By: Chris Irvin, Veteran Instructor & Trader at The Wizard
The answer may be yes. How do I know? My wife told me… that’s how. Actually there is some scientific evidence that may back up this idea. Now keep in mind that I am about to explain something that is way above my pay grade, but I will do my best. The brain, in both men and women, is divided up in hemispheres typically known as the left brain and the right brain. The left brain is the side responsible for logical, sequential and rational thought. The right brain deals with random, intuitive and creative processes. There is no difference between the sexes in this regard. The difference between men and women comes in the link between the two sides. It is called the Corpus Collosum. The Corpus Collosum is a thick band of nerves that connects the left and right brain. According to a number of studies, including one by L.S. Allen, MF Richey, YM Chai and RA Gorski, which was published in the December 14th 2011 issue of the Journal of Neurosciences, there are differences in this connection between the sexes. The study was called “Sex differences in the corpus callosum of the living human being.” The researchers concluded this:
…subjective evaluation indicated that the posterior region of the corpus callosum, the splenium, was more bulbous shaped in females as a group and in women, and more tubular-shaped in males as a group and in men; mathematical evaluation confirmed this observation in that the maximum width of the splenium was significantly greater in women than in men…
If you glazed over for just a second, come back, there will be no more scholarly information. What does this mean? Well, if you consider that the corpus collosum acts as a bridge between logical and emotional thinking, research concludes that the bridge is a very narrow road for men and a six lane super highway for women. What does this have to do with trading you may be asking? Here we go…
I believe that every trade begins in the left (logical) side of the brain. We develop criteria and scan for stocks that meet that criteria. This would all be on the logical side of the brain. After we find a suitable candidate, we place the trade. Why do we make the trade? Because we are confident, based on our logical criteria, that this position will move in our favor and make us a wheelbarrow full of cash. Traders don’t make trades unless they are confident they are going to be right – right? Upon placing the trade every trader runs, with their hypothetical empty wheelbarrow, across the bridge (corpus collosum) to the right (emotional) side of the brain to get a better view of the trade. From the emotional side of our brains we hope like heck this trade works out. Here is where things get a little dicey for the male chauvinists. Because the bridge between logical and emotional is very narrow for a guy who is trading, it is sometimes hard run back to the logical side to continue evaluating the trade on the original criteria. Instead, the guy stands on the emotional side hoping that his trade works out even if it is falling apart before his eyes. He might hear himself say things like “It will come back! It’s only down 80%.” This is called Ego. In my opinion, the male ego is a result of the corpus collosum being a one way street in a dude’s brain. See ladies, it is not our fault when we have big egos – we can’t help it.
How does a broad corpus collosum benefit the female trader? Women have the ability to freely travel from the logical side of their brains to the emotional side. (By the way, this is the same reason that men think women are crazy sometimes.) From a trading perspective, female traders can use logical criteria to evaluate trading candidates, just like male traders. They place the trade based on that logical criteria, just like their male counterparts. They run across the bridge with the same wheelbarrow to watch the trade from the emotional side just like male traders. The difference is this – if the trade begins to “feel” like it is not working out, the ladies have the ability to run back to the logical side to view the original criteria again and determine if they should stay in or get out. Unfortunately, given the same situation, the male trader would just sit in his wheelbarrow watching the trade fall apart. Again ladies, you should actually feel sorry for the guys – we can’t help ourselves.
Gentlemen, here the good news…there is hope! Our hope lies in the form of a stop loss. I know, I know, we all know that a stop loss is designed to take you out of a trade automatically if it goes against you. But many traders think that stop losses are a sign of weakness (the guys might grunt in unison at this point.). There are some guys, although they would never say this out loud, think that placing a stop loss on a trade contradicts why they got in the trade in the first place. “If I am willing to place my hard earned cash into this trade, it is because I KNOW that it will work out.” “If I place a stop loss, I am admitting that I could be WRONG.” Ladies, this type of struggle can make a guy’s head explode! The man’s ego steps in at this point and says – “You know the trade is going to work out, otherwise you would not have made it – right?” “If that is the case, you don’t need a stop loss…do you?” “Of course not,” says the man sitting in his wheelbarrow.
Gentlemen, here is what we have to start doing. We have to see the single act of placing a trade as both pressing the trade button and placing the stop loss. Consider that you have not totally finished the act of entering a trade until you have put in an auto exit, knowing you may not make it back to the logical side of the trade once it has been placed. At The Wizard , where I am a senior instructor, not only does the software projects a potential entry price, but it also gives the trader a specific price point where the stop loss should be place. This is an unbelievably important feature.
(CAH, CAR, and DUK are not recommendations. They are being used to demonstrate the stop loss feature in The Wizard.)
So guys, use the logical side of your brain to find a stop loss position, and put it in place before pushing your wheelbarrow across the bridge. Trading is much less stressful when our egos are taken out of the equation. Whether you use a scanning tool like The Wizard, or you’re trading on your own criteria, you will become a more successful trader if you keep your losses small, and let your winners run. Using stop losses will help to keep the losses small.