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In this months newsletter I will go through the dangers of so called dopamine hunting and why you must be aware of them as a trader.

“Give a monkey a single squirt of juice and its brain shows a spike of dopamine, but repeat the process several times and eventually the dopamine neurons settle down. But now give the monkey two squirts when it expected one, and dopamine perks up once again. Give it three squirts and dopamine perks up even more. Yet if these three squirts are now repeated, dopamine once again settles back down. What this means is that the amount of dopamine released into the nucleus accumbens does not depend on the absolute amount of reward an animal receives, but on how unexpected it is. This further suggests that we enjoy and crave environments in which we receive unexpected rewards; in other words, we enjoy risk.”

Click here to hear my take on the dangers of dopamine hunting:

Part 1: Dopamine hunting is dangerous

Part 2: Dopamine hunting is dangerous

My Bulleted take outs from the videos above:

  1. Don’t trade for “highs”, make trading a rational game not a ‘Buzz’ seeking activity. Are you in it for Business or Entertainment? Rarely is it both for long. Remember the latter one you pay for, the other over the long run can pay you!
  2. Spinning the wheel of fortune, for unexpected ‘lottery’ wins [Dopamine Hunting], is reckless and does not constitute process. Don’t do it, long run it only costs!
  3. Adhere to process, never see any trade as a ‘fait accompli’, or a ‘sure thing’, visualise & ‘scenariocast’, for both the success and more importantly THE POSSIBLE FAILURE, How it may go wrong. This combats ‘Euphoria’ based decisions
  4. Be careful of super focus on a single trade, leading to a winning trade, and sloppy unfocused follow ups, Overperformance begets future Underperformance, on a ‘We got this’, dopamine driven confidence high. In the recent Rugby World Cup England identified and prepped for NZ in the knockouts from a long way out, they thought if they beat NZ [The Favourites], everything else would fall into place after that. Eddie Jones [England Coach] is typically key fixture focused, he ambushed RSA as Japan coach in the UK in 2015, the key scalp game in that pool phase.
  5. Dopamine management…[from the above point] Negative outcome scenariocasting, keeps you in recognition of the fact that trading is always a probability game, and even the best trades can fail. This will also manage the possible dopamine reaction to positive & negative outcomes. Don’t ‘Prebank a dopamine high, in-trade’ for a ‘sure thing’ trade. The Psychological & Biological responses on failure will be higher, and confidence & future performance restricting. You will Bin your Silver medal at the lost final.

Here is an excerpt of sport news after England lost to South Africa in the recent rugby world-cup:

Remember Traders, managing mindset after winners is really important. Just ask comedy act Dan & Joe ‘We got this Guys!’, England Props RWC2019, pre the final after beating NZ. Forget sloppy Rinse & repeat thinking, every trade is a new trade.

Here are my recommended actions to not fall in to the traps of dopamine hunting:

  1. ‘Events Dear Boy’, sudden news or events will unsettle the best laid plans/trades and can’t be planned for. Sinckler was knocked out in a tackle by his own player in the first minute, which lead to further demolishment of Englands front row. Events aren’t only negative and can bring you back from the dead on nearly lost trades, but these aspects can’t be forecast for any more than Lightening strikes
  2. Track, journalise & measure trading performance [Losers as well as winners!], to enable better self awareness & self diagnosis, as possible big events and big winners occur, track your subsequent performance, to see if due care is taken in the follow set ups, and that you have not become to assumptive or sloppy.
  3. Tax big winners in your hot trading account into a colder investment or deposit account, to artificially maintain a trading capital ‘scarcity’ sensation, to avoid lax spendthrift approach to a ‘flush’ trading account on the next trade. The temptation to cut corners, rinse & repeat quickly, onwards and upwards to Millionaire and beyond, do a far lower level of assessment, and over assumption of prior continuance is typical, as is outsized trading due to ‘Wealth Effect’, leading to later catastrophic loss.
  4. Top Tip, at any point you start walking around bragging of your trade to family or on social media, you are about to commit a highly assumptive, oversized rinse & repeat trade, of account decimation!
  5. Recognising these Biological & Psychological aspects, and understanding our own biological functioning, will better prepare you for self-awareness of these elements and early self diagnosis upon any trading occurrence.
  6. Express gratitude for winners, some level of fortune still exists, in trades that go as planned.

Wishing you all heightened awareness of self and less volatility of trading biology and emotions. I find that the lower you mange down the highs on winners the shallower the dips on losses, the more long term sustainable you are as a trader.

In short, Euphoria and your emotions are not a basis for a long stable career of wealth building in the markets. You yourself are a potential HVF set up and you are best served by ‘funneling’ into a low volatility biology, emotions & hormone regulation in your brain. If you manage these aspects in a more constrained way, than the rest of the underlying market and its associated participants you will be a long term winner, if you are higher in dopamine seeking and emotions & Biology, than the average mean of the rest of the participants, you will be a net contributor to that market and your peers.

Go flatten that curve, start by killing the highs with humble gratitude, that is the game, Self -Talk yourself down on winners and raise yourself up on losers.

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It’s my experience that a number of things will reduce the degree to which you fall prey to dopamine hunting. One of such is having a pre trade checklist and a real method that you are regularly implementing that requires you to work all the way through that.

That said, we are still human and can sometimes bypass or quickly take an impulsive trade. To combat that, it’s important to discuss your trades in a community environment where other people are taking similar trades to you, and are reminding you of the pitfalls of overperformance. Since underperformance, often follows after a great performance, sometimes with calamitous effects.

In other words being in a community reduces the volatility of the emotional experience of going on a trading journey, and may reduce the likelihood of Equity Blow outs.

So let’s summarize again: Real Method, Real Checklist, Shared Experience, with others in a community. This will reduce the degree that you will seek to go ‘dopamine hunting’, in search of unexpected rewards.

If you would like to be part of our community, book a call with an experienced HVF trader to discover the community that keeps us from dopamine hunting:

Book a call

Warm wishes,

Francis Hunt