Fast thinking, slow thinking

One of the big differences between and experienced trader and a newbie, is the emotional impact generated by trading with real money.
It’s well established, by now, that humans have 2 very different brain circuits: we cal call them the fast and the slow circuit.
Examples of fast thinking:
If I mention the capital of Russia, what come AUTOMATICALLY to your mind?
If I write 2+2= ?.
As you can see, slow thinking is automatic, effortless, associative, and… DUMB.
You don’t believe me?
If I say that a ball and a pen cost 2,1 together, and the ball alone cost cost $2 more than the pen, how much is the cost of the pen? Answer what just “pop” to you mind, then write down the results and made the math.

Chances are that “some” of you answered ten c, but the correct answer is five cents.
Now, how much are you willing to rely on your gut instinct the next time you do trading?
Even so, the thumb rule is that the more we are nervous, hungry, scared, tired or in any way physically - emotionally depleted, your brain will instinctively search for answers from your fast (but, I remember, very mentally impaired) circuit.

What do you think about this? In the next posts, if someone is interested, I will show you some strategies to improve our trading thanks to cutting edge neural discoveries.

There are two books I’ve read that cover this quite well:

Thinking, Fast and Slow - Wikipedia, the free encyclopedia


Blink (book) - Wikipedia, the free encyclopedia

They don’t always agree which is good.

Kahneman looks more at what ‘fails’ when we thing fast, whilst Gladwell looks more at opportunities that can be gained from it.

Yes, I took inspiration from those books.
But there’s much more than that. Besides, if we specifically apply this new knowledge to trading, we can develop a whole new set of ideas instruments, check lists etc…
Anybody has already made part of his trading plan specific strategies to squeeze the most of our brains?

I make my charts very easy to read, so I can work out if a trade is available with just a glance.

You can read books but a lot of the time it takes real world experiences to really learn how to harness your emotions, once you know what the feelings are, and how they affect you, you can start to harness and control them and benefit.

Hi Aesop,

it's the old dilemma theory vs. practice. Of course we need both. A solid mental frame of "what's going on" in your inner, subjective experience during trading could guide you to make smarter decisions.
I opened this thread because much of what we have to do in order to access to our finest thinking is counter intuitive. Practice and common sense won't be enough.
Here some insights:

- our brain is a powerful computational machine. Each of us have, theoretically, a supercomputer at it's service in his head.
- because evolution, our brain "energy saving" policy is always on, at the maximum setting, all the time
- like some modern CPU, we also have 2 thinking circuits: one is fast, dumb, and use little energy and no effort at all. One is slow, smart, but need a conscious effort to be used  (how much is 2+2? and 45x97?)
- for best trading results, we must to learn how to systematically rely on our slow thinking, until this become spontaneous
- we CAN'T get rid of the fast thinking, and we will still use, 99% of the time, the fast thinking for everyday little decisions
- so, the best way is to adopt a multiple strategy, including life style changes, deliberate effort, be conscious of what thinking circuit are we using, and specific tricks that can automatically activate our slow thinking
- life style changes: send a steady flow of oxygen and nutrients to your brain. Proper sleep, nutrition, exercise, yoga.
- life style changes2: preserve your energy for your trading session: any effort, choice, act of will, even bad mood, will deplete your mental energy.
- deliberate effort: actively practice mind challenging activities. The best activities are those that can be solved specifically though the use of your slow thinking. Puzzle magazines, enigmas, sudoku, cross words, chinese grammar, you get the idea.
- be conscious: develop the habit to ask yourself, during the day, which mental circuit are you using in that specific moment. In this way it will be easy for you to recognize both of them, and you will not be fooled so easily by rush suggestions coming from your slow circuit
- specific tricks. It feels familiar. It feels good. Path is known. No dangers around. Mental defenses can be deactivated. Fast thinking will probably be enough in this situation. This is, roughly, the one of the mental path your brain follow in every situation that is mentally challenging. The other sounds more like this: something unknown here. Potential danger. Looks bad. Stay alert. Rely on slow thinking for a while, instead the autopilot. It's upon you how to configure your office, desk, trading software, charts and computer desktop in order to find the right balance between efficiency, completeness of analysis, and some odd elements around in order to help keep you mildly discomfort and so more naturally alert.
- specific tricks2: be emotionless. Emotions turn on your fear, that activate the fast thinking areas and bias you to rely more on rush decisions. Lower your leverage until you feel perfectly comfortable with the amount at stakes, remember yourself that one single trade is meaningless in the big scheme of things (we are searching for statistical profitability), practice with penny's accounts (or virtual accounts) and grow ONLY when you feel the emotion is not affecting your thinking flow. Review your trading journal from time to time to see if there's still signs of emotional bias in your trading decisions, and take the appropriate measures in order to eliminate that bias.

I hope this will help you find some extra mental-horse-power that we all need on our quest for the Holy Grail of consistent profitability.

Seems like i should go buy a Nintendo DS and brain training then :33: I take your points on board. It’s an interesting topic the brain… I was reading some books on memory and how to increase your brains capacity and it’s pretty incredible how much you can harness your brains power.

my pleasure to help a trader fella!
i hope someone else can contribute to this thread with his own ideas, strategies, insights…

I feel in forex we need fast thinking we can be slow with analysis making but with open positions we have to react market quickly as market required from us this time . Neglecting this can cause a difference of results as we plan or expect from market.

theres one solution i use to fight the animal instinct which leads into a burned account:

trade minimum 4 hours charts. nothing less, in no situation no point no idea
long term decitions on daily and weekly chartswhen the market is CLOSED

never decide on long terms while market is open running and changing

never act in sessions : means: only buy or sell when a 4 hour session is about to close within the next 10 minutes

4 hours gives your slow logical brain enough time to make smart decitions.

15 minutes charts dont, never did, never will.

among other things this helps to generate a few hundret points plus weekly

Find your on charts!
this is how i learned my charts:

5 minutes chart: burned account after a week
15 minutes charts: burned account after a month
30 minutes chart: burned account after 2 months
1 hour chart: didnt burn account but made no profit (+/-0) for few months
4 hours chart: made constant profit
1 day chart: 75% sucess rate in trades
weekly charts: 85% sucess rate

what you must take into consideration is the higher stop loss and take profit calculation.

on the 4 hours chart i have a stop loss of 100-150 points and a minimum target of 400 (SL 100) -600 (SL 150)
on the daily chart you need a SL of around 350 points
Weekly you need 600 easily

all those SL are acccounted for the dow jones in this case, for your market you have to do your own SL calculations

Fast or slow thinking should not matter if you have a plan of what to do and when. If you have a check list of possibility and what to do when things happens then just follow the plan. Create a winning habit with a thought out plan. Start with the basic Interest rate and direction, range bids or breakout when, and time charts what do they tell you. Which pip ranges are best at what time frame and what time is best for which pairs. Targets:why and when to take them can be put in a repeatable plan without emotions and without fast or slow thinking. “Perfect practice of the basics make a perfect plan” Journal then study.

In forex fast thinking is required we have to pick market watch market and decide quickly to get benefit from it. Specially scalpers should have a good quality of quick decision making. Slow thinking is an hurdle because forex market works all the time we should go according to it.