Here's a nice checklist that covers some of the signs of trauma that I've seen among traders. No, that trauma is rarely at the level that one would see in the full-blown post-traumatic responses of war veterans. Rather, it's more subtle, as in overreacting to small drawdowns after having taken large losses, finding one's mood rising and falling with P/L, and impaired risk-taking.
Oversizing one's positions and portfolio creates drama and drama can lead to trauma. If your trading is truly planned, with maximum losses anticipated and wholly acceptable, there should be little drama in your trading. Yes, drawdowns will be disappointing and annoying, but they will not throw you emotionally. They will not impair your next round of trades.
If you have experienced a drawdown and are finding it emotionally difficult to come back, you know that your psychological risk-taking has been excessive. Ideally, you want to be learning from your losses, not reeling from them. Risk management keeps you in the game financially, but also psychologically.
As I mentioned in the last post, Naomi (above) came to us as a traumatized kitten. She could not tolerate being near people. I can only guess what had happened in her past. Now she is a sultry beauty who sits next to me on the kitchen island while I respond to mail and research markets. How did she make that transition? The next post will look at ways of overcoming traumatic responses--in markets, and in other areas of life.
Further reading: Finding Opportunity in Adversity
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