Here is an interesting piece for traders. Its "interesting" because it alerts us to something which can improve our performance as traders.
I've linked to the full article below, but I've also tried to pull out the pertinent pieces in brief.
Scientists at Caltech studied the brains of traders who successfully maneuvered through a market bubble, they found markers of two different traits
- Successful traders, defined as those who sold before the bubble popped in a lab, sensed in themselves an unease stemming from the perception of uncertainty. They had higher-than-normal activity in an area of the brain known as the insula, which keeps track of how the body is feeling… It’s known to be activated by financial risk
- Those who weren’t as successful at investing and seemed to be chasing returns had a reduction in activity in the insula, “as if their brains think the price is following a very regular low-risk growth path”
- it wasn’t only the activity in the insula that set the successful traders apart, it was their ability to act on the information in opposition to what everyone else was doing. In fact, there was another group that felt the unease but didn’t act on it.
'Sensed in themselves unease stemming from the perception of uncertainty ... it was their ability to act'. That's the nub of it.
Being uncertain is a normal feeling for traders, we deal with uncertainty all the time. So, how to assess whether the uncertainty is indicative of the need to take action? I am not going to pretend to have all of the answers for you, this sort of thing comes with experience and time (and even then is not always reliable), but some suggestions:
- is the trade becoming crowded?
- are your indications of how the price is behaving changing (change of behaviour in price is a regular go-to for me ... and no, it isn't perfect)
There are 2 things to be going on with.
Full article (it’s a quick read) is here: Emotions count: The brain chemistry behind investing
