According to a study on traders presented by Colin Camerer, Professor of Behavioral Economics at the California Institute of Technology, high earners trade better than low earners.
They had 20 subjects who were taught how markets work.
And then they started to buy and sell.
During the experiment, the brains of 3 subjects were scanned with an FMRI (functional magnetic resonance imaging) machine. This shows blood flow in the brain and shows brain activity.
The subjects were divided into 3 groups: high-earners, medium-earners, and low-earners.
What was interesting was that the high earners were actually the ones who bought low and then when prices began to rise, liquidated their positions at a profit.
The low-earners did the opposite: they bought into the rallies.
They tended to be "momentum players."
There's a brain region called the Nucleus Accumbens (NAcc) that lights up when it's time to buy and sell (the reward region!).
This region becomes active especially with the low earners.
The high earners showed brain activity mostly in what is called the insular cortex, or insula.
This latter region is more associated with uncertainty or risk-averse behavior. You could also call it a kind of early warning system.
Emotionally, high earners have to do something really hard, according to Colin Camerer, they have to sell going into a rising market.
And apparently the Insular Cortex helps them do just that. The early warning system helps them sell even though prices are still rising....
The high earners got out of the market early, which led to the bubble bursting, and made the most money. The rest exhibited what former Federal Reserve Chairman Alan Greenspan called "irrational exuberance" and lost their proverbial shirts.
He traded for a hedge fund and then went on his own. He specializes in scalping and fast day trading. His scalping book "Scalping Is Fun!" is an international bestseller and has been sold more than 30.000 times. His books have been translated into 11 languages.
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