HOW THE BRAIN WORKS TRADER? NEUROBIOLOGY SPECULATOR
How to become consistently successful in trading? To answer this question, we must first understand what makes a failure is millions of traders that make you lose money? What prevents them to properly analyze the market and place orders? Why do they succumb to fear, excitement and depart from the rules of the trading strategy and money management?
In this article you will learn how to explain these processes the science of the human brain — the neuroscience that is happening on a subconscious level and who intercepts control our behavior.
THE MIND OF A TRADER?
So, let's begin. The first thing to know is "what we think". Where, in our head, there is a market analysis and decision to open the order or wait a little? Is responsible prefrontal cortex.
This part of the brain was evolutionary developed after all the others, which we now call the subconscious. So it processes information about 5 times slower than all other departments and requires inconceivable amounts of energy to operate. This is our rational brain, the analytical Department, which compares, analyzes, plans the future based on past experience, there is also internal dialogue.
In the prefrontal cortex of the trader is analyzing the market and deciding on further action. Here from memory get all knowledge about trading and give algorithms for decision-making.
FORCE OF HABIT
When the trader has successfully repeated the algorithm several times, the generated actions become habits, and the reins transferred to another part of the brain called the "basal nuclei". This part of the brain responsible for finding a clear sequence of actions and their execution or in other words, habits.
While you learn to drive a car, you use the prefrontal cortex, that is, do everything consciously. But as soon as much practice as driving becomes a habit, and you killed it, not thinking, with the ability to talk or to commit some other, parallel activity. Here doing this and basal ganglia. They are able to notice that long sequences that our prefrontal cortex may not be aware of.
In the basal nuclei are formed neural networks that are responsible for certain skills, and they, in turn, are combined into more complex circuits. It is easier to consider the structure of the example. Imagine Cycling. One neural network is responsible for keeping balance, the other for pedaling, and the third for the timely press on the brake, the fourth — for manoeuvring, and so on. When you sit on the bike, these neural networks are combined into a circuit that can be called "the ability to ride this type of transport", and it works on the machine, without requiring your control.
Such neural networks can be combined in different combinations, creating other paths. They are called habits, which are very often stronger than our self and then we say that habit was stronger. The more times we repeat some consistency, the stronger it becomes.
HABIT IS THE CAUSE OF THE FAILURE OF A TRADER
Here begins the first cause of long failures of many traders is when there are the prefrontal cortex and basal ganglia. Our rational brain is only 4% of the total volume, he analyzes the information slower than the other departments several times and still it consumes an incredible amount of energy. He is very capricious.
To understand how many it is necessary forces for conscious thinking, imagine that you're walking up the hill. Suddenly I ask you a question in the style of: "Tell me dear, what are your plans for the future and what role do you see the trading?" To answer this question, your body to stop and at the time of consideration, you will cease to climb the mountain. All the energy that you need for this climb, will go to just to consider my question!
The thought processes that require to look into the future or to set priorities, it also requires to simultaneously imagine the future and compare it with past experience, you can just Deplete our forces at one point. If you are doing intellectual work, you probably know what it is physical exhaustion from excess brain activity.
Your analytical work on the analysis of the market, especially in the early career of the trader, takes a huge amount of effort. Your prefrontal cortex is overloaded, and you lose concentration. And here the initiative intercept of the basal nuclei, and are waiting for its release. Once your awareness becomes dull, turn on the machine. And what machine lay itself the vast majority of traders? Often a long series of failures!
Just imagine: all the time while you were studying, your actions led to the losses. You used a bad algorithm which each time leads to loss of money, and the basal nuclei have fixed the circuit. And now, as soon as your rational part gets tired, the machine that lead to failure. You kind of did everything right, and then just watch as your positions go into the negative, and understand everything, but I have to do is just look at it blankly or start to panic.
WHO DISTRACTS YOU FROM TRADING?
The second factor. In addition to the huge amount of energy which devours our minds to work, it also constantly distracted by the external and internal factors. Of course, there is an effort of the will, which returns our focus to the analysis of the market, but it requires a Herculean effort! The number of this will melt exponentially. If you managed to bring back the first time, for example, the smell of food distracted you, but you did not go to the kitchen, and continued to do analysis of positions, then a second time to switch from thinking about the meal will be much more difficult. All these distractions meets the anterior cingulate cortex.
This part of the brain is included in the system of survival, and it was formed in the following situations – our ancestors were on familiar terrain, as always, but something rustled in the bushes, or the nose could smell the scent of a predator or the eyes noticed a movement nearby... Then the focus switched. And since this is the survival of the system, such events, the brain assigns the highest priority. It turns out that times have changed — you sit in your apartment where it's safe, analyze the market, but only for the phone to ring, or pop up notification that you received a message in social networks as anterior cingulate cortex switches the attention to a sharp change in the situation and assigns it a high priority. How many distractions can occur while you try to engage in trading? And that just depletes your hand and includes autopilot.
This shows the capriciousness of our prefrontal cortex – not only that she needs a lot of energy, so she is distracted by everything and has to expend energy to return to the right thoughts.
THE EXCITEMENT, THE ADRENALINE, OR WHY GETTING BORED?
Talk about hormones success and failure. The moodiness of our prefrontal cortex appears also in the following way: that she was just functioning, it needs a certain level of excitement. It is controlled by the hormones: if this level is too low, then we will not think or act that can be called laziness; if we have something very excited and hormone levels through the roof, thoughts rushing, the concentration of no, the action is chaotic and inconsistent. So for normal trader need the average level of excitation of the prefrontal cortex – somewhere in the middle between the first and second States.
So, for motivation, we need two groups of hormones. The first group gives impetus to action through fear. If we lack motivation, we just think that our inaction or inattention in trading will lead us to problems as fear will secrete adrenaline into the blood, and we immediately start to think productively and act proactively. However, if you motivate yourself with fear on a regular basis, it can lead to bad consequences for the body.
The second group of hormones motivate us with promises of pleasure is dopamine and norepinephrin. Dopamine is released when we show interest in something new and captivating. For example, trading is not something new, cool, full of opportunities, the fulfillment of desires. The promise of such a set of "Goodies" stimulates the release dopamine and the desire to possess. It forces us to learn trading on the stock exchange or currency. But when we repeat the same thing over and over again and trading to become monotonous, the level dopamine falls, and we begin to lose interest in him and, therefore, analyze carefully, moving away from the vehicle and Money Management. So we just unconsciously looking for situations that will provoke the injection dopamine.
Unfortunately, most traders do not understand what goes on in their heads, and even fewer who know how to cope. I hope my article has shed light on the veil of your subconscious and made you stronger in dealing with it.