What do you think you are going to trade like now? Do you think you are going to look for opportunity? Heck no, unless you have been trained to ignore these subtle cues. A simple fix is turn off the colors of candles when making decisions for investing. If you want to get crazy you can use Neuro Linguistic Programming (NLP) to change how you view the colors in respect to trading. Even the act of reading this and noticing the effect on you will make it have less effect due to the mindfulness of reflection.
Many of my posts will have small insights like this and if you have anything that plagues you please feel free to reach out to us and I can include it in a future article. If you have any questions for us and how we invest just hit the contact on our website BlackpierCapital.com, we always like good conversations.