Neuroscience is the scientific study of the nervous system (how it develops, its structure and activity), including the brain, the spinal cord, and the networks of nerve cells called “neurons,” and their influence on consciousness, behavior, and cognitive functions.
I am truly fascinated by it, and I just finished reading a very interesting book called The Brain That Changes Itself which plunges into the extensive neuroscience research that has been made over the past two decades.
The brain – once largely thought of as immutable and unchangeable after a certain age – is, in fact, a dynamic organ
Once and for all, this research proves that the brain – once largely thought of as immutable and unchangeable after a certain age – is, in fact, a dynamic organ that changes constantly throughout the course of our lives, as we gain new knowledge and experiences.
This ability to change is referred to as neuroplasticity. Derived from the words “neuron” (nerve cells in the brain linked by synapses) and “plasticity” (the capacity to be shaped, moulded, or altered), neuroplasticity is the brain’s potential to create neural pathways and to reorganize itself according to how it’s being used – or not being used.
Areas of the brain that you use often are reinforced as they become bigger and stronger, while parts that are used less frequently become smaller and less effective.
For instance, every time you feel annoyed and frustrated with losses, the neural networks and the areas of the brain responsible for the experience are reinforced, and the structures that produce the experience of being “calm and cool headed” slowly fall by the wayside.
Neurons that fire together wire together
Neurons that fire together wire together, strengthening neural pathways that establish our habitual thoughts, behaviors, and reactive patterns, which then fortifies those same neural networks. This is why it can be difficult to feel better after long periods of stress, depression, etc..
By the way you trade….. you are in essence training your mind in that kind of behavior.
What does this have to do with trading?
Everything! The areas and structures of the brain that are active in cognitive functions (all aspects of reasoning, thinking, evaluating, judging, remembering, and feeling) are active when we trade. Therefore, the mental processes that take place during this activity (including your thoughts, judgments, emotions, and attitudes) are reinforced.
So, by the way you trade (whether you act impulsively, let your losers go out of hand, cut your winners short, take trades outside of your methodology) you are in essence training your mind in that kind of behavior.
If you trade for a living… cultivating the right psychology at all times is just as important as (if not more important than) your market edge and your risk management technique.
But this goes further: whatever you think, perceive, and feel (whether unconscious or intentional) even when you’re not trading, is training the brain to think , perceive, and feel in those same ways when you are trading.
It’s insidious…. I know. But it also shows just how serious psychology is — your attitudes, judgments, and inner dialogue. This might be slightly less of a concern for those of you who trade part-time as a hobby.
But, if you trade for a living, as I do, cultivating the right psychology at all times is just as important as (if not more important than) your market edge and your risk management technique.
So, if you really want to make lasting changes in the way you trade, thereby improving your performance, then, you have to get into the habit of being mindful of how you think and act, in or out of the markets, so as not to fall in long-established neural patterns. Essentially, these are tiny votes for the kind of person you want to be — one who reliably acts in his own best interests in the markets or the opposite of that.