Saturday, December 27, 2008

Implicit Learning, Self Regulation, and Biofeedback: Training for Trading Performance

The first post in this series took a look at implicit learning as a key element in trading performance. If trading decisions rest upon implicit (subconscious) pattern recognition, the implications for the development of trading expertise are significant:

1) Success is not just a function of finding the right data and indicators to follow, but also the ability to internalize these over time;

2) The majority of traders may fail simply because they lack sufficient consistent exposure to markets to facilitate an internalization of patterns of supply and demand;

3) Efforts at trading education that emphasize explicit learning (seminar/workshop teaching, written articles/books) cannot, by themselves, ensure trading success;

4) Most training programs for traders are not structured in a way that is designed to maximize implicit learning, as exposure to trading patterns is too brief and unstructured;

5) The most important psychological challenge in trading may be the ability to maintain a steady state in which traders have continuous access to their implicit knowledge base.

One role for biofeedback is training for maintaining this steady state. I've used heart rate variability feedback as one technique for sustaining "the zone". Heart rate variability has been described as an index of emotional regulation; it also appears to play a role in regulating responses to physical pain.

Talk counseling is limited in its ability to help traders achieve cognitive and emotional self-regulation in the face of risk and uncertainty. Biofeedback, utilized in real time in the context of making trading decisions, offers objective measurement of a trader's ability to perform in the zone and--most important--can aid in building the capacity to sustain self-regulation.

The premise of biofeedback is that, if you can regulate mind and body in real time, you are better able to guide and control the decisions you make, even in stressful circumstances. In this context, discipline begins with very basic elements of self control: control of breathing, focusing of concentration, and physical control.

Perhaps just as important, the ability to sustain the self-regulating zone is also likely to facilitate implicit learning itself. Freed of distractions, we're more likely to internalize trading patterns effectively and efficiently. Much of the effective training of traders may consist of training in self regulation, particularly under the challenging conditions of decision making under conditions of heightened risk, reward, and uncertainty.
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3 comments:

JM said...

Hi Dr. Brett,

Just wondering whether you used the ear or the finger measurement device ?

Thanks.

Brett Steenbarger, Ph.D. said...

Hi JM,

I've only used the finger device--

Brett

Mike said...

Dr. Steenbarger,

I just finished Justin Mamis' The Nature of Risk, and his key point on being able to know what was knowable about the market was in listening to what the market action was saying. He states this is crucial to letting our intuition work to tell us what we know without "knowing" so as to reduce our risks when taking/exiting positions.

It would appear that in the way that many of us talk too much and listen too little, we take the same approach with the market. I am trying to improve my listening in both arenas.

Your post added a vital piece to my understanding of how to make my intuition work better for me.

Thank you for taking the time to give us your knowledge daily.

Linkster