Friday, March 10, 2017

Exercising Our Brains for Trading Success

I'm increasingly convinced that cognitive factors, and not just personality ones, differentiate the best traders from the rest.  It's not surprising that my recent post on a cognitive view of trading psychology has been the most widely read TraderFeed post in many months.  Trading psychology has long focused on emotions as the most important focus in trading performance.  The cognitive view says that it is how we process information that enables us to see patterns, understand relationships, and quickly act upon them.  Personality and emotional factors can certainly impact our information processing, but all the self-help techniques in the world won't help us if we're not wired for the kinds of trading we undertake.

Can we train the brain for trading success?  In other words, is it possible to systematically exercise and build those functions that enable us to perceive signals in noisy environments?

I believe the answer is yes, and I will go one step further by proposing that an important element that differentiates successful traders from less successful ones is the quality of their screen time when they are following markets.  The successful traders actively exercise the cognitive functions relevant to their trading while they are preparing for the day, while they are tracking markets, and while they are trading.  Their routines act as a kind of mind gym, building such functions as the capacity for focus, speed of pattern recognition, and the ability to translate perception into action.  The successful trader's daily routine is an excellent cognitive workout.

The less successful trader might look at the very same markets and patterns, but gets a shitty workout.  Their focus is often divided among online chatting, watching markets, taking breaks, speaking with traders, and reviewing their P/L.  They never engage in any single cognitive activity for long enough--or with enough intensity--to get a proper workout.  As a result, the less successful trader does not develop cognitively in the way that the successful trader does.  The successful trader becomes a better information processor simply because they are spending more time--and especially more quality time--in the activities that build perception, concentration, and decision-making.

I'm currently evaluating a brain exercise system called brainHQ, which has been supported by a range of published research.  That research suggests that regular exercise of brain functions can improve our processing speed, memory, attention span, and more.  I find it quite possible that programs for training traders will increasingly turn to brain fitness tools as a way of helping developing traders become more cognitively fit for trading.  How many aspiring athletes would star on the field if they never utilized tools to develop their strength and aerobic conditioning?  How many traders can we expect to find success if they're not actively exercising their brains for the right kind of decision-making?

Further Reading:  Training Our Brains For Trading Success