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John Coates – The Hour Between Dog and Wolf – Review

John Coates - The Hour Between Dog and Wolf - ReviewWow! This book taught me how my body chemistry works, how my brain and body communicate and what’s happening around this when I am taking risks. The Hour Between Dog and Wolf is a great masterpiece about neurobiology that made so much sense to me after realizing why I had lost my appetite and sleep in difficult situations.

In his book, John Coates talks about market bubbles and the emotions behind it. Studies have found that basically men are responsible for euphoria and depression in the markets as risk taking fueled by testosterone is a male hormone. Females have only a fraction of it compared to men. Therefore, female traders are often described as more rational and stable than males.

He writes about thinking with body, gut feelings and why it rarely works out in the markets. I especially enjoyed the chapter about stress response, how it’s caused and how it affects decision making process. I understand that my difficult situations in trades (like canceling STP loss and day-trading myself out of a losing position) will cause me fear and flight-or-fight response. It’s like you accidentally walking up to a bear in the woods, when flight-or-fight response kicks in, your brain tells the body that you’re in trouble and the body releases adrenaline, cortisol, glucose and all necessary chemicals to give you as much power as necessary to get out of danger. Your metabolism stops working and that’s why losing the appetite. Your mind and body is doing everything to get you to safety. While such automatic response from the mind is helpful in situations like the example of meeting a bear, it’s counter-productive in trading.

In trading, basically your mind wants to protect you in wrong situations. Fear is caused by uncertainty, but in the markets we need to deal with uncertainty all the time and not get stressed out about it. There’s no other way to trade than at the right edge of the chart where the future is unknown.

Moral of the story is to learn and understand your body chemistry. Testosterone supports risk taking. It grows during a winning streak, which can cause to pick poor trades with high risk. Cortisol is a stress hormone causing fear. Fear may be caused by uncertainty and losses. While moderate flow of cortisol is fine, too much of it can lead to being risk averse and stressed. Avoid longer stress and mental illness by removing the cause.

You can’t fight against it, all traders even the pros have their mind and body communicating like that, however they acknowledge the fact and deal with it. To train mental toughness: experience and repetition, skills, treat the cause as a challenge and not a threat, physical moving and body exercise, thermo stress (cold weather and water to body) is necessary, healthy eating and lifestyle, communication to family and friends reduces stress, work fatigue can be reduced with a fresh task just as with a vacation.

You won’t have fear and stress about uncertainty if you don’t expect anything from the market and manage the trade according to your plan. If a trade is not working, close it and take the loss. It will keep the mind and body effective and the trade can always be re-entered once the signal triggers again. It’s not about money, there’s no place for hope in trading, it’s only about managing the chart pattern well.

Good book, I highly recommend it.

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