BarroMetrics Views: Trading and The Emerging Science of The Brain
We live in exciting times. Neurology keeps bringing us new and wonderful insights on how the brain works. Yet traders seem to be giving the information little attention. This week, I’ll be writing a few pieces on some of the advancements and how we can take advantage of them.
Today I want to start to look at the importance of planning first thing in the morning. But to do that, I first need to look at the brain’s structure.
As most know, our brain functions on two levels:
- At the subconscious level which deals with most of the routine matters. They handle quickly, automatically and energy-efficiently
- At the conscious level which deals with making decisions and solving problems.
In your “Your Brain At Work“, David Rock, suggests that in dealing with these issues, the mind has five functions: understanding, deciding, recalling, memorizing and inhibiting. The first four are self-explanatory but the last may need a little explanation. The process of inhibiting allows us to exclude automatic, random thoughts when we want to focus. For example, we are on a profitable trade and a thought comes up about using the profits on a vacation. We naturally want to inhibit this thought and focus on what the market is telling us. Time enough to think about the holiday after we have exited the position.
The important point about the conscious activities is they are energy hungry - they use up vast quantities of energy - energy which if not replenished leaves precious little for the next decision. So if you are focusing on a long task, look to renew not only by taking a break but also by refilling your glucose levels with a glucose drink.
The energy sapping characteristic is also why I recommend that we prepare for our trades first thing in morning. I suggest to my students that they use the meditation-visualization trade preparation first thing in the morning because it is the time when we are freshest. There is another reason; in understanding this reason, you will understand why I say that the recommended preparation is best for newbies and for experienced traders when they are in drawdown mode (i.e. in an Ebb state).
Each has a somewhat different reason for wanting to make use of the ‘early morning energy supplies’.
For newbies, it works best then because the brain finds it difficult to picture something it has not experienced. Daniel Gilbert in “Stumbling on Happiness” calls it affective forecasting: the difficulty in forecasting how we will feel and act in the future. As a result, to visualize executing our trade requires tons of energy - something most of us have more early in the day rather than later.
As for experienced traders in a sustained drawdown mode: if you are anything like me, you would probably feel that the corner will never turn. And, as a result, maintaining discipline is difficult. I am tempted to over-trade or skip the analysis (why waste time I could use elsewhere? It’s costing me money whatever I do!). Sitting still and taking stock is in the circumstances, energy-sapping.
So in both those situations, early preparation is best.
How we can save energy and how we use energy effectively, we’ll deal with in later blogs this week.
Refer this blog post to a friend or colleague…
