In the dynamic world of trading, profit is often attributed to a combination of skill, strategy, and a deep understanding of the market. However, an often-overlooked aspect of trading prowess lies within the intricate workings of our own neurology. As promised, I begin today to delve into the fascinating realm of the brain’s lobes, with a spotlight today on the Frontal lobes’ prefrontal cortex (PFC), often referred to as the “Master Control Center” or the brain’s executive center.
Imagine the PFC as a stage hosting a crucial performance. Just like a traditional stage, the PFC has a limited capacity for actors – a mere three or four at a time according to contemporary research. The PFC manages decision-making (to buy or not to buy?), planning(is this bullish or ready to roll south), impulse control(should I get out now?), and emotional regulation (revenge trades). Just like a stage crowded with too many performers, when we exceed the PFC’s capacity, the functions it oversees begin to deteriorate.
That’s why you should limit your trading indicators to no more than 3-4. Once you clutter your screen with more than that you eventually start to miss critical data. You forget what type of market the indicator is best used for. You forget how the indicators data is tabulated. Knowing 3 indicators very well is pretty much all a trader needs to know. By now you know the trading holy grail is not in the indicator anyhow, right? If you want to lose money, keep hunting for the perfect indicator.
The PFC is a powerhouse, but it’s also remarkably energy dependent, and tires quickly. To achieve optimal functionality, it requires a well-rested and energized state without distraction. Picture the PFC as a high-performance engine – it operates most efficiently when there’s a reserve of energy stored up for critical moments. When you really need to be on your game with complete focus, you can best use your PFC by sandwiching this critical time between some non-thinking tasks, like listening to music, playing a video game, exercising, gardening etc. Anything that just doesn’t take too much brain focus, like a mindless endless scroll of social media sites.
One good example is driving a car. Actual tests confirm that the PFC is relaxed while driving, unless you are new to driving, you are in robot mode. But if you are driving and thinking about the roof you need to fix when you get home, solving your kids problems or planning your next business, your PFC is getting its full dose of actors.
One key concept to understand is that the PFC is not designed for multitasking. Contrary to popular belief, the brain does not excel at juggling multiple tasks simultaneously. Try adding 7 + 5, and at the same time subtracting 7 – 5. It’s one thing at a time in the PFC. In fact, attempting to do so can lead to a decline in the PFC’s effectiveness. Think of it like trying to watch a sports game on one screen while executing trades on another – a recipe for disaster in the world of trading. You haven’t done that , have you?
To reduce the actors on your stage, use checklists like an airline pilot for trade entries and exits. There is no need to juggle all the details in your PFC when a simple checklist will do just fine and free up the energy your PFC needs to make the right decision for trading. I have checklists for nearly every trading related task. I just quickly scan the list, making sure I didn’t miss anything, and let my PFC have all the energy it needs to make the best trade decision. Treat your brain like the master conductor of a symphony, ensuring it has the necessary resources to lead a harmonious performance.
The term “executive center” is fitting for the PFC because it plays a pivotal role in orchestrating complex thinking processes. Successful trading demands laser-focused attention, strategic decision-making, and emotional resilience – all of which are under the purview of the PFC. To tap into your inner trader, it’s crucial to recognize and respect the limitations of this executive center.
Furthermore, avoid the allure of multitasking, especially when it comes to trading. Instead, adopt a focused and deliberate approach to decision-making. Allocate your attention wisely, giving your PFC the space it needs to excel in its role as the master control center.
In conclusion, becoming a better trader involves more than just market knowledge and strategy. Nearly every trader can get good at both of them. It requires a profound understanding of your own neurology, particularly the prefrontal cortex. By acknowledging the limited capacity of the PFC, optimizing its energy resources, and avoiding the pitfalls of multitasking, you can unlock your inner trader and set the stage for success in the intricate world of trading.
In the weeks ahead I will explore all aspects of your brain and neurology and tie them all together so you can have a clear understanding of how to improve your overall trading using your supercomputer brain like no one else can.
Enuf said.