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TRADING PSYCHOLOGY

Psychological Trauma Through Financial Loss

Psychological Trauma, Through, Financial Loss, Trading Psychology, fx trader, forex, stressed money

Financial investment is an inviting prospect to many but can be risky. Investors can stand to lose more than just money if things don’t go according to expectations. This article looks at the cost to the investor in terms of their mental wellbeing, and the psychological trauma incurred when investment goes wrong. It also offers a solution for those affected by such a trauma, in Spectrum Therapy.

Reasons why individuals invest:

• the excitement, buzz and adrenaline release

• the competitive element, feeling of achievement, positive high emotions

• the thrill of risk taking or investing large sums of money

• to solve financial problems

• to gain financial prosperity

• potential escape from stress and worry

• to provide for their family

• to increase company profits

• pensions

Sadly, investors might end up losing a lot of money when they try to invest in stocks or other asset classes. There are many reasons for this, but one of those comes from the inability of individual investors to manage risk. ‘Risk’ and ‘reward’ are terms often used in financial vernacular, but what do they mean? Investing your or a company’s money in the investment markets carries a high degree of risk. If you’re going to take the risk, the amount of money you stand to gain (the reward) needs to be substantial or have some sort of impact. If a friend, colleague, partner or acquaintance asks for a $3,000 loan and offers to pay you $1,500 over a two-week period, it might not be worth the risk. But what if they offered to pay you $4,000? The risk of losing $1,000 for the chance to make $2,000 might be appealing. It’s a calculated risk; numbers don’t lie. Each investor has their own tolerance for risk, although a little bit of gut feeling finds its way into most investment decisions.

How Psychological Trauma Affects the Brain

Psychological trauma impacts the brain area of the amygdala and the hippocampus (involved in memory and memory consolidation). If trauma occurs repeatedly or over a prolonged period or you have a severe traumatic experience, too much cortisol (a hormone released during times of stress) is released, subsequently activating the amygdala and causing even more cortisol (neurotransmitter dopamine) to be released.

It is a self-perpetuating cycle which leads to a “fight or flight” response. Depending on the severity of the trauma, the hippocampus shrinks in volume resulting in post-traumatic stress.

The amygdala combines many different sensory inputs—it is the integrative centre for emotions, emotional behaviour and motivation. Like the hippocampus it combines external and internal stimuli. Every sensory modality has input. These are integrated with somatosensory and visceral inputs. This is where you get your “gut reaction”—those subjective feelings we have about what is good or bad. The link between prefrontal cortex, septal area, hypothalamus and amygdala likely gives us our gut feelings.

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