Trading can be a complex activity. A broad range of information must be studied and integrated. Not only do you need to keep up on possible news and factors that may impact the market action, but you also have to look at indicators, such as price and volume, in order to anticipate where the market will move next. And it isn’t easy to identify chart patterns. It can be a lot like putting structure onto an amorphous pattern of lines. If only we had more computing power…we could process all the information we needed to trade more efficiently. Unfortunately, the mind has limits. And you have to work around them.
The mind is like a computer. We store memories in the hard drive, while our ongoing experience is processed by the CPU and stored in RAM. The amount of attention you can devote to a particular task is restricted. You can only attend to and process a limited amount of information and when you move beyond the limit, the information is not processed. Have you ever noticed that it is possible to read a telephone number and remember it for only a short time? When you are distracted, the information is lost. Unless you memorize the information, it is lost.
How can mere humans increase the mental capacity of our minds? It isn’t easy. You cannot just add extra RAM or a faster CPU. What we can do instead is “overlearn” some of the tasks we do while trading. It is similar to how people learn to drive a car. At first, one must focus attention on each driving task separately in a deliberate focused manner. But, over time, one can monitor speed, look for road hazards, and engage in several tasks automatically, and still be able to do other things, such as talk with a friend or insert a CD into the car stereo. You may have noticed that trading tasks can be “over-learned” in much the same way.
For example, you probably have noticed that over time, you can identify signals that precede a breakout almost automatically. With practice, a lot of steps that you once had to perform in a deliberate and tedious manner can now be completed will little effort. Many times, “intuitive” decisions merely seem as if they are a “gut instinct,” but may, in fact, be based on a several valid and reliable inputs and signals that were processed automatically. The more you spend time practising new skills, the easier it will be to do multiple tasks.
Active trading requires increased mental capacity. But your IQ doesn’t need to break the bank. You can increase your mental capacity through practice. The more you study market conditions and develop an intuitive feel for the markets, the more you can do multiple tasks simultaneously. You’ll find you will increase your mental capacity and trade more profitably.