Mastermind: Understanding Your Trading Brain

 

Recently, over on his YouTube channel, Greg and his friend Andy Harrington discussed what they referred to as the “three trading brains”. This is the idea that the brain comprises:

  • Neocortex: leader or thinking brain
  • Limbic system: emotional brain
  • Cerebellum: identity brain

 

As the driver of all decision making, the brain has a difficult job in day-to-day life, not to mention when the stakes are high. In forex, from the moment your interest is piqued right through to the execution of a trade, your brain is responsible for the choices you make.

Here, we’re going to explore this idea in more depth, to provide you with a greater understanding of how your trading brain works and how you can harness this to learn more about forex trading and strengthen your future trading ability.

 

Neocortex

noun
‘a part of the cerebral cortex concerned with sight and hearing in mammals, regarded as the most recently evolved part of the cortex’

The neocortex sits on top of the emotional brain and is often referred to as the leader or the thinking brain. When it comes to trading, your brain is the most powerful tool at your disposal – and for the experienced trader, this means you can process repeat signals and make decisions more quickly. This sort of learned behaviour can be incredibly effective when utilised properly – but can also be dangerous if you rely too heavily on synaptic strategies and “snap” decision making or are more confident than you perhaps should be given your level of experience.

 

Limbic system

noun
‘a complex system of nerves and networks in the brain, involving several areas near the edge of the cortex concerned with instinct and mood. It controls the basic emotions (fear, pleasure, anger) and drives (hunger, sex, dominance, care of offspring)’

The limbic system, sometimes referred to as the lizard brain, is the part of the brain in charge of our baser emotions. Thought of as the older part of the brain, the limbic system often acts more quickly and less rationally than the neocortex. Any trader will be all too familiar with the power of emotions in the trading game, and with this in mind, you should avoid trading when you’re in a bad or negative emotional state, as your decision making can be impaired.

 

Cerebellum

noun
‘the part of the brain at the back of the skull in vertebrates, which coordinates and regulates muscular activity’

Located at the back and bottom part of the brain, the cerebellum plays an important role in terms of motor control and in the video, Andy refers to this as the identity brain. This helps tie the other brains together and, when it comes to the forex trader, can help you create what is essentially a new identity to help you perform in the forex markets. So, the more you concentrate your efforts on practicing and training in an area, the more you can develop repeat and automatic behaviours in that area.

There’s much discussion about the way the brain behaves and, of course, research into this is ongoing – but by understanding your three trading brains, you can begin putting these behaviours into practice, trading in a way that works for you and the way you think.

Find out more about what Greg and Andy have to say on the three trading brains over on Greg’s YouTube channel. You can also discover more insider guidance on how to trade forex on our blog.