In very simple terms, the easiest way to understand our brain evolution is to use the ‘triune brain theory’, first developed by Paul McLean. In this theory, evolution has delivered three distinct brains and stages of development which now co-exist inside our skull. These three do not operate independently, but are linked via a highly developed and complex web of neural pathways.

The first (and oldest) is the reptilian which controls our vital functions, such as breathing, heart rate and temperature. The second to emerge is known as the limbic and is made up of a group of structures which serve to evaluate sensory data quickly and trigger a motor response. In other words, assess a situation and prepare the body for either fight or flight. And finally, the third, the neocortex, which is the brain which sets humans apart. It is the neocortex that has allowed us to develop new levels of advanced behavior - particularly social behavior as well as allowing us to develop language and higher level consciousness.

As you will appreciate, the above explanation is an over simplification of the structure and function of our brains. However, it is a necessary first step in establishing the significance of understanding what is happening inside our head as we trade, and why it is just as important as understanding what is going on in the market.

For traders the area of the brain which can cause so many problems lies in the limbic system, and is known as the amygdala. This area is also often referred to as the brain’s fear centre, and is responsible for producing the fight or flight reaction. As the ‘fear centre’ for the brain, the amygdala ensures we recognize and recall danger. It triggers our emotional fear responses by performing a ‘quick and dirty’ assessment of what is happening, and we respond even before we know it.

 

Coulling, Anna. Forex For Beginners (Kindle Locations 2955-2968). Anna Coulling. Kindle Edition.