The demons of the mind and the steps to defeating them

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 behavior 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 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. The 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 himelf. True freedom is just about to loom up.

Insight. Knowing. Enlightenment. Bodh. At this point, the takes that tool of logic and fearlessly applies it consciously to delve into emotions and the unconscious doubts. What was it about my emotional state that was causing me to act the way I did, when taking short positions? What was happening to my emotional state when after entering those short positions, the market began to rise? Did I unravel / liquidate the short positions driven by animalistic fear, or did I use analysis. Notice that at this stage there is no fear. No self doubt. Nothing is swept under the carpet anymore. Nothing is left un-examined, or un-analyzed anymore, because of the fear that examining it may cause pain, or regret, or guilt. Everything is seen the way it should be seen. Un-afraid. Un-reluctantly. Un-apprehensively. Every detail is looked into: willingly, face on, hands on.

The pure analysis and questioning of our own actions and behavior. Unafraid. A quest to know.

From here on, the trader begins to invest the remaining 50% of his holdings, but now aware of his fears; aware of the flow of his demons: the emotional states.  Whether the trader makes a killing, or whether the trader loses money is another matter. But the trader has picked up the tools to take the optimal course of action every time. Whether he takes the optimal course of action, depends on how well he can navigate his mind as it broods, then thinks, then contemplates, and then knows!