The market's playbook aimed at you
Olds and Milner conducted this experiment decades ago. A rat with an electrode connected to its brain, wired to send a pleasurable signal straight to its nucleus accumbens (the brain's pleasure centre), will run across an electrified grid to press a lever again and again.
It's not the sensation itself driving it - it's the anticipation of receiving it. That anticipation is why the rat ignores food, ignores water, and keeps running across an uncomfortable electrified grid to press the lever repeatedly until it collapses from exhaustion.
Wolfram Schultz, a professor of neuroscience at Cambridge, ran the same idea on monkeys in the early 90s. Show a monkey a piece of apple and its dopamine neurons spike. Do it enough times that the monkey learns the apple is coming, and the spike occurs in anticipation of the apple, but once the apple is received, the spike disappears.
Dr Hans Breiter ran MRI scans on cocaine addicts anticipating a hit, then ran the same scans on healthy people right before the announcement of the winners in a cash prize game they'd entered. The same region lit up in both, at the same intensity. Anticipation of a reward produces the identical signature whether the reward is cocaine or cash.
The chemical hit comes from the uncertainty itself. That finally explained something that never used to make sense to me: why someone who just won big at the pokies doesn't walk away.
What they're chasing is the seconds before they know the outcome, not a payout itself. So they feed the machine again, chasing the feeling, not the money.
Slot machine designers know this. Michael Shackleford has built a career on it. The music, the flashing lights, the near-miss sequencing on the spinning reels, all engineered to keep you in that window of not-knowing-yet.
Now imagine you're at your trading screens.
You put a trade on and there's a spike, the same spike as the monkey, the same spike as the addict, firing off the uncertainty of what happens next.
The moment you're in the trade that spike drops.
If the market isn't moving as you had anticipated you might decide to cover, exiting the trade. If this is evidence-based, it's the correct decision.
But once you're out of a trade, the itch of reward for uncertainty returns, and you're suddenly back in the market. You know this behaviour. We all do. In. Out. In. Out.
What exacerbates the problem is an 'identity' crisis. One that goes like this:
I'm not making money if I'm not in a trade.
I can't call myself a trader if I'm not trading right now.
I set this hour aside to trade, so I'd better use it.
Market Maker Susquehanna's Todd Simkin put it plainly: "We're aware of the biases and mistakes we and others have and make and express in the marketplace, so we can capitalise on those of others." Read that again. The firms on the other side of your trade aren't guessing at what you'll do. They know all the human biases, and trade against them.
Once you know it too, the responses you have when in front of your screens do as well. Most people at the screens are predicting "this is about to roll over" or "I feel like the market's going to push higher from here." The better response is "what's the market doing to try and take my money right now?"
It's a different game entirely. Like knowing a punch is coming versus getting caught cold. You still take the shot, but you're braced for it.
Playbook trade
Knowing the mechanism is your defence. It's also your opportunity, because the traders getting pulled in by anticipation are the same traders you can take the other side of.
Here's one I trade. After a sharp move up, there's always a group of traders sitting there disappointed they missed it. To them it's too late to trade the long side but the emotional 'sting' of missing out is so strong, the only resolution is to fade the move up.
So price rolls over. Not surprisingly, new shorts pile in. My idea is to buy for a short-covering rally. But not knowing 'when' to enter long can lead to multiple attempts to get long that all lose.
A framework and trading playbook solve this. The scenario above repeats, and there's a repeatable approach to trading it, one that leaves nothing for the anticipation spike to hijack.
And even if the trade doesn't work, playbook trades are designed specifically to keep losses to paper-cuts so winners pay you far more.
In this scenario, the first entry is not at full size. If the idea isn't playing out right now, the exit is an immediate paper-cut. Only once the trade is proving itself are there steps to add, and add again.
That's the maths behind it. The cost when you're wrong is small. The payout when you're right, especially once you've added, is much larger than that cost. So even across a couple of false starts before the idea actually plays out, you finish ahead.
There were twelve separate points of evidence behind this particular trade, which combined increase your odds exponentially.
How professional trading firms size trades
Traders can go nowhere, or even lose ground, simply from betting the same size on every trade. In professional poker nobody bets the same amount every hand. The bet size reflects how good the hand is.
Risking the same amount per trade intuitively feels like prudent risk management, but it's rare to see a successful trader use this approach. From Soros, Druckenmiller and Buffett - right down to intraday trading professionals - trading success or failure rests on adjusting trade size according to the odds of the trade opportunity.
This is why a repeatable framework built from repeatable trades matters. A playbook is like knowing every hand in poker before you're dealt one.
I placed my first trade over 25 years ago as a retail trader. Although I had some wins, overall I was a net losing trader. It took me a long time to work out that the wins weren't proof I'd turned a corner. A losing trader doesn't lose on every single trade. That's exactly what makes the cycle so hard to see from inside it. It took entering the industry to see the mechanism from the other side and recognise it for what it was.
There's an Australian anti-gambling campaign that nails the whole problem in five words: "You win some, you lose more." Every win keeps you coming back to the table. The losses are what actually pile up. And underneath most of that cycle isn't a psychology problem. It's a dopamine response firing on autopilot, the same one that keeps someone feeding a slot machine after they've already won.
The defence against it is a framework and playbook that does the decision-making for you. Even when the urge to react to every tick is still there, it's no match for a framework and playbook that have already proven themselves in live markets.
Once you've traded them enough times with your own hands, the outcome becomes predictable. Not on the very next trade, but across the next run of them. Knowing that in advance is what makes the 'unnatural' choice the obvious one, because you already know how much better off it leaves you.
We're reward-seeking by nature, and whatever rewards you, you do more of. A repeatable framework and playbook becomes its own reward, which makes it your best defence against every counterintuitive trap the market sets. You stop acting on what you feel in the moment. You act on what you already know works, whether or not it feels right at the time.
When you're doing the right things well, the account looks after itself. P&L stops being the focus. At a professional firm, you often can't even see your running P&L while you trade. Deliberately. So there's nothing to check every thirty seconds, nothing to spike the same anticipation that got you into this in the first place.
You repeat this in a simulated environment initially, so you experience the feeling of it playing out over and over. It reinforces what you're capable of, so you move to live trading with confidence.
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