Sunday, May 22, 2016

The Surprising Reason We're Not In The Zone When We Trade

If you click on the graphical display above, you'll see the results of a very simple demonstration using heart rate variability biofeedback.  (I used the Heart Math Freeze Framer biofeedback system for the demonstration; the newer version is called em-Wave.) 
In the demonstration, I first attempted to enter and stay "in the zone" by regulating my breathing and sustaining focused concentration.  Notice the regular sine-wave rhythms in the top display.  The finger sensor to the biofeedback unit is picking up a high degree of "coherence" in the variability of my heart beats.  This coherence has been associated with greater emotional well being, improved cognitive performance, and enhanced access to intuition.  

The bottom left display shows that I am functioning "in the zone" during this period of coherence.  Over that period, almost all my scores fall into the green (high) coherence category (bottom right frame).  When hooked to the unit, you can see your rhythms, whether you're in the zone, and whether you're scoring in the green area.  All of these give you instantaneous feedback to let you know if your self-control efforts are succeeding.

Notice the change in my rhythms (top panel) about midway through the demonstration.  At that point, I began talking aloud about financial markets in a stream of consciousness fashion.  I was *not* talking about anything stressful, but notice that simply taking my mind off the self-control efforts was sufficient to get me out of the zone (bottom left panel) and put my readings in the red zone.

This is very important, because it suggests that it doesn't take frustrations and losing trades to nudge us out of our zones.  Our normal daily routines take us out of our optimal states of consciousness.  Once we begin talking, walking, watching screens, etc., we are no longer in that heightened state of focus and self-control that represents our performance zone.  

You can see that I was in the zone from the very beginning of the demonstration.  It takes me little time to get into the zone, because of years of practice.  Note, however, that even this practice was not sufficient to keep me from leaving the zone once I went into the talk-aloud mode.  Where the practice has helped is in returning to the zone once I find myself distracted, frustrated, etc.  That is useful, but it doesn't address the more basic problem:  our daily work routines are incompatible with our optimal performance zone.  

If this is the case, taking trading breaks and preceding work days with meditation are helpful, but the real challenge is sustaining the zone while we are making decisions in financial markets.  This would require a very different work routine: one in which we are minimally distracted, minimally active, and highly self-controlled in our breathing and focus.  Online chat?  Switching from screen to screen to see what is moving?  Little to none of what we usually do when we're trading keep us in a zone and indeed take us out of our ideal state.

Nor would writing in journals or talking with trading coaches help the situation.  Only a change in our trading process and training to sustain the zone in real time would enable us to make decisions from an optimal state.  This is truly a frontier of trading psychology.

Further Reading:  Heart Rate Variability and Self Control in Trading