What big winnings do to your brain.

Sara Waqar Forex

Most people enter the financial markets hoping to realize some ‘big gain’ in the process of trading. Coupled with beginner’s luck and high leverage, most novice traders actually do experience exorbitant gains. Some end up doubling or tripling their account in a few days, only to lose their profits or all their money later on. Experienced traders who remain within the folds of their trading plan also experience big wins. However, the emotional response of an amateur’s mind to big winnings  is completely different from that of an experienced trader.

Big winnings represent the biggest challenge for a  trader in terms of maintaining the correct emotional balance that leads to successful trading. Let’s look at the unsuspecting emotional traps that are experienced after a big winning:

The anticipation that the big gain must be repeated: The human mind is wired to anticipate that the big reward must happen again; the brain craves to relive the excitement that it experiences with the big win. Neurological experiments show that if two wins or financial rewards are experienced consecutively, the mind anticipates the same reward a third time with a 100% certainty, even though all other financial information and mathematical probabilities stands against it.

Obviously, if we think rationally, such big winnings are not sustainable. While the impulsive part of the brain is highly responsive to the amount of reward, it is much less sensitive to changes in the probability of receiving that reward. Simply put, your brain is more interested in “how big is it?” than “how likely is it?” The bigger the potential gain, the greedier you will feel regardless of how poor the odds of earning that gain might be.

False sense of euphoria: The big winning leads to a false sense of euphoria, exhilaration, ‘ floating with glee’ or whatever one wants to call it. Traders find a certain urge to celebrate, boast among family and friends of how they made such huge profits in a short span of time, while others missed this grand opportunity. These urges and emotions are unsurprisingly absent in the wake of losses and the pain it brings; humans have little emotions attached with negative memories. It is the ‘big kill’ which controls and overpowers all sense and rational behavior. So while you are very likely dreaming of piles of money and  how you’ll spend your repeated winnings, your brain will not conceive the  slim probability  of hitting the jackpot the next time around.

Increase in risk appetite: In order to recapture the ultimate thrill of the big win, it is quite common for novice traders to throw caution to the winds and end up risking  much more on the next trade  than what the trading plan allows. Profits are seen as  ‘more money to play around with’ so there seems nothing wrong with risking more. This behavior is also seen after a big loss, which also causes some traders to increase the risk on the next trade to recover their losses quickly. The point to ponder is that traders are taught to be more cautious or ‘take a break’ after heavy losses, but are never told the same after big wins. It just seems wrong to tell someone not too feel overly happy after having won lots of money.

How should traders behave in the wake of  big wins? Rather than feeling overly excited or euphoric, traders should feel rewarded and satisfied with their results, and cautious of the adverse emotional effects of  big winnings. As with losses, it might be wise to take a break form trading to review one’s emotions before entering the next trade.