Thursday Trader's Tip: The Perceptual Process
Welcome to Thursday Trader's Tip — the free edition of The High-Performing Trader newsletter. Each video presents to-the-point trading psychology advice that can be watched within 10 minutes.
Exciting News!
Thursday Trader's Tip has undergone an upgrade — I've transitioned from the usual written format to dynamic video content to connect with you better.
I'm aiming to keep the videos short and sweet, around 5-8 minutes, packed with valuable trading psychology insights.
Enjoy this week's video and feel free to share your feedback and suggestions in the comments - they’re well appreciated!
I recommend watching the video at 1.25x speed for an optimal experience.
Transcript:
The perceptual process happens in 4 phases:
1. Prediction: External stimuli are absorbed by our senses and trigger bodily sensations that our brains interpret with the help of past experiences.
2. Simulation: Based on the prediction, our brain builds concepts and starts to simulate the whole scenario of what will happen next (what can be compared to a movie).
3. Comparison: Our brain compares the simulation with reality.
4. Mismatch Resolution: The brain matches either the emotional response with reality or the concept with the emotional response.
Say you're walking in a dark forest at night and start hearing strange sounds. Your brain starts predicting danger and simulating a big animal. When a cat comes out of the bushes, the brain compares the fearful emotional response to reality, and you calm down pretty quickly. But if your brain were to align the emotional response with the imagined concept, you might start experiencing hallucinations.
Many traders operate on the basis of these hallucinations. Instead of adapting their emotional responses to match reality, they get fixated on the simulation (their expectation of the market's behavior). This leads to decisions that diverge from market realities.
While we can't prevent the perceptual process altogether, you can impede your mental simulation from affecting your perception of market reality so that, when it's time to adjust, you do it detachedly, without any type of resistance to the present moment.
Peaceful trading,
Sara
Did you miss a post? Read the last releases here:
Paid Edition:
Overconfidence in Trading: How To Stay Grounded During a Winning Streak? - a deep dive on trading overconfidence, exploring its connection to testosterone and the disposition effect, and 4-key questions to keep you grounded during a winning streak.
Combating Boredom in Trading (with Special Attention to ADHD Traders) - a deep view of the three types of boredom, the increased struggle it represents for ADHD traders, and solutions to combat it.
Charting Your Inner Potential: The Road to Peak Performance - how to minimize the gap between your full potential and what you deliver in reality.
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good video. would appreciate a written version as well to review specific parts to digest rather than have to go back to the video and rewind. Thanks!
Great idea and production. For my part, I would be very grateful if you could include a transcript of what you said. Thank you for your efforts, Sara.