Zen and the Neuroscience of Trading: What I’ve learned from trading Bitcoin

One year ago, I gained an interest in trading crypto currency. You might wonder why a neurologist would develop an interest in trading. I won’t go into too much detail, but my interest stemmed from the goal of reaching financial independence from debt. As I learned more about trading crypto currency, the neurologist within me became increasingly intrigued by the neuroscience and psychology behind it.

Shortly after Bitcoin gained popularity with the media in the fall of 2017, I learned about a method of trading called technical analysis (TA). TA is a method of charting and calculating probabilities within a market that allows one to make calculated trading decisions, rather than decisions based on potentially faulty emotion. As I have learned more about technical analysis, I’ve recognized that trading is not all math and probability. I have learned a heck of a lot about myself and my own psychology. Every market -- whether it’s the crypto currency market, the stock market, or even the broad market of life --awakens primitive emotions. The major players are listed below:

 

1.     Fear of Missing Out

2.     Uncertainty and Despair

3.     Greed/insatiability

These basic emotions are represented by a group of neural networks deep within the brain called the limbic system. For example, the fear response is most strongly represented by an almond shaped nucleus within the limbic system called the ‘amygdala.’ Reward behavior and dopamine release (the neurotransmitter involved in reward) is strongly tied to a limbic structure called the nucleus accumbens. This region is also highly involved in addiction, as well as greed, when it is hyperactive. The primitive emotional limbic system is an evolutionarily old network, and therefore is present in lower mammalian and reptilian species. The limbic network plays a big role in learning.  In other words, we need emotions in order to learn and survive. For instance, doing something that activates negative emotions will make you less likely to do it in the future, thus protecting you from future loss and increasing the chance of future success. However, emotions can often lead us into bad decisions when we do not have control over them.

When I initially began learning how to trade, the reward neural network (motivation, inspiration) inspired me to enter the trading arena. However, I recognized that emotions often clouded my judgment in the beginning. I invested incorrectly quite a few times and was badly burned, both financially and psychologically. I began to feel disheartened, and felt that I was a bad trader (I probably was bad at the time. I have improved by now, but I still have much to learn).

It was ironic that, despite being a brain doctor, I faced times in which I could not control my own brain. But with the encouragement of friends and mentors who were experienced with trading (www.chartguys.com), I learned that identifying these emotions were key to gaining control over them.

Please do not confuse emotional control with suppression of emotions. Suppressing or ignoring one’s negative emotions can lead to repeated mistakes and poor decisions, as well as cognitive confusion and disorganized wiring of one’s neural networks. Your brain is analogous to a computer. A computer functions well when inputs and outputs of the system are organized and feed into the right places. But when the wiring of the computer is disorganized, it fails to function correctly. This is what happens when one does not address emotions. Inputs and outputs of the brain networks become disorganized.

Allow me to give you a medical example that exemplifies how emotion suppression can be deleterious. I recently worked with a patient – let’s call her Susan (details have been changed to maintain the privacy of the individual). Susan had recently developed uncontrollable spells that looked like seizures. I admitted her to the hospital, hooked her up to an encephalogram (a machine used to monitor brain activity and to detect abnormal electrical activity seen with seizures). She had many convulsive episodes while she was hooked up to the monitor. However, there was no evidence of abnormal electrical activity in Susan’s brain. Instead, she had a psychological disorder that manifested as unconscious, involuntary episodes of convulsing. This disorder is thought to result from the inability to process emotions and psychological distress.

Because Susan could not identify her internal stress and emotions, her brain became disorganized and unrestrained. Her emotions were suppressed until they could no longer be held in, spilling out and manifesting as episodes of involuntary body convulsions. Because Susan did not consciously recognize and process her emotions, she had little control over her emotions.

After I diagnosed her, I sent Susan to a therapist, and she underwent a type of therapy called Cognitive Behavioral Therapy. She was taught to consciously address emotions, and then learn strategies to process these emotions head on. After she finished her course of therapy, her episodes stopped completely.

Susan’s experience emphasizes how important it is to consciously attend to emotions in all aspects of life, as well as trading. Unlike Susan, most of us are capable of identifying our emotions, although some of us need more practice than others. By merely consciously acknowledging and labeling the primitive emotions of fear, insatiability, despair, etc., an individual is better able to control them.

Neurologically speaking, the frontal lobes are the areas of the brain that allow someone to have better control over primal emotions. The frontal lobes allow us to consciously process our emotions. When we consciously process our emotions, we strengthen the pathways between the frontal lobes and the limbic (emotional) neural system. This process of physical strengthening of connections between the brain is called neuroplasticity. The frontal lobes are also involved in organization and decision-making. So, when we have stronger connections between our frontal lobes and the rest of our brain, we improve our decision-making, organization, and emotional control. I am by no means an expert in the trading arena and still have much to learn. However, I have found that regularly addressing my emotions has helped me even in my life outside of the trading arena. Here are a few tips that have helped me improve those frontal-limbic connections.

1.     Recognize and consciously address your emotions, weaknesses, strengths and goals. Write these down. You’ll organize your neural connections in the process.

2.     Lucid dreaming  - Research suggests that those who are able to lucid dream are more insightful and have exceptional frontal lobe function, and thus, exceptional control over emotions, decision-making, and wisdom.

3.     Meditation – meditation builds your ability to maintain control and focus, thus strengthening the neural networks involved in emotional and impulse control. There are various forms of meditation that you can look up on the Internet. I personally have found that listening to binaural beats (a type of music that uses various frequencies hypothesized to resonate with the firing frequency of distinct neurons within the brain) while gently focusing on my breath, works best for me.