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Using Health Science to Improve Your Mental Trading Edge

Using Health Science to Improve Your Mental Trading Edge

By CMM Team - 01-Sep-2023

Charts and data aren’t the only way for traders to have an edge. 

Some of the most underrated edges come from lifestyle habits completely disconnected from technical or quantitative analysis. This blog explains four ridiculously easy ways for traders to boost their mental edge – backed by research.

Go to the Gym

Regular exercise – anything from lifting weights to playing tennis – has been repeatedly connected to significant improvements in overall mental health [1] and sharper decision-making skills [2]. Obviously, both of these qualities are essential to smart risk taking and profitable trading. 

For male traders in particular, all forms of exercise (specifically, strength training) are proven to boost testosterone. Other research suggests that (again, for male traders) testosterone increases a trader’s profitability by boosting risk preferences, confidence, visuo-motor speed, and physical reactions [3]. The inference here should be obvious. 

Eat Better Food

What someone eats can have an important affect effect on their trading performance and general decision making, especially what they choose to eat for breakfast. Morning diets affect decision making abilities throughout the day [4]. 

Consuming fewer carbs and more proteins, moreover, has been tied to increased dopamine secretion, which can have the effect of thinking more clearly and executing better informed decisions. Overall, healthy diets have a significant affect cognitive functions [5]. 

In short, eat better to trade better.

Get Some Sleep

Sleep matters to traders who want to be profitable. The body of research studying direct effects of sleep on trading performance is not immensely large, but some studies suggests that abrupt changes in sleeping patterns can have negative effects on profitability [6]. Other studies found low returns on days when traders were short on sleep [7]. This effect reversed on days when traders were rested. Researchers have also heavily corroborated the mental health and cognitive benefits of sleep [8]. 

Crypto never sleeps, but scientific research says that traders absolutely should

It's Okay to Logout

Crypto traders log insane amounts of screentime, but constantly watching the market definitely has diminishing returns and obvious negative side effects. For starters, excessive screen time is connected to depression and other mental health issues, according to several studies [9] [10]. Other research has found these mental states connect to reduced accuracy in memory and general intelligence [11] [12]. 

On occasion, traders have no other choice than to watch every tick on the chart for days. But other times, the best thing a trader can do is logout, enjoy nature and come back to the market refreshed. 

Health is Literally Wealth

Other research outside of the few studies reference in this article corroborate everything mentioned above. The major takeaway is abundantly clear: healthy lifestyles directly affect long-term trading performance. Of course, there are occasional needs for degenerate short-term trading stints where food, sleep, exercise and other things are abandoned. But health should be a priority for every trader who wants to be profitable, and science proves this.

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[1] Callaghan P. Exercise: a neglected intervention in mental health care? J Psychiatr Ment Health Nurs. 2004 Aug;11(4):476-83. doi: 10.1111/j.1365-2850.2004.00751.x. PMID: 15255923.

[2] Gomez-Pinilla F, Hillman C. The influence of exercise on cognitive abilities. Compr Physiol. 2013 Jan;3(1):403-28. doi: 10.1002/cphy.c110063. PMID: 23720292; PMCID: PMC3951958.

[3] Coates JM, Page L (2009) A Note on Trader Sharpe Ratios. PLoS ONE 4(11): e8036. https://doi.org/10.1371/journal.pone.0008036

[4] Strang S, Hoeber C, Uhl O, Koletzko B, Münte TF, Lehnert H, Dolan RJ, Schmid SM, Park SQ. Impact of nutrition on social decision making. Proc Natl Acad Sci U S A. 2017 Jun 20;114(25):6510-6514. doi: 10.1073/pnas.1620245114. Epub 2017 Jun 12. PMID: 28607064; PMCID: PMC5488927.

[5] Gómez-Pinilla F. Brain foods: the effects of nutrients on brain function. Nat Rev Neurosci. 2008 Jul;9(7):568-78. doi: 10.1038/nrn2421. PMID: 18568016; PMCID: PMC2805706.

[6] Kamstra, Mark J., Lisa A. Kramer, and Maurice D. Levi. “Losing Sleep at the Market: The Daylight Saving Anomaly.” The American Economic Review 90, no. 4 (2000): 1005–11. http://www.jstor.org/stable/117321.

[7] Siganos, Antonios. “Sleep-Deprived Financial Traders Make Lower Stock Market Returns – New Research.” The Conversation, 20 Oct. 2022, https://theconversation.com/sleep-deprived-financial-traders-make-lower-stock-market-returns-new-research-151947.

[8] Alexander J. Scott, Thomas L. Webb, Marrissa Martyn-St James, Georgina Rowse, Scott Weich, Improving sleep quality leads to better mental health: A meta-analysis of randomised controlled trials, Sleep Medicine Reviews, Volume 60, 2021, 101556, ISSN 1087-0792, https://doi.org/10.1016/j.smrv.2021.101556.

[9] Twenge, Jean M., et al. “Increases in Depressive Symptoms, Suicide-Related Outcomes, and Suicide Rates among U.S. Adolescents after 2010 and Links to Increased New Media Screen Time.” Clinical Psychological Science, vol. 6, no. 1, 2017, pp. 3–17., https://doi.org/10.1177/2167702617723376.

[10] Madhav KC, Sherchand SP, Sherchan S. Association between screen time and depression among US adults. Prev Med Rep. 2017 Aug 16;8:67-71. doi: 10.1016/j.pmedr.2017.08.005. PMID: 28879072; PMCID: PMC5574844.

[11] Austin MP, Mitchell P, Goodwin GM. Cognitive deficits in depression: possible implications for functional neuropathology. Br J Psychiatry. 2001 Mar;178:200-6. doi: 10.1192/bjp.178.3.200. PMID: 11230029.

[12] Hartlage S, Alloy LB, Vázquez C, Dykman B. Automatic and effortful processing in depression. Psychol Bull. 1993 Mar;113(2):247-78. doi: 10.1037/0033-2909.113.2.247. PMID: 8451334.