Back in 2007, Cal-Tech ran what is turning out to be a revolutionary study on how the brain predicts price moves. The authors found that predicting other people is the key skill behind correctly predicting price moves. In some circles, this skill is called mentalizing but until recently, skill development programs for this ability were confined mostly to children and special clinical populations like sufferers of autism. Luckily for the trading world, that is changing.
Recent research out of Harvard shows that reading fiction and in particular, “getting into” the fiction – i.e. identifying with the characters – helps with the ability to read other people. In other words, if you empathize with the people in a story, you may very well be “tuning” your perception of the people behind the price action you are trying to make sense of.
Furthermore, additional research shows that reading fiction helps people to better tolerate uncertainty. The mechanism isn’t clear yet but the idea is that by reading about the dramas of others, an individual is better able to tolerate their own challenges and conflicts. Given that coping with the unknown is a huge part of waiting for a trade to play out (or even in deciding to kill a losing trade that may come back), it may explain part of how Dimitri Balyasny became such a skillful trader. (Back in the ’90s when I knew him, he routinely took a break from trading during lunch to — read a book!!)