Screenshot_8.png

AN INSIGHT
TO DAY TRADING

UNDERSTANDING THE EFFECT OF PATIENCE IN DAY TRADING


Successful and sustainable day trading requires a broad set of skills – it is not only a functioning trading strategy but also a functioning mind. The ability to reflect on the own behaviour, discipline and patience are key in day trading. This article investigates the effect of patience while providing a deeper insight and potential impact of that skill on the individual’s trading results.


Patience is defined as “the capacity to accept or tolerate delay, problems, or suffering without becoming annoyed or anxious”.


Harvard Magazine published an article by Jennifer L. Roberts where she describes the effect of patience on observing a piece of art. She, particularly, focused on deceleration, patience and immersive attention arguing those attributes are no longer available “in nature” and need to be actively engineered by the faculty. External factors like social pressure and technological development are pushing students in the opposite direction - toward immediacy and rapidity.


In her experiment, students where ask to spend three full hours looking at a painting in a museum noting their observations as well as questions and ideas that arise from those observations. In the very beginning students were resistant to that exercise. How can it be worth spending three hours looking on this single painting? How can there be more things to see after looking at this painting for such a long time? However, after finalising the exercise students repeatedly mentioned the have been astonished by the potentials this process unlocked.


It is commonly assumed that vision is immediate - it seems direct, uncomplicated and instantaneous. Therefore, it has become the master sense for the delivery of information in our contemporary technological world. What students have learned in this exercise is that in any work of art there are details and relationships that take time to perceive. Just because one has looked at something does not mean one has seen it. Just because something is available instantly to vision does not mean that it is available instantly to consciousness.


In contrast, neuroscientist Daniel J. Levitin conducted research with a focus on the intersection of technology, addiction, and productivity in relation to the attributed information overload and amount of multitasking we are confronted with in today’s digital age. He wrote that information excess can cause indecision stating, “This uncertainty wreaks havoc with our rapid perceptual categorization system, causes stress, and leads to decision overload.” In other words, the human brain is in a state of constant distraction. These endless distractions come from a constantly flowing information stream like social media or online communication in general.


According to Levitin’s work, the resulting cognitive overload has a serious physiological impact on the brain. Since multitasking has been shown to increase the production of the stress hormone cortisol as well as the fight-or-flight hormone adrenaline the human brain is overloaded and overstimulated at the same time. As a result, the neurological consequences of overload and psychological effects can be quite severe. Levitin concludes that multitasking to the point of brain fatigue leads to “a depleted state in which, after making lots of insignificant decisions, we can end up making truly bad decisions about something important.”


Finally, transferring the research findings to day trading the assignment by Jennifer L. Roberts nicely illustrates that access only is not synonymous with learning. What turns access into learning is time and strategic patience. A view on the charts does not instantly illustrate all present factors, they are not instantly available to consciousness and it needs time to process the information provided by the market. Simultaneously, patience gives the brain time to relax. Being on a constant search for trade opportunities respectively opening and closing trade positions brings the brain in a continuous rush. In that state the brain enters the natural fight-or-flight mode which prevents the brain from seeing clearly increasing the probability of bad decision making as describes by Daniel J. Levitin. Consequently, being patient helps day traders to receive more holistic picture of the charts and at the same time supports to maintain a level head by avoiding an overstimulation of the brain resulting in better trade decisions.