Brain Based Trading, Part 2

The thinking that guides your trading is much more important than how much intelligence you have. You have probably heard that the first thing a trained economist, financial analyst or finance major must do to become good at trading is to forget everything they have learned to date! What we’re working on here is much less fundamental and technical analysis, and much more self-analysis.

We get confused in trading by thinking we need more knowledge and better technical analysis to be successful in trading. When Albert Einstein was asked how many feet there were in a mile, his reply was a great lesson for us all. “I don’t know. Why should I fill my brain with facts that I can find in two minutes in any standard reference book?”  Today he would say Why fill your mind with a data warehouse of statistics when it is readily available online in seconds.

Instead clear your stage, that is your prefrontal cortex, for thinking accurately. You can clean your stage of too many actors by activating other areas of your brain. The actors are yesterday’s trading results, fed speak, other traders opinions, headlines from Bloomberg etc.  

When nerve cells fire off in specific regions of the brain, blood flows there to provide oxygen for the energy required. When this happens, the PFC has time to clear the stage of excess actors, leaving you and your director in charge of making very accurate trading decisions.

Neuroscientists have gradually mapped out a good functional map of brain anatomy. While nearly all brain functions interact either directly or indirectly, certain functions become predominantly controlled by specific areas of the brain. Here are a few suggestions for getting your PFC ready for focused trading decisions, free from the distractions of fear, hope and greed.

MUSIC– Music stimulates and increases blood flow to your temporal lobes and thereby reduces PFC stimulation. Listening and singing along completely clears the deck. Rock out for a few minutes!

EXERCISE– Muscle control is induced by your motor cortex primarily.  A few intense minutes of exercise completely clears your PFC for accurate thinking. The type of exercise chosen is really your preference but think of one fast sprint to your capacity after a warm-up. The only thing your mind will focus on is your next breath until the oxygen debt is repaid.

BREATHING– Repetitive deep breathing until the only thing you are thinking about is getting another deep inhalation and exhalation. Focus on expanding your midsection on the inhalation and flattening the midsection with exhalation. Meditation accomplishes the same thing, but this method does it faster. The respiratory centers are in your brain stem region.

My premise is that understanding your brain and how it works increases your effectiveness at trading. Knowing how  your brain works and being aware of your emotions, your body’s physiological responses to greed and fear, and recognizing when your PFC stage needs cleared is a sign you are under control by your own director, not some random actors that just showed up without an invitation.

Enuf said.