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Are Forex Traders Born And Not Made?

Feb 22 • Forex Trading Articles • 2370 Views • Comments Off on Are Forex Traders Born And Not Made?

Are Forex Traders Born And Not Made, Or Do We Need To Get The Chemistry Right?

There was a fascinating article published by Reuters and others yesterday concerning gambling addiction. Whilst musing over the results the synergy between gambling and trading becomes obvious. The question that many of us have asked; "am I cut out for this?" may have more in common with your brain chemistry than you've previously given credit. The scientific report suggests that there is a chemical in an area of the brain, norepinephrine, which if evident in larger quantities makes people less risk averse and as a consequence they feel less emotional pain when taking a loss.

This experiment and study throws up many questions in relation to our trading world. For example, could traders take a drug, similar to beta blockers, in order to inhibit certain behaviour which could be harming their trading? Or should nature simply take it's course? Are we either equipped for the industry and profession or not and would tinkering around the edges dramatically alter the right state of mind necessary? And for those amongst us who believe we have the balance right, would we want to actually make the 'pain' of a loss lessen, or could that blurring of pain actually reduce our edge?

Pain Is Essential To Trading
I'd suggest that the pain of losses is essential. Whilst that pain lessens over time (due to familiarity and experience) to become the slight numbing many of us are familiar with, none of us could testy to 'enjoying' taking a loss. Yes there's the Mark Douglas type attitude we could all key into; "that loss means the next winner is just around the corner" but the reality is that we all hate losing, if we didn't you'd begin to question whether were made of the right stuff to trade.

Rationalising losses, by ensuring the money management section of your trading plan is never breached, eventually becomes second nature. But in markets such as we've experienced over the past 48 hours, whilst the Greek issue has been high on the agenda, your losses may be slightly higher particularly if you're an intra day trader. Would you want a chemical that soothes these losses or you want to be fully awake, cognisant and aware of what's happening in the market place in order that you can be ready to act? I'll take reality any day..

The Experiment
A neurotransmitter, or chemical messenger, called norepinephrine, or noradrenaline, is central to the response to losing money. Those with low levels of norepinephrine transporters had higher levels of the chemical in a crucial part of their brain, leading them to be less aroused by and less sensitive to the pain of losing money, the researchers found. People with higher levels of transporters and therefore lower levels of norepinephrine or noradrenaline have what is known as "loss aversion," where they have a more pronounced emotional response to losses compared to gains.

 

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For the study, a team of researchers at the Kyoto University graduate school of medicine in Japan, scanned the brains of 19 healthy men with positron emission tomography (PET) scans after they had completed a gambling task.

Loss aversion can vary widely between people, the researchers explained. While most people would only enter a two outcome gamble if it were possible to win more than they could lose, people with impaired decision making show reduced sensitivity to financial loss.

Julio Licinio, editor of the Molecular Psychiatry journal which reviewed and published the brain study;

Pathological gambling that happens at regular casinos is bad enough, but I think it’s also happening a lot now at Casino Wall Street and Casino City of London. We like to believe we all have free will and make whatever decisions we want to, but this shows it’s not so easy. Many people are predisposed to make certain kinds of decisions.

Derek Hill, a professor of medical imaging science at University College London was intrigued by the findings;

This research uses sophisticated brain scanning to improve our understanding of the way that our appetite for risk is linked to the way that chemical messengers operate in the brain. It is quite preliminary work, but has many intriguing implications. This sort of imaging could in future be used to help test drugs to treat people who indulge excessively in risky behaviour.

Alexis Bailey, a lecturer in neuropharmacology at Britain's University of Surrey, said scientists need to analyse pathological gamblers to confirm whether they have higher levels of chemical transporters than non-gamblers.

Also there is a need to investigate if noradrenaline transporters are also increased in brain regions traditionally associated with decision making and emotional aspects of aversion such as the prefrontal cortex and amygdala.

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