When something goes awry in life, whether professionally or socially, we have an ability to replay events in our minds to work out what went wrong and how we might do things differently next time. This ability is one of our brain’s greatest attributes, but it can also be our Achilles heel.

As a young forex trader in the mid 1990’s, I would go through my charts first thing each morning and look for potential set-ups to trade throughout the day. I was known for my disciplined approach and consequently, would rarely go off script and trade anything outside of my plan. On one occasion, I was waiting for an opportunity to short sell the AUD/USD (Aussie), when the Reserve Bank (RBA) called our desk and bought some Aussie in an act of currency intervention. I was literally Johnny-on-the-spot as my boss whom I sat next to, answered the phone when the RBA called.

The obvious trade here was to buy AUD as RBA intervention was the closest thing to a one-way bet. Rarely do such gifts present themselves in markets. So what did I do?

Nothing.

My boss couldn’t believe it. My more experienced colleagues all piled in and made small fortunes. But I finished the day with a P&L of zero and a questioning internal dialogue that stayed with me for weeks (or maybe it was months, I can’t remember).

“Why did I do nothing? I know I was looking for selling opportunities, but the facts had changed. So why was I so inflexible? Why couldn’t I just pull the trigger and buy? I won’t see an opportunity like that again, how will I make budget now?” These thoughts and many others circled in my head and given that the short-term trading of currencies is an exercise in managing uncertainty, you’d think it would have been easy to say, “oh well, next time”, and move on. Even now, when revisiting this experience, it’s eliciting an emotional response. So why do our brains have so much trouble when it comes to mental time travel?

The double-edged sword of the Default Mode Network

Our ability to review the past so that we don’t make the same mistakes, our capacity to self-reflect and to improve how we communicate next time are all useful tools in our mental toolbox.  Being able to imagine a future different to the present, allowing for creativity and innovation is what enables new worlds of possibility to be created. These mental attributes set us distinctly apart from our primate relatives and other animals. All these abilities are governed in large part by a part of our brain known as the Default Mode Network (DMN: Raichle et al., 2001).

When we are not engaged in physical or mental tasks that require our immediate attention, the DMN activates and leads us to day dreaming, mind wandering and also, unfortunately, rumination (Carhart-Harris et al., 2014). We can very easily look at our recent or distant past and become self-focused and self-critical. Often this process begins without conscious thought. These are the thoughts that occur in our minds by default and we often re-live a past experience emotionally by engaging other parts of our brain (in the limbic system).

This makes sense from an evolutionary perspective, as often our decision making is driven by these same emotion centres. For us not to repeat the same mistakes in the future, a memory with a strong negative emotion attached will provide a more salient frame for our decision making, but it can also hinder us from deciphering the signal from the noise of past mistakes.

Our brains are constantly in action, even when we’re sitting around doing nothing (actually, particularly when we’re doing nothing, as our DMN uses more energy than any other brain function (Raichle et al., 2001)). We’re constantly learning from the past and projecting it onto the future. If we get stuck on something in the past that doesn’t have a clear lesson (like what can often happen when dealing with the uncertainty of the markets), then we’re more likely to get trapped in rumination and thought spiral downward, which can lead to feelings of depression.

So how do I stop my mind from digging?

Trying to think your way out of a cycle of ruminative thinking is not enough of a distraction for your brain and typically amplifies the mental pickle that you’re already in. Most of us in investment markets are cerebral characters, so thinking your way out of most problems generally works, but not with rumination. One way of breaking the pattern of ruminative thought is by doing physical exercise which requires co-ordination. Having to think about physical activity engages different brain regions, acting as a circuit breaker by effectively switching off the DMN. Another hack to quieten the DMN is to engage in tasks for other people. This enables you to shift out of your self-focused patterns of thought. Calling a friend in need, helping the elderly neighbor with the groceries; anything action that is not about you will do the trick.

References

Carhart-Harris, R., Leech, R., Hellyer, P., Shanahan, M., Feilding, A., Tagliazucchi, E., Chialvo, D. and Nutt, D. (2014). The entropic brain: a theory of conscious states informed by neuroimaging research with psychedelic drugs. Frontiers in Human Neuroscience, 8.

Raichle, M., MacLeod, A., Snyder, A., Powers, W., Gusnard, D. and Shulman, G. (2001). A default mode of brain function. Proceedings of the National Academy of Sciences, 98(2), pp.676-682.

Raichle, M. and Snyder, A. (2007). A default mode of brain function: A brief history of an evolving idea. NeuroImage, 37(4), pp.1083-1090.