We tend to take our brain for granted. We don’t reflect much about how it works or how it conditions our experience. In truth, however, the brain is largely unknown territory that we are only just beginning to explore. Why is it such a mystery?

Imagine a planet like Earth with 100 billion people (we are currently at 7 billion) and each person having 1000 friends on Facebook. That’s the social network inside your head: 100 billion neurons each with 100 connections.

We know from studying other types of complex biological systems that they have innate intelligence. Complex systems self-organize, replicate, evolve and adapt.  The planet would be getting smarter, even without IBM. And so would the market. Computers simply accelerate the process.

So What Does This Have To Do With Trading?

To be sure, each person’s brain is unique…like a fingerprint with trillions of ridges and whorls. Nevertheless, from a functional perspective, brain scan research reveals five general types of brains. Your Brain Type makes a difference in how you see the market.

Now, you might not like these categories because they are focused on dysfunction; on how the brain becomes imbalanced.  But that is the most important type of feedback we can get. Without course corrections, we never can get where we want to go.

Three Types

Among traders, the three most common brain types are Compulsive, Impulsive and Anxious.

People with Compulsive brains get stuck in a particular perspective or point of view. Their minds are closed, which means they are not open to feedback from the market. Traders with compulsive brains may brag about their amazing winners, but they will also hold a losing position much longer than necessary.  

People with Impulsive brains are the polar opposite. They react to the market moment by moment and can’t resist its Siren song. The lack of impulse control shows up not only in trading, but in conversation, driving, food and most aspects of daily life.

Traders with the third type of brain, the Anxious brain, live with a non-specific sense of impending doom. They are skeptical individuals and in trading they demonstrate a heightened awareness of the obstacles in their way to success. For example, if they are long, they over-focus on resistance. Their own negativity can overwhelm or paralyze them.  

If you are interested in learning more about your brain type I’ll publish a Brain Type self-test next Wednesday.

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To learn more about your trading psychology visit www.daytradingpsychology.com