The markets often present a barrage of information. Sometimes it is just too hard to attend to all of it. And you not only have to attend to it, but think about it, and make decisions based on it. Your psychological resources aren’t endless, however. Your mind has limits. You can only attend to and process a limited amount of information. But you can take steps to sharpen your mental edge and expand the capacity of your mind beyond its natural limits.
The best way to expand your psychological resources is through practice and “over learning.” Practice common trading tasks to the point where you can respond intuitively. Over time and with enough experience, you can scan market information and interpret it instantly. 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 have plenty of attention to 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 pivot point almost automatically. With practice, a lot of steps that you once had to perform deliberately and methodically 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.
A second way to increase processing power is to free up mental energy that is used up by other psychological processes. For example, handling stress, and mulling over interpersonal conflicts uses up precious psychological energy. This valuable energy is better spent on monitoring trades or thinking up new trading strategies. By spending leisure time resolving interpersonal conflicts or effectively coping with daily hassles, you will have more psychological energy to devote to trading after the markets open.
Rest and relaxation are also important. When you are tired, you can’t devote very much energy to planning your trades or monitoring their progress. You’ll be more likely to act impulsively, entering a trade too early or too late because you didn’t have the energy to patiently wait to make a prudent trading decision. So make sure you get extra sleep. Take naps during the day, if you have to, and ensure that you are alert when it counts during the trading day.
Don’t forget that the mind has limits. You can only work with what you have. If you take the proper steps, however, you can free up poorly allocated psychological resources, allow more resources to be dedicated to trading. By over-learning common trading tasks, you can expand your attention. And by getting adequate rest and resolving interpersonal conflicts, you can further free up psychological energy that is wasted on tasks that don’t involve trading. By taking concerted measures to free up energy, you can expand the limits of your mind, and trade more effectively.