Hormones and Trading: Testosterone, Cortisol and How Your Risk-taking Shifts

When you trade you don’t only use your head. Your body reacts to profit, loss and uncertainty all the time: a faster heart, sweating, and hormones that rise and fall. Some studies on real trading floors found these hormones changing along with trading results and market volatility, and lab evidence suggests they can shift how much risk people take. This article covers what the research actually found, where its limits are, and how to turn it into trading rules.

This article is education to help you understand yourself while trading. It is not medical advice. If health, sleep, stress or anxiety problems affect your life, talk to a doctor or a mental health professional. Help lines exist; in Thailand you can call the Department of Mental Health hotline 1323.

How the body reacts to the market

Under pressure or uncertainty, the body reacts on two timescales.

• Fast, within seconds, the autonomic nervous system releases adrenaline. Your heart pounds, breathing gets quicker and you feel alert. This is what you feel when price runs towards your Stop loss.
• Slow, over minutes, the adrenal glands release cortisol, a hormone that helps the body cope with stress. It stays around longer, and if stress drags on for days, levels can stay raised.

The other hormone researchers look at is testosterone, linked to confidence and competition. Both men and women have it, at very different levels.

This system evolved to handle physical danger, like running away, not eight hours of watching charts. Problems start when it stays switched on for a long time.

The London trading floor study (Coates and Herbert, 2008)

John Coates and Joe Herbert published in PNAS in 2008. They took saliva samples from 17 male traders on a London trading floor twice a day, morning and afternoon, for 8 consecutive business days, and compared them with each trader’s actual profit and loss.

They found two things.

1. Morning testosterone was higher on days when a trader went on to make more than their own average.
2. Cortisol rose when a trader’s results were more variable and when the market was more volatile. It tracked uncertainty, not simply whether the trader was winning or losing.

The limits matter. Only 17 people, all men, one trading floor, just 8 days, and a correlation. It doesn’t show that hormones caused the profit. It could be that on days the market suits a trader’s style, they feel good from the morning for other reasons. The authors themselves presented it as an observation that needed further study.

Cortisol raised for days makes people risk-averse (Kandasamy et al., 2014)

To test cause and effect, Narayanan Kandasamy, Coates and colleagues published in PNAS in 2014. This experiment did not use traders. Volunteers took hydrocortisone to raise their cortisol, compared with a placebo, and then chose between gambles in financial tasks.

When cortisol was kept raised over several days, volunteers became more risk-averse. A one-off rise did not have that clear effect.

In trading terms, a run of volatile days may tilt you towards fear without you noticing. You skip signals your system says to take, or close trades earlier than planned, which is exactly the pattern in hesitating and skipping trades.

Limits: a small sample, a drug that doesn’t copy real stress in every way, and a lab game is not money in a real account.

Professionals’ hearts race too (Lo and Repin, 2002)

Andrew Lo and Dmitry Repin published in the Journal of Cognitive Neuroscience in 2002. They fitted sensors for skin conductance, pulse, breathing and skin temperature to just 10 professional traders while they traded live.

The traders’ bodies reacted clearly to market events such as bursts of volatility or reversals, even though they were professionals, and the less experienced traders tended to react more strongly. The sample is tiny, but the main point is simple: experience doesn’t make the body go quiet. It always responds.

The winner effect: a loop that may feed itself

In many animal species, an individual that has just won a fight shows higher testosterone and is more likely to win the next one. Researchers call this the winner effect. In his book The Hour Between Dog and Wolf (2012), Coates suggested a similar loop might run in markets: win, feel more confident, take more risk.

In humans and in markets this is still a hypothesis, not a proven fact. But the behaviour it describes is familiar to most traders. See also overconfidence after a winning streak.

Simulation: how much does creeping size after wins change drawdown?

The loop is dangerous because it is gradual. Nobody decides to go from 1% to 5% risk. It creeps up a little at a time. Let’s put numbers on it.

A made-up system wins 45% of trades, winners make +1.5R and losers cost −1R (R is the amount risked per trade). Expectancy = 0.45 × 1.5 − 0.55 × 1 = +0.125R per trade, so in this simulation the system has a real edge. The account starts at 100 and takes 200 trades.

• Fixed risks 1% of the account on every trade.
• Risk creep starts at 1%. Every time it completes a streak of 3 wins in a row, risk is multiplied by 1.2 (up 20%) and never cut back, like a trader who keeps feeling more sure.

Risk per trade in the creep version compounds: 1% → 1.2% → 1.44% → 1.73% → 2.07% … After 8 raises it is 1.2⁸ = 4.30%, after 9 it is 5.16%.

