How to Eat Like An Elephant?

by Janice Dorn, MD, PhD, The Trading DoctorSM | March 13, 2009

The legendary W. D. Gann spent a lot of time describing three emotions that drive most traders and investor—fear, greed and hope. You enter markets on the hope of gains, too often get greedy in expecting profits, and finally liquidate on fear. Your brain has not changed much from the time of the Neanderthal man who greedily hunted wild animals for food, and ran in fear from beasts and neighboring tribes that threatened his survival.

The Neanderthal “rat” brain is still within you--- as powerful as it was over 100,000 years ago. As society changes and evolves, the quality and quantity of threats to your survival change along with it. Yet, the primitive emotions of fear and greed remain the same. The history of panics and crashes in the financial markets since the inception of trade reflects this ever-changing cycle of fear, greed and hope.

This is a large part of your challenge and journey to master the art and science of trading. You must be prepared to wipe away any preconceived notions about what the markets will do or not do, and replace them with what you will do or not do. You must be able to “fade” your own emotions and be unafraid to go against prevailing opinion. You learn that you will almost always feel fearful when you should be feeling greedy and vice versa. To do this successfully and not recklessly requires discipline and practice. Don’t let anyone tell you it’s easy. It just plain isn’t. Simple? Yes. But not easy. It requires counterintuitive thinking and a good understanding of your own psychology and mass psychology. It takes great study of yourself, getting into and through your ego and really knowing who you are. The journey within is the most challenging and profitable trip you will make in your trading career.