Fear(less) log Nr 5 - Testosterone, etc

Testosterone, Cortisol and Glucose (March 3, 2023)

Hi Everyone

Round number 5 of the fearless log. A bit of a delay as I spent some time away from the desk on a family trip to Canada and NYC. 

This week is kind of a follow-up to the previous Fear(less) log Nr4 as we are again looking at a study of professional traders. However, this time we look at real-time chemical reactions 🧪 that happen within the body during trading, how they affect them (us), and what we can do to be top-shape every time we click that buy/sell button.

And what would start this topic off better than my long-term favorite book, “The hour between Dog and Wolf” by John Coates (he gives us a quick summary in the video posted below 👇). By the way, the title describes the transformation of light in the morning when you look towards a forest, and you see an animal, but you can't tell yet if it's a dog or a wolf…clever isn't it.

The main message of the book is that body and brain work together. They exchange information all the time, and ultimately they work together when we make decisions. Well, that's obvious isn't it, yes, but there is still a widespread belief that says our brain can operate independently…well it can't. Brain and body didn't evolve like this, as independent units. 

So every time you feel something in your body (often referred to as your guts), it gets communicated to the brain, and every time you think about something consciously in your brain, it gets communicated to your body. 

Think about that for a moment next time you put on a trade. I find it fascinating! 🤓

Now to the fun part

Chemistry 101

Trading is exhausting.

Trading often gets compared to physical exercise such as golf or tennis because of its relentless trial and error process to become good at it. However, there is another quite interesting similarity:

Did you know that during mental as well as physical activities, our glucose reserves become depleted, and this reduces our capacity for self-control? According to JC, the allocation of energetic resources during emergencies (or in our case: fear in trading) follows a 'last in, first out' rule, essentially meaning that mental abilities such as self-control are the first to be rationed when fuel is low. 

In essence, when we are under stress during trading, we burn glucose for fuel, lowering our blood sugar, which might be excellent for our fitness level, but it also means that self-control and discipline go out the window.

We are more prone to not following our rules, taking profits early, letting losses run, etc., etc…we are all too aware of the many trading mistakes that exist.

Solution? 

A balanced diet, a certain fitness level in general (think about the long hours in front of screens, and the ability to react quickly), and maybe (just maybe) a small dose of sweets just before a trade to push up that glucose reserves. 

Now, let's spend one minute on Testosterone. 

There is something called the winner effect. When you are experiencing a few wins in a row, your testosterone levels get elevated, and your blood pumps more oxygen to your brain, raising an already elevated testosterone level. This is when the top-of-the-world feeling comes and your awareness overall becomes sharper and sharper. It's also the reason for increasing the chances that you will win again – a positive feedback loop. 

It's also when you should be most aware of what you are experiencing, since elevated testosterone also leads to more risk-taking. Many times followed by a hard reality check and big losses. Awareness is the key here.

Fun fact. Stock markets tend to outperform on sunny days and underperform between the autumn equinox and winter solstice. JC argues that PERHAPS this too can be traced back to testosterone levels, as they increase with sunshine and decline during autumn and winter months.

Cortisol. Now, this is where things get really interesting. 

Cortisol is the big gun 🔫 of the stress response. It is brought into action if a crisis lasts longer than fight-or-flight.  It can take effect over the course of minutes to hours, even days. Tests found that cortisol levels rise substantially with the volatility of the market, which brings along our good old friend – fear.

The message of cortisol, that the fight-or-flight is taking longer than expected, makes our body shut down long-term functions and marshal all available resources, mostly glucose (again) for immediate use. Cortisol leads to high blood pressure, and an accelerated heart rate (hello Traderistic). Energy is diverted away from digestion and from reproduction (yes that's right – sperm production canceled today), from growth, and from the energy storage itself (for example muscles). 

If the crisis would end in injury (which luckily in trading rarely happens), cortisol stands by as a powerful anti-inflammatory, in fact, one of the most effective known to medicine. 

Elevated cortisol levels disturb a trader's thinking process in that the trader increasingly recalls the events that were stored under its influence, and those are mostly disturbing memories. That's when an irrational risk aversion and price sensitivity occur. As JC states: Cortisol is the molecule of irrational pessimism. 

One final paragraph on Cortisol from JC's book:
“Cortisol is crucial in supplying us with energy, but it is in many ways too powerful. By breaking down muscles and converting them into immediately usable forms of energy, cortisol in effect strip-mines our body for nutrients. If it is not turned off quickly, our body begins to disintegrate under its caustic influence. A regular ebb and flow of catabolic hormones (such as cortisol) promote health, but a continual flow kills”.

Wow! 😯 

So when we put on a trade in a fearful state, cortisol levels rise ⬆️, glucose gets burned 🔥, and all kinds of other energy storage gets tapped, which is ok, but that situation should last seconds, maybe minutes before returning to a normal state. Longer than that – we got a bigger problem which will affect your trading in one negative way or another.

What can we do to prevent chronically raised cortisol levels?
1) Work on your mental toughness:
Welcome market volatility as a challenge (see opportunities) rather than threads (minefields).
Have a trading plan, think in probabilities, become aware of your body reactions (use the Traderistic app), and do all other things to silence fear in trading (we have gone through them already many times).

2) Work on your physical toughness:
A well-designed regime of physical exercise can be a boot camp for the brain. Have a plan and make following it as easy as possible. JC also mentions exposure to cold weather, even to cold water (the morning cold shower or if you really want to push yourself – ice baths!)

Video 👇Here is Dr John Coates giving a brief 8min summary of his book

Final Word

Two final thoughts

Many times, emotional feedback happens after a physical reaction (the body speaks to the brain rather than the other way round – think about avoiding a car coming up the street without really noticing it). 

This raises the question if movie actors, who use all this Botox to anesthetize their facial muscles, are dampening their emotional and indeed their cognitive reactions. They might be killing their very talent.

Secondly, when fear hits us all of a sudden, unexpectedly, our bodies assume we need a quick sprint to safety (fight-or-flight again), and accordingly remove excess weight. One way to do so is by forcefully expelling urine from the bladder. As losses mount on trading floors, one can observe anxious traders marching to the toilets.

I leave you with that beautiful picture in your head.