Look at the key point in the chart. The creep version climbs to 183.0, where it is risking about 4.30% per trade. One loss there costs about 183.0 × 4.30% = 7.87, while at 1% from the same balance it would cost only 1.83. The stretch that follows, with more losses than wins, takes the account from 183.0 down to 110.9, a fall of (183.0 − 110.9) ÷ 183.0 = 39.4%.

One path can be luck, so the simulation was repeated 10,000 times, 200 trades each. All numbers come from a made-up system, not a backtest of a real one, and they don’t predict future results.

Result over 10,000 runs	Fixed 1%	+20% risk after 3 wins
Worst drawdown, median	11.7%	41.9%
Worst drawdown, worst 10% of runs	18.6% or more	69.9% or more
Runs that fell more than 20%	7.0%	95.8%
Runs that fell more than 40%	none	54.3%
Runs that ended below the start	8.6%	22.6%
Final balance, median	126.4	150.8
Highest risk per trade, median	1%	7.43%

To be straight about it: with a system that has a real edge, risking more gives a higher median ending balance. The price is that more than half the runs go through a drawdown deeper than 40%, and runs that end at a loss rise from 8.6% to 22.6%. In real life most systems have a thinner edge than this one. Worse, a 40% drawdown is brutal emotionally. It is often the point where people abandon their system or start revenge trading, which this simulation doesn’t even count.

Feeling braver after wins doesn’t mean the system got better. The same system with bigger size just means bigger swings in your account.

Interoception: how well can you feel your own heart?

Interoception is the ability to sense what is going on inside your body, such as noticing your heart racing, your stomach tightening or shallow breathing.

Kandasamy and colleagues published in Scientific Reports in 2016. They asked traders on a London trading floor, and a comparison group, to count their own heartbeats without taking their pulse. The traders counted more accurately than the comparison group, and among the traders, the more accurate ones tended to be more profitable and to have lasted longer in the job.

The same limits apply: a small group, one floor, and a correlation. It does not prove that training heartbeat awareness makes you trade better. But it does suggest that body signals are information, not noise to ignore. Many people use mindfulness to practise noticing the body (see mindfulness for traders), although evidence that it improves heartbeat counting is not clear.

In practice: rules that don’t rely on mood

You can’t control your hormones, but you can control your rules. The idea is to move decisions to the moments when your body is calm.

1. Fixed risk per trade. Write down what percentage you risk per trade, for example 1%, and work out the lot size from the Stop loss on every trade, not from how you feel. See risking 1% per trade. Only change the percentage at a monthly review, never during the day.

2. A rule for after a big win. After a large profit or a winning streak, don’t raise your risk percentage that day. If you want to, write it down and decide at your review.

3. A rule for after a volatile week. If you notice you have skipped two signals that met your conditions, choose between trading the plan at full size or cutting risk by half as written in advance. Don’t skip at random based on mood.

4. A 60-second body check before you open the chart. Use it before a session and before clicking to open a trade.

1. Take your hand off the mouse, sit upright, feet on the floor.
2. Notice your heart. Is it slower or faster than usual? Don’t take your pulse, just notice.
3. Scan your shoulders, jaw and stomach. Are they tense?
4. Ask yourself two questions: “Did I sleep enough?” and “Right now, do I want to win it back or win more?”
5. Rate your tension from 0 to 10 and write it in your trading journal.

If the score is above your limit, say over 7, breathe slowly for a couple of minutes first (see breathing techniques for stress), then check again. If it’s still high, only manage orders already in place that day and don’t open new trades. After a few weeks of scores, you can see whether you follow your plan worse on high-score days.

5. Body basics. Too little sleep worsens both mood and decisions, especially for people trading at night in Thai time (UTC+7). See sleep, fatigue and night trading. Regular exercise has evidence behind it for mood and sleep in the general population. What kind suits you depends on your health; if you have a medical condition, ask a doctor first.

Common mistakes

• Thinking you’re immune. Lo and Repin found that even professionals’ bodies react. The question isn’t whether it happens, but whether you notice in time.
• Over-reading the research. These studies are small and mostly correlational. None says a certain hormone level means profit. Don’t use it as an excuse like “my hormones are good today, I can size up”.
• Raising the risk percentage with confidence. The simulation shows that 20% at a time sounds small but compounds into several times your starting risk.
• Skipping signals after a rough patch and calling it caution. If it isn’t in your rules, it’s fear making the call instead of your system. See trading biases.
• Forcing trades when your body says no. Short of sleep, ill, or stressed by something else, the market will still be there tomorrow. If trading stress keeps affecting your sleep or daily life, talk to a professional, or in Thailand call 1323.

Your body will always react to the market, and you can’t stop it. What you can do is design rules so your position size doesn’t depend on how your body feels that day, and a short check before clicking helps you see who is making the decision: your system or your mood.