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If you find the previous explanation too abstract, consider the last time you were really hungry and went to a restaurant. Did you order more food than you could eat and end up not finishing it? When you're extremely hungry, everything on the menu seems delicious, causing you to overestimate your stomach capacity. It's important to note that the information your eyes perceive about the food is objective and doesn't change whether you're hungry or not. However, in a certain state, such as hunger, this objective information changes and your decision-making becomes influenced by non-objective factors, resulting in the phenomenon of over-ordering and being unable to finish the food. Eventually, your brain returns to normal once your hunger subsides.
The above example illustrates that there are two types of stress responses in human beings: immediate stress response and sustained situational response. The difference between the two is the length of time that the stress event affects the body. However, both types of responses are similar in terms of their impact on the brain and the major systems within the body. These stress responses developed from the survival needs of early humans in the natural environment, and they have evolved over millions of years. However, they are not well-suited for modern society.
I would like to discuss how traders react to a market with volatile price fluctuations, using a popular US economic indicator, the non-farm payroll employment data. I won't delve into describing what the non-farm payroll data represents, as it has already gained significant attention among investors for various reasons, and its impact on the market has surpassed that of the US GDP. However, I am skeptical about its actual value. Perhaps the data itself is not very significant, but people's belief in the collective behavior resulting from seeing the data causes abnormal price fluctuations when it is released. This is what Lawrence Summers refers to as the stock price being a collective illusion.
To be frank, hardly anyone seriously studies the data's value when it is released. Most people rely on the market's reactions to the data. What I want to emphasize here is that when the data is released, have those who trade immediately thought about the meaning behind the data? I don't think so. They act on instinct, and their responses are based on an immediate emergency response. Their breathing rate and heart rate increase to ensure sufficient oxygen supply to support muscle movement. Their digestive system temporarily shuts down, and blood flow to the stomach decreases. The activity in the prefrontal cortex of the brain decreases, while the limbic system becomes extremely excited, causing emotions to arise. At this point, if you were to ask them about the basis of their trading decision, they would first find that their minds are blank, and then they would use the information they see to explain what they are doing, similar to telling a story to someone else. Their eyes will show a strange emptiness, which is a characteristic feature.
As a trading room manager, it's heart-wrenching to see traders staring at screens with vacant eyes, making you feel like you've entrusted your mult why people often feel good during this stage.i-million dollars trading accounts to primitive beings. In our trading room, there was a running joke that if you catch a trader eating after the non-farm payroll data is released, you can rest easy knowing that their digestive system hasn't shut down completely, indicating that their emotional state isn't too intense.
Regarding the second type of stress response we discussed earlier, which is the ongoing situational response, many people mistakenly believe that only medium to long-term traders experience this type of stress. However, research data tells us that even short-term traders can experience this type of stress response after continuous losses. Typically, short-term traders who have been losing for a week gradually develop negative/>/>/>/>/>