Make 2 Changes To The Way You Think To Trade Better

by Anthony     Jul 16, 2019

The human brain is by far the most complex organism we’ve ever encountered – so complex in fact that we still don’t know half about our brains in the first place. Every trader has dreamed of being able to pick the brain of someone like George Soros or Warren Buffet to trade like them. Unfortunately, that’s impossible – but what is possible is to adopt their way of thinking into your own trading 101 knowledge.

In trading 101 most are taught to either trust one’s instincts or to completely discard it. Regardless, the brain is extremely good at tricking you into believing you’re making the right decisions. This can be rather dangerous, so let’s look at the two things you can do adapt your mindset to work at a more profitable level.

  • 1) Working Against Your Brain

The oldest and in many cases, most dominant part of our brain is what is referred to as the reflexive brain. This part of your brain is the one that started working the earliest in your development and is in charge of matters like survival and emotions.

Of course, those are definitely not bad things for a part of your brain to be concerned with. Survival is and always will be the most important instinct for a human to have. In trading however, this can be dangerous.

Many traders have poor emotional control and once they believe they see an opportunity, their excitement levels grow. Their adrenaline starts pumping, heart rate goes up and they really want to trade into a certain direction.

That’s the reflexive brain taking over. Great in situations where you need reflexes to make the difference between life and death – fight or flight, basically. Not great when it comes to making unemotional trading decisions.

There are certain times when it makes the most sense to follow your instinct and go with your gut feeling. What’s important is to learn when those times are and not relying on it constantly. To do this, you need to use a part of your brain called the reflective brain. This is basically the opposite of the reflexive brain – it’s where the thinking happens, not the feeling.

This is the part of your brain you want to largely simulate for optimal trading success.

  • 2) Balancing Reflective And Reflexive

Now that you’re aware that you have to “brain modes” so to speak, it’s imperative to understand that you cannot just keep using one side. Sticking to only hardcore analysis will lead to overthinking and eventually, losses. Sticking to instinctive decision-making will definitely lead to losses too as the market cares not for how you feel.

One way to look at this is – if you’re only relying on your reflexive brain, you’re doing the exact same thing as you would in a casino. It’s basically gambling. If you’re only relying on your reflective brain, you’re overthinking and are trying to predict the market. This can not only lead to the usual overthinking, but can convince you it’s a great idea to go all-in on a trade or market right now.

That is, almost in every possible scenario, a terrible idea.

The lesson to learn here is balance. Bringing balance to your reflective and reflexive approaches is a key skill that many are simply incapable of. The biggest thing to avoid is giving into the temptations of quick profit or fast money. That’s your reflexive brain talking as it wants you to go make money because more money makes you happy and is therefore, good.

The reflective brain needs to take that desire to make money on trade and go longer term with it instead. It would make a lot of sense to build a system that forces you to use both. A trading checklist perhaps to check off both sides of the brain before making a decision, or whatever else works.

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