Day Trading Tips
Mind & Money Part 8

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Learn to use Elliott Wave in your Day Trading

Your Helpful Brain

Traders face an oppressive opponent within their own minds. Mental processes that serve you well in day-to-day living will be your downfall as a day trader. Take these two simple tests and you'll have a greater understanding of the power of your mind. Learn to harness and use this power and you'll have learned to master day trading and anything else you choose.

When presented with a problem, your mind will attempt to provide an answer based on the prior data it has available. In other words, your brain will search itself for the answer. Easy answers come first. If no prior data can be located, ideas will come to you as to how and where to locate new data.

The Stroop Test

The following is a simplification of the Stroop Test. Time yourself reading the following list. You'll need a second hand. Ready, GO!

That probably took you a couple of seconds. Next, instead of reading the words, this time you are to time yourself saying the colors of the text of each word. Ready, GO!

Did you notice it took much longer to say the colors? In some cases you may have paused, almost stumped. You know what you want, but your brain is fighting its natural tendency to provide the quick answer.

It is not until the brain realizes it is incorrect that it goes to find the correct data. Hence, a few more seconds are added to the time it takes to say the colors.

We process millions of images and sounds at any given moment. Even when you are indoors, there are sounds from outside (weather, cars, people) and sounds from inside (the TV, radio, hum of electrical equipment, etc.).

The brain copes with this constant bombardment of stimuli by utilizing filters. You will "filter" what your brain deems unimportant, based on the criteria you have given it.*

You Get What You Focus On

Here is another easy test that demonstrates that what you put your attention on is what you will produce. If you are in your home or office, simply glance around the room and notice everything you see that is red. Take a moment, and really look.

Now, close your eyes. Count to five, and then...quickly, name everything in the room that is blue. Ah ha! First, you probably expected the test to be about your memory, so you might have made a real effort to notice what was red, but in doing so, your brain filtered out everything else.

Naming something you didn't focus on is much more difficult. Every time you get in your car and drive a familiar route, look around and notice something you haven't noticed before.

Perception and Illusion Can Alter a Trader's Reality

The purpose of these simple exercises is to show how perception and illusion can alter a trader's reality and ability to see what is there to be seen. If you form an opinion about the market, direction, distance, etc. your brain will seek to assist by filtering what does not support your position.

You'll find signals to support your belief (if there are any to find), but you will miss obvious signals that dispute your position and might even prove a good setup for a trade in the other direction. Hindsight nearly always finds these "obvious" signals. Keep a neutral bias as much as possible.

While you are in a trade, instead of looking for more data to support your "excellent decision" look for data to dispute your position. Seek the opposite while trading and you'll develop better money management skills.

If you are looking to place a trade, look for signs that your trade is wrong, not right. Tally the signs for or against, and stick closely to your rules. No matter what your think you see, there is always another way to perceive any given situation.

* A Nova analysis of climbers attempting Mt. Everest Internet article, discusses the Stroop test as a method used to determine the effects of lower oxygen levels on climber's mental abilities.