What’s your market approach?
• Are you logical and analytical? Do you like to process facts and numbers?
• Are you organized and enjoy step-by-step planning and detailing procedures?
• Do you glean your market information from online trading rooms or local investing organizations or clubs? Do you stay in touch with a group of friends or colleagues to discuss the markets and ideas?
• Do you tend to look at the market with a “big picture” view? Do you prefer to invest in companies with innovative new products that are on the cutting-edge of future technology?
Most of us come to the stock market from one or two of the above preferences. In fact, as humans, we each unconsciously “prefer” to approach the market—and the world—from one or two styles of thinking. Research shows that 97.5 percent of the population prefer to think from one or two preferences, most of the time. And sad to say, when we do that, we are only using limited parts of our brains.
Now, here’s the good news: Our brains are actually constructed to think in four thinking styles. Brain-based science tells us that if we use our whole brains (at least some of the time), we benefit dramatically, because we can leverage much more of the spectrum of market information presented to us. Translation: we can find more success in the stock market.
Ned Herrmann, a physicist by training, and the Manager of Management Education at GE, developed the Whole Brain Model in 1981. Hermann believed that there was more to the “left brain, right brain” model created by Roger Sperry in the 1970s.
Using his own research, as well as elements of studies from Sperry and other neuroscientist, Herrmann discovered that the brain perceives and processes information from four quadrants. The quadrants include the two halves of the cerebral cortex (the upper part of the brain) and the two halves of the limbic system (the mid part of the brain). Note the diagram, below.
Now, since every thought, feeling, action and behavior you initiate while trading and investing comes from your brain, let’s take Herrmann’s model to the stock market:
Traders and investors dominant in Quadrant A usually prefer working solo. They like to research market fundamentals and evaluate analyst’s reports, analyze price charts and indicators, and study financial books, newspapers, and websites. I think you’ll agree that all investors and traders need to spend time in this quadrant, no matter what their primary thinking preference is.
Traders and investors who come from Quadrant B will surely construct a detailed business plan, may implement a step-by-step approach to entering and exiting positions, will prefer low-risk strategies, and always maintain up-to-date records.
Please know that good organization in both planning, risk-management and record-keeping is key to pocketing juicy profits in the market. As Benjamin Franklin said, “If you fail to plan, you plan to fail.”
Market players dominant in Quadrant C enjoy the social aspects of the market, such as participating in chat rooms, communicating with other traders and investors online and in person. These folks may also rely (consciously or unconsciously) on their emotions when entering or exiting positions. Certainly, we can always gain by learning from financial experts or colleagues who expand our knowledge base.
And here’s a brain booster: Our brains need social support to function at their highest level. When we connect with others, we release oxytocin, and that body chemical calms our minds and reduces stress.
Finally, traders and investors who view the markets primarily from Quadrant D tend to view the market—and the world—from a “big picture” perspective. These people like to conceptualize the potential growth of sectors and companies. They can embody a high tolerance for risk. They may also find that identifying price patterns on charts comes easily to them.
Since the market is a forward-looking (and thinking!) vehicle, all of us would do well to occasionally climb out of our information “ruts,” and widen our horizons into other areas of the market. I enjoy checking out new exchange traded funds, and exploring financial publications written outside of the U.S., such as the Financial Times.
All of us approach the market from our preferred thinking styles. But isn’t it great news that your brain is capable of moving beyond those borders and into new ways of thinking?
Since I’ve been aware of this four-quadrant model, I’ve been striving for whole-brain balance. So, I ask myself each day . . . am I researching enough? Are my trading plans and records organized and am I approaching the market in a sensible, step-by-step approach?
Am I learning from, and communicating with, my colleagues? And, am I remembering that a “big picture” viewpoint of the market yields valuable information that keeps me from “small picture” limitations? I’ve discovered that even 15-minutes a day spent in “soft” quadrants has delivered substantial results.
If your approach to the market provides you with consistently good profits, then I commend you. Keep on keeping on!
But if you’d like to boost your gains in the market, consider expanding your thought and behavior processes into all four quadrants of your brain. Your future self will thank you!
Until next time, keep green on your screen!
Toni Turner is the President of TrendStar Group, LLC, is an accomplished technical analyst as well as a popular educator and sought-after speaker in the financial arena. She is also the author of best-selling books: A Beginner’s Guide to Short-Term Trading, Short-Term Trading in the New Stock Market and Invest to Win: Earn and Keep Profits Bull and Bear Markets With the GainsMaster Approach, co-authored with Gordon Scott, CMT.