Ep35 - This Is Your Brain on Trading

Have you ever "felt" something was off in the market—before you could explain why? In early 2021, Dan noticed unusual behavior across several stocks; days later, the Archegos Capital blow-up surfaced. It wasn't clairvoyance—it was his subconscious processing patterns his conscious mind hadn't connected yet. In this episode, Dan explores how biology and psychology shape trading decisions: why fear and overconfidence sneak in even when you know the math, and how to align instinct with process so you can trade with discipline even when emotions run hot.

Key Takeaways

• Emotion before logic: Neurons transmit electrical signals along axons that release neurotransmitters—often triggering reactions before deliberate reasoning.
• Your "second brain": The gut's dense neural network influences feelings that show up in trading.
• Bandwidth is limited: Your subconscious handles massive inputs while conscious attention is scarce; emotions act as shortcuts (heuristics).
• We don't "feel" probability: Humans evolved for immediate threats, not statistics—so design rules that protect you from your instincts.
• Filtered reality: The thalamus suppresses noise so you can focus—meaning each trader perceives a different "market."
• The map ≠ the territory: Past experiences create schemas that color today's decisions.
• Know the real opponent: Your brain can help—or sabotage—your edge.
• NLP as a toolkit: Regardless of debates, several NLP ideas provide useful mental models for reframing limiting beliefs.

Memorable Quotes

• "Emotions exist to make thinking less resource-intensive."
• "When you're trading, your one enemy is your own brain."
• "A trader who's never seen a six-standard-deviation move may 'know' it can happen—but won't believe it until it does."
• "These shortcuts help—and they hurt."

How to Apply This Tomorrow

• Pre-commit entry/exit/adjustment rules.
• Audit one recurring feeling and pair it with a counter-rule.
• Protect attention (no notifications; 90-minute focus blocks).
• Post-trade: log feeling → action → outcome to retrain tags.
• Review distributions so variance doesn't shock you.

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Disclosure:

Options involve risk and are not suitable for all investors. Prior to buying or selling an option, investors must read Characteristics and Risks of Standardized Options (ODD) which can be found at https://www.theocc.com/company-information/documents-and-archives/options-disclosure-document

Don’t trade with money you are not prepared to lose. Anything discussed on this show is intended to be generalized information and not intended to be a recommendation to buy or sell any security. The host and guests are not familiar with listeners’ specific situations. For trading information relevant to your specific needs, speak with a licensed broker or advisor.  

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