In this post, we explore an area of trading psychology that is underappreciated: cognitive performance. Research that I've conducted at multiple trading firms finds that our cognitive strengths--what we do best in processing information--are every bit as important to trading success as our personality strengths. For example, one of the consistent qualities we see among very successful traders is intellectual curiosity. Rarely, however, do we see traders actively working on growing the breadth and depth of their interests.
There is much more to trading psychology than "mindset".
Especially important to our cognitive functioning is focus: the degree to which we can intensify our concentration, processing individual things in great depth and also processing a wide range of things. One of my first observations when I began my trading career was that I could often identify the best traders by observing their screens. The best traders had more screens open with a broader range of information. They had the unique ability to scan and quickly identify what was important and then focus their attention on those areas of opportunity. This meant that they exhibited quick information processing as well as deep information processing. During trading, they were laser focused on what was in front of them. In the state of high focus, they simply saw more than other people and were more prepared to act on what they saw.
I see this among the best traders I currently work with. By having only the most important information on their screens and focusing intensively on the most relevant news, markets, and price action, they minimize distractions. This concentration enables them to quickly turn to what is important and act on what they see. If you watch chess champions during matches, you can appreciate that intensity of focus. They are not simply focused on winning; they are focused on making the right moves. They exhibit the flow state, in which they are totally absorbed in their performance.
The capacity for focus is something we can develop. Many traders make the mistake of performing "meditation" exercises--sitting still and quieting their minds--in hopes of improving their trading. Quieting the mind is necessary for focus, but not sufficient. We also need to train ourselves to intensify our concentration and hold that concentration for longer and longer times. Attention is a kind of "muscle" that can grow with exercise. A number of apps, such as Brain HQ, can be useful in expanding our capacity for focus. Meditative exercises that require us to sustain attention for longer and longer times are also useful, particularly when they challenge us to maintain our focus while switching the objects of our concentration.
Yes, it's helpful to maintain our best mindset, but if we don't process information as broadly, deeply, and quickly as possible, we're going to miss opportunities and overreact to limited information. What I learned early in my work with traders is that successful traders succeed in part because they see more and better than others.
Cognitive strengths matter.
Further Reading:
Creativity in Analyzing Market Information
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