An interesting study at CalTech looked at people's brain activity during a trading exercise. What researchers found is that the capacity to read the intentions of other people was key to understanding what was going on in markets. In other words, reading the market was not so unlike reading people. As I reviewed the study, I was reminded of a recent conversation I had with a skilled trader. He was using a program called Bookmap to identify buy and sell orders in the market, including a historical view of where buys and sells were placed at each point in the market day. This allowed him to see which orders were being continually placed and pulled in the market (fake buyers and sellers) and which ones represented genuine supply and demand at particular price levels. It was as if he were at a poker table reading the bluffing and bidding of the various participants.
The above study, interestingly, did not find any correlation between short-term skill in reading markets and skill at solving mathematical and logical problems. Recognizing patterns in order flow is a different cognitive skill from analyzing markets and finding longer-term opportunity. Another provocative finding from the study was that participants became better at reading order flow when it was displayed with graphics and not just presented as numbers on a ladder. How information is organized can help or hinder our processing of that information.
A variety of cognitive skills are important to the performance of athletes, including attention, visual processing, and memory. Tools are available to assist in the perceptual-cognitive training of these skills. Research is under way to identify the neurophysiological factors associated with peak performance and ways of training for those. Traders typically focus on patterns to trade and secondarily on keeping themselves calm and in a good mindframe. Might it be the case that wiring our brains for trading success is less about finding "setups" and patterns to trade and more about cultivating our degree of focus (concentration); our breadth of focus (flexibility of perception); our strength of focus (ability to sustain effortful information processing); and our depth of focus (ability to take in more information at one time)?
This is an area of tremendous promise. If we were trying out for a sports team, no doubt we'd work out in a gym. If we're trying out for trading success, perhaps a mind gym is what we need.
Further Reading:
Posts
