Thursday, August 28, 2008

Implicit Learning, Single-Trial Learning, and Trading Performance

In my last post, I suggested that much of trading performance hinges on implicit learning and that psychological factors impair performance to the degree that they interfere with access to what we know (but don't necessarily know that we know). A wealth of research has demonstrated that people can learn artificial grammars without being able to verbalize the rules underlying those grammars. Interestingly, patients with total amnesia still retain the ability to perform routine tasks, such as tying shoes. In such cases, people exhibit learning that is not explicit. The hallmark of such learning is that it has not be acquired through the usual means of study, but rather by frequent repetition.

Another line of learning research pertains to single-trial learning. In some cases, repetition does not seem to be needed for learning. Rather, a single exposure can generate lasting learning. This goes against the notion that significant study is required for explicit learning and that significant repetition of patterns is needed for implicit learning. It is significant that typical examples of single-trial learning involve novelty: the more something stands out in our experience, the more likely we are to process it in a lasting way. A good example of this is taste-aversion. I'm in Singapore now, where the durian is a renowned fruit. It has an extremely powerful odor, which some find appealing and others find offensive. A single exposure to the durian for those who find it overpowering will result in a permanent impression: it is unlikely to be forgotten!

Conditioned fears can be similar examples of single-trial learning. We see this most powerfully in post-traumatic stress disorder: a single, highly stressful event can produce lifelong patterns of avoidance, anxiety, and withdrawal. After the trauma of rape, for example, a woman learns completely different associations to men, altering her behavior.

Novelty and the emotional conditioning power of experiences are not all-or-none variables. Some events are more novel or more emotionally impactful than others. These are the ones most likely to stick in memory. Research into the process of psychotherapy finds that the items recalled from sessions--and that affect clients most--are those that are novel and emotionally laden. This is not necessarily single-trial learning, but it *is* accelerated learning.

One factor that seems to separate successful therapists from less successful ones, for example, is their ability to generate novel, emotionally-impactful experiences for their clients. One client is afraid of change and talks about it with others in group therapy; another client has the same fear and is suddenly asked to change by leading the group. Navigating this experience successful shows the person that change need not be threatening. This is much more likely to be internalized than a simple verbal message that says, "Change need not be threatening."

Where traders often fail in their development is that their most novel and emotionally powerful events tend to be negative ones, particularly ones of losing money. This may not generate single-trial learning, but repeated with even modest frequency may generate a kind of implicit learning in which certain kinds of market participation are linked to particular negative outcomes. Like all implicit learning, this is unlikely to be consciously verbalized. Rather, it is evident in the moods and behaviors that suddenly change under particular market conditions.

It makes sense to many people that pattern recognition can be the result of implicit learning, particularly among high-frequency traders. What may not be so clear is that the problems that beset traders may also be the result of an implicit process in which what is learned is accelerated and cemented by high degrees of novelty and emotional impact. If that is the case, explicit discussion with coaches or therapists may not be the most effective way to deal with these problems. Rather, purposeful positive learning under heightened conditions of novelty and emotionality may be most effective. That could help to explain why classical conditioning therapies, such as the exposure methods that I wrote about in Enhancing Trader Performance and that will be a part of my new book, are particularly effective for such problems as traumatic stress and performance anxieties.

If we can learn to structure and accelerate our learning to maximize the depth and speed of knowledge and skill acquisition, this has powerful implications for improving trading performance and dealing with the psychological forces that impede performance.


Charles said...

Good post Doc. You ended with "if we could learn to structure our learning...". Perhaps you have posted on that idea in the past(if so, please point us in the right direction), but I'm wondering, what are some ways we can go about this? And is it an individualized pursuit, as in each person has their own optimal learning method? Great thanks for your unique perspective on this "vexing" subject of trading. -CU

Jones said...

Hi Dr. Brett,

may you can drop a few lines some time about speed reading.
What technique do you favor regarding your knowledge of the brain?
So there might be the possibility to keep track with your writing speed ;-))

Thank you!

Max Dama said...


Cool. Thanks for your time.


Aman Mehari said...

Great posts. I enjoyed them.

"Where traders often fail in their development is that their most novel and emotionally powerful events tend to be negative ones, particularly ones of losing money. …it is evident in the moods and behaviors that suddenly change under particular market conditions."

I assume this developing trader feels that particular market conditions affect his moods and behavior negatively rather than the lack of appropriate risk and volatility controls. If that’s the case he’s most likely blaming the wrong thing and will remain afraid. Often times I find our good intuitions remain buried because of the fear of loss. In order to perceive clearly the markets true intention he may have to learn to manage his behavior and mood swings through risk and volatility controls first. Then the mistress might consider revealing her secrets.

Now, all of this doesn't mean one doesn't get emotional trading. It just means you know what to do when the emotions come because you have planned for them explicitly. Handicapping yourself is more important than handicapping the markets. That’s the only way I know to trade sanely.

Scott G said...


You’ve previously mentioned that using a screen recording program to record trading activities is useful.

I’ve recently enacted a video regime and the results have been mind blowing.

It’s extremely novel to listen to yourself analyze a trade while under emotional duress. How novel to hear your own voice crack under pressure and hear the heavy breathing into the microphone! The sheer novelty of such an experience has provided unique learning.

It’s also very impactful to verbalize my reasoning’s behind the trade and what metrics aligned to initiate entry –- and then view and listen to the recording. I’m finding that this practice helps me to limit impulsive trades because I know that I’ll have to be accountable for the trade during a recording.

I also do an end of day recap of my trading efforts and identification of the metrics underlying market movement. This truly puts me in the role of being my own coach. I step back and clearly analyze my trading. Something about creating a video presentation for yourself kicks up the impact of the learning trial.

And the kicker is that I use CamStudio which is a free program that works extremely well. No need to drop $300 to become your own video coach!

The new Intel Quad core CPU’s can handle 4 screens of tradestation, two screens of market delta and camstudio with ease – and I’ve got one of the lower MHz quad’s that was only $240 bucks. 4GB of 1000 MHz memory is only $100 bucks now to boot. It’s never been cheaper to have a kick ass computer that does not buckle.

You are the best Brett!

Nathanael said...


These last two are perhaps my favorite material on your site after having followed it for a number of years. Congratulations on finding ways to raise the bar after doing it for years.

GS751 said...

I look forward to your new book. Another great post. I have to ask you, do you trade for yourself?