Lack of sleep affects traders and their success rate
As we’ve discussed before, discipline and self-control are two of the most important things in trading. It absolutely should be treated as a combined physical and mental challenge. Sleep is what rests the body in both ways and here we’d like to show you how its lack affects both you and your trading.
Consistent sleep deprivation has a negative impact on attention, working and long-term memory. It also reduces your capacity to learn and retain information with about 40% memory and a whole host of mood and health impacts. Whether you trade after work or study, or even full-time, this can affect you, albeit in slightly different ways.
Over-committing yourself and squeezing a lot of activities into short amounts of time always has the same effect – exhaustion. It’s something that doesn’t mix well with trading, because the latter requires sharp reactions and being on your toes when planning your trade and during its active phase (if it’s a short-term one of course).
But there is a more well-defined risk in terms of trading. It is the experience of abnormally high levels of optimism after being sleep deprived. This was found out in an experiment performed by neuroscientists at Duke University in 2011, that made subjects stay awake for a full night and made them take several tests in the next day with MRI tests being taken to show where they had increased brain activity.
The sleepy heads had to make economic decision-making tasks twice, once after a morning of regular sleep and once after no sleep. Results showed increased activity in the brain areas related to positive thinking after less sleep. Translated into behaviour afterwards, the subjects tended to make choices towards financial gain and made fewer selections to reduce loss. Or described scientifically – there was an increased sensitivity to positive rewards and a lowered one to negative consequences.
If we were to translate this directly into trading, it can have have a direct impact on how trades are made. In an activity where cutting your losses and extending your gains is the difference between success and failure, this factor has an increased level of importance.
Tackling such an issue is of course something that differs from person to person, but in order for trading to be done efficiently and with less likelihood of loss, it requires that you begin each trading session with the necessary preparation and with the right amount of energy. Every trader should assess their condition every once in a while, because tiredness and stress are not something immediately identifiable looking from the inside.