To become a better trader you need to understand our memory and how it functions.
If you understand how memory works, you would learn trading much faster.
Types of memories:
- Short term memory or working memory
- Long Term Memory
- Procedural memory
- Priming memory
There are two basic types of memories: long-term memory and short-term memory.
Short-term memory is also called working memory.
Short-term memory is where most of the learning happens.
Long-term memory is primarily used for storage.
When we learn something it is stored in long-term memory.
The two types of long-term memories, explicit memory and implicit memory.
Explicit memories also called conscious memory.
Within explicit memories there are two types of memories: episodic memories and semantic memories.
Episodic memories deal with specific events and their context, for example your first date memories are stored in episodic memories.
Semantic memories deal with the knowledge about the world, for example what is the capital of Uganda is stored in semantic memory. Most books on trading deal with semantic memory.
Implicit memories is unconscious memory. Implicit memory is where automation happens. Implicit memory is where procedural knowledge is stored.
Expertise in trading is primarily about developing implicit memories or more specifically procedural memories.
Implicit memories are very difficult to verbalize.
The contents of procedural long term memory cannot verbally be explained. (Can you explain how you ride a bike?)
Performance of activities or demonstration of skills is the only method to convey procedural long term memory.
This is why the new traders are often frustrated.If you want to change your trading behavior you have to change your procedural memory.
That is true not only of trading but also of life in general.
What is procedural memory
Procedural memory is memory about skills.
It is memory about how to do things.
It is stored as action sequence.
It is implicit.
Implicit Memory is remembering something without being aware that you are remembering it.
It is an automatic or an unconscious form of memory.
Your muscles have stored a certain action sequence and it is performed automatically.
A person has thousands of procedural memories
Your ability to walk, talk, drive, shave, play golf, wash dishes, have sex , cook, climb a mountain, analyse a problem,lead and so on are all examples of procedural memories.
A average person has tens of thousands of procedural memories.
Some are very simple and some are very complex.
When you learn a skill , it is stored as procedural memory.
Can you tell someone how to walk.
When you are washing dishes do you do it consciously.
It is implicit . You remember how to do it . But you cannot verbalize it.
You can wash dishes, cook and talk on phone simultaneously.
Why because these are all procedural memories.
Procedural Memory allows us to survive
The reason procedural memory is implicit is for survival.
If we were to consciously try and do every act, we will be very slow and get paralyzed. By that time the tiger would eat us !!
When we acquire skills in a particular domain, it is stored as procedural rules.
These action sequences are completely internalized and once that happens they are beyond our conscious manipulation.
This allows the memory to be used without short term memory getting involved.
This allow us to become more efficient in handling our environment.
Procedural memory is the basis of our character
When we learn a behaviour or an emotional response it becomes part of our procedural memory.
Once it's been stored into the procedural memory system we don't need to decide how to respond to a specific situation because it has now become automatic.
These "overlearned" patterns are the "behind the scenes" kind of memory that frees up our attention for more important tasks.
This is why we behave in a particular manner.
Character is a bundle of our behavioral pattern.
We are prisoners of our procedural memories and that is why our bad habits and character traits persist.
If procedural memory was conscious memory we would not require therapist and psychologist to change our character or behavior.
What do psychologist do?
They bring procedural memories into conscious awareness and help us change the processes consciously.
Procedural memories are difficult to change
An important feature of procedural memory is that it tends to persist.
Procedural memory is resistant to change.
In a way this is a good thing because you don't want to have to keep re-learning behaviours.
But this also means that you can't change a procedure, unless and until you consciously pay attention to how and when it operates.
Procedural patterns take a while to unlearn.
It requires a very structured environment to change procedural memory.
You need to overwrite the old procedural memory with new memory.
Unless significant effort is put in to do this, it does not happen.
The old procedure reasserts itself.
That is why once you learn wrong swing in golf , you cannot easily change it .
The old procedural memory reasserts itself unconsciously.
Simple procedures can be learned very quickly
We do this constantly.
Suppose you buy a iphone, you need to learn how to operate it. We learn it quickly.
Same way you learn how to use new software.
But when you have to learn complicated and higher order skill, it is not easy.
Let us say if you want to learn leadership, it is not easy.
Why because unlike learning to operate iphone, leadership is very complex skill.
Can you teach someone a sense of style. You can try but it is not easy.
Same way learning to trade is very complex skill.
How to develop Procedural memory
Procedural memories are developed by consciously practicing steps involved in a process.
For this you first need to consciously break down a process in to multiple steps.
After that you need to develop a structure for each process or sub process.
That is the reason most of the posts on this site have title that starts with "how to...."
That is why for every method the steps are repeated again and again.
That is why for everything there are tables to fill and checklists to be completed.
All procedures have been broken down in to steps and forms.
If you use them then over a period of time the process becomes automatic.
As a final thought remember that you make money in any profession using your procedural memories. Higher the level of skills you have in your chosen profession higher will be your earnings. Skills or your procedural memories make you money knowledge does not. Think about it.