Focus: What Distinguishes Trading Professionals From Amateurs

 

Fascinating research by Andrew Lo and Dmitry Repin at MIT hooked traders up to physiological monitors to assess their emotional responses to markets in real time.  They found that all traders exhibit emotional processing.  The least experienced traders exhibited the most extreme emotional reactivity.  The authors speculate that an important difference between experienced and inexperienced traders is that the experienced ones focus on their emotional experience to access intuitive insights.  The least experienced traders become overwhelmed by their emotional experience in a fight or flight fashion.  This could help explain why high levels of emotional experience were associated in their research with poorer trading returns in their subsequent research: moderate emotional arousal became a stimulus for focus for the pros, whereas high arousal becomes a distraction for the newbies.

This points to an essential difference between a pro trader and an amateur.  When the pro faces market challenges, he or she increases focus.  When the amateur faces challenges, focus is overwhelmed.  In the face of large market opportunity or threat, does a trader gain or lose focus?  That distinguishes successful traders from less successful ones.

In a recent post, I compared the successful trader with a sniper.  The sniper actually lowers heart rate and body arousal as the target comes into focus.  It would be an amateur who would become excited over the appearance of the target, allowing physiological arousal to interfere with aim.

I knew I had become a professional psychologist when a client opened a meeting by expressing serious suicidal feelings and impulses.  I immediately became very calm and focused and gave that person my fullest attention.  There was no way I could have done that when I was first learning in school.  It was repeated experience–and confidence gained from that experience–that enabled me to view crisis as opportunity, not threat.

Every day of trading can be practice in developing focus.  We can either exercise our concentration and attention or we can reinforce poor habits of distraction.  The successful trader does not *control* emotions.  The successful trader is sufficiently focused to learn from emotional experience.

 

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Published at Tue, 10 Oct 2017 11:50:00 +0000

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