We all have those winning moments – from the smallest ones to the biggest ones. We all like the feeling it provides, right? It’s a high time for us, and we happily invite delusions to our mind. As a result, our sense of reality gets distorted. We tend to bloat things up and disengage from reality and create our own.
In trading, your winning moments can ironically work against you. You tend to generate false confidence within you that often leads to delusional decisions.
To make things clear, losing trades cannot be avoided. But what we want to emphasize here are the losses that you can actually avoid – losses that come from emotions. These things happen right inside of you which you are not aware of.
Why Do Traders Tend to Lose After Winning?
It might sound a little ironic to know that after winning can be the most dangerous time to trade. But this fact is backed by a scientific basis that we need to understand.
There’s a high feeling after winning a trade. It just feels good. Dopamine releases good chemicals in your brain when something happens that makes you happy. It’s a natural occurrence, but what makes it dangerous is when you become addicted to that feeling.
When you crave for more feel-good feelings, you tend to push yourself to disastrous trading decisions. This craving manifests when you, after winning, are more likely to over trade. You are more prone to making stupid decisions because your brain perceives less risk when there’s a high level of dopamine. Your logic falls down, and you make it work in contrast to your trading strategy.
Your brain seems to have a mind of its own as it prevents that high feeling from going low. The dopamine rushes in your brain.
The act of entering a trade that has previously made you money will release more dopamine in your brain. This could lead to losing streaks and account depletion.
Whether you win or lose, the brain will get what it wants – a high dose of dopamine. And you need to be aware of this.
Dopamine is not really bad. But it’s like a double-edged sword; it can either be your friend or your enemy. It can make you adapt to either good habits or bad habits.
Your role here is to adapt only the good ones. After all, you are the master of your body. You must be aware of the internal workings of your brain to know how it actually behaves. This way you can anticipate its actions, be aware when it happens, and be prepared for its outcomes.
Solution
We know now the most dangerous time to trade. We are aware how our brain works and what role it plays on a traders losing streaks. Now is the time to deal with it properly.
Having known how your brain behaves, you must prepare filters to prevent it from behaving badly. You need to be aware when an emotion-fueled or dopamine-fueled trade is occurring. Moreover, take note that you need to build and follow a trading plan so you won’t just enter trades because of random whim of confidence.
Related: Forex Trading Psychology 101
