This is Your Brain on Orderflow
Every single day, your brain performs complex functions that you assume to be automatic: walking, unlocking your phone, or choosing what to make for a meal. These are learned behaviors, many of which have been repeated for a range of years. On a deeper level, billions of neurons interact with one another in pathways in your brain, receiving information and driving a response.
Neuroscience can teach us a lot about how to effectively learn the new skill of orderflow trading.
Repeated actions strengthen neural pathways. While other mammals may be walking, running, or swimming within hours of being born, humans have a great capacity for learning these skills with experience and age. Recognized neuroscientist Dr. David Eagleman states that “Through practice, repeated signals have been passed along neural networks…burning the skill into the circuitry.”
Many of the best traders we know relay the same message over and over, as if burning it into our circuitry: that experience and time are required to become a good trader. I like to think of it in terms of coding experts who are learning another “language”: on day one it’s foreign and over time it requires patience, self reliance, capacity to learn/memory, resourcefulness, and more. Like trading.
While you learn and memorize market tendencies or patterns, you eventually reach a flow state as your brain continues strengthening these pathways. Eagleman states that “Throughout our lives, our brains rewrite themselves to build dedicated circuitry for the missions we practice…”
This leads us to several key conclusions:
You can’t expect perfection or even to be good at trading early on unless you have experience
Mistakes help to reinforce circuitry and contribute to future decisions
If you don’t dedicate enough time to trading and watching live sessions, you can’t attain the needed level of experience for consistent and quality trades
With ample experience in markets, you are better prepared to make informed guesses about what will happen in the future.
And finally, we can also use neuroscience to improve bad habits around trading strategies. We often attach values or emotions to certain things, like maybe coconut reminds you of the beach or a specific experience or taste. As such, we are apt to let emotions run high and influence trades.
For instance, Eagleman says that we often get tripped up and make a bad decision when we attach this feeling with something that is happening in the present. Whether there’s a news event or we have a rosy thought about a recent good trade and think “it would be cool to make that much money again!”, we need to be careful and recognize that we may be getting too emotional. This could lead to stubbornness, chasing trades, trading at random places, or generally trading poorly.
The good news is that we can also plan our strategy for this. For instance, if I know I tend to fantasize or wish for a good trade, or if I hear something in the news that makes me think the market will go down today, I need to be ready to react. Jim Dalton teaches to only focus on market generated information, or what’s happening right in front of us at that moment. Note: Hard and fast rules like waiting for first 30-60 minutes to close don’t make sense in a moving market.
But we can lean heavily on what we now know about neuroscience to design or refine a strategy. For instance, we know that a sizable time commitment and routine are required before we can be consistently good at trading. Beyond this, mistakes will continue to inform future decision-making, and aid in improving upon it. Lastly, we know that the emotional ride is coming, but with experience, we can begin to moderate these emotions.
What I’m working on: I will soon release a product that you can use to establish a repeatable routine for planning for each trading session. Sign up here to be the first to hear about it.