By: Elliot Turner
Dr. Brett recently wrote an excellent post about the role of intuition in trading. He had the following to say:
…two different brain systems are at work in learning; one is an explicit system based on recall and reasoning; the other, an implicit system based upon the brain’s reward system. By dampening the explicit learning system, the tranquillizing drug provided subjects with greater access to their gut.
…it is not necessary to tranquilize oneself to gain access to intuition. It may well be that relaxation, meditation, and focused concentration exercises can accomplish the same thing.
Coincidentally, as Dr. Brett was writing about intuition, I read a great passage in one of the essays in my book du jour–David Foster Wallace’s (hereinafter referred to as DFW) Consider the Lobster–about the psychological focus of athletes that affords them the ability to overcome immense pressure. If you haven’t noticed already, trading is ripe for comparison to athletics. Here’s the passage:
It is not an accident that great athletes are often called “naturals,” because they can, in performance be totally present: they can proceed on instinct and muscle-memory and autonomic will such that agent and action are one. Great athletes can do this even–and, for the truly great ones like Bord and Bird and Nicklaus and Jordan and Austin, especially–under wilting pressure and scrutiny. They can withstand forces of distraction that would break a mind prone to self-conscious fear in two.
David Foster Wallace wrote this to contrast the experience of one (himself) who failed at high level junior tennis and one who thrived, prospered and ultimately won multiple Grand Slam titles (Tracy Austin). DFW’s self-diagnosed problem was his inability to overcome self-doubt and to silence that ever-present voice in his head. The notion of innate muscle memory, and the suppression of the mind freeing up the body to react from memory, rather than through conscious thought, ties in nicely with the study cited by Dr. Brett with regard to intuition. Top athletes succeed because they can systematically execute without taking that extra second to think: they merely act and react subconsciously as opposed to thinking, processing and then acting. In sports, as in the market, any sort of hesitation can have severe consequences. Success requires intuitive reactions.
This has significant implications for us traders. Let’s follow this passage through:
The real secret behind top athletes’ genius, then, may be as esoteric and obvious and dull and profound as silence itself. The real, many-veiled answer to the question of just what goes through a great player’s mind as he stands at the center of hostile crowd-noise and lines up the free-throw that will decide the game might well be: nothing at all.
How can great athletes shut off the Iago-like voice of the self? How can they bypass the head and simply and superbly act? How, at the critical moment, can they invoke for themselves a cliche as trite as “One ball at a time” or “Gotta concentrate here,” and mean it, and then do it? Maybe it’s because, for top athletes, cliches present themselves not as trite but simply as true, or perhaps not even as declarative expressions with qualities like depth or triteness or falsehood or truth but as simple imperatives that are either useful or not and, if useful, to be invoked and obeyed and that’s all there is to it.
Ok, there’s a lot there to digest. In saying that “nothing at all” goes through the head of a great athlete at a moment of pressure is a pretty profound insight. The top performer, in a clutch situation, with crowd noise and all the hoopla, is able to treat that moment no differently than something as simple as shooting hoops at home as a little kid. It just is. It’s nothing more than living out the “one ball at a time” mantra (or “one trade at a time”). The idea is to systemically generate a process through which you can access intuition and suppress the self-doubt and ever-present voice in your head and whatever other outside distractions you may face (seeing red P&L definitely distracts people from the trade at hand…ever hear the saying “don’t trade your P&L?) from influencing your decisions. It’s unclear as to whether this is an innate or acquired skill in athletics, but I think with regard to trading there is a little more clarity.
DFW claims that the ability required to overcome distractions results from the structure provided by a set of cliches. In trading, this is no different than creating and following a code and/or a set of rules. Traders who have a rules-based process and systematically implement those rules without actually having to consciously consider them, are those who tend to succeed at the highest level. This traces back to developing good habits while in the training stages. The more habitual something becomes, the more innate it actually is and the less one has to think about it. Positive reinforcement and repetition are the only ways to develop these skills.