Circadian Rhythms

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Circadian (pronounced sir-KAY-dee-in) rhythms are controlled by a

biological clock in the human brain. The supachiasmatic nucleus

(SCN for short) is that clock. It is located within the hypothalamus

of the brain. The SCN is strongly influenced by changes between

sunlight and darkness and is sensitive to minute changes in light. It

can tell the difference between morning sunlight, midday, and of

course, night. Light information is transferred to the SCN by the retina, which interprets this information and passes it on to the

pineal gland, which secretes the hormone melatonin. Melatonin regulates

the 24-hour cycle. Darkness causes a rise in the secretion of

hormone, while light inhibits it. Alertness and sleep are affected by

the control of light. Is your trading area a dark dungeon? I don't

know why traders seem to want to trade in the basement or in the

darkest part of the office or house where they have no natural light.

The lack of light will affect your alertness and your cognitive thinking.

If you are a night person, starting off your trading day in a dark

room with no natural light will affect" your level of concentration,

focus, and reaction time. If the room is warm and if there is a continuous

sound such as a clock, computer hum, or flickering light,

you may have found the reason why you just can't seem to do well

in the opening hours of the market. First, if you are a night person,

you aren't biologically suited for early-morning trading. If you have

to trade in the morning, you are going to have to reset your biological

clock. Yes, this can be done. Airline pilots must do this on international

flights that cross time-date zones. My advice would be not

to go against your biology. A biomechanical trader will do what is

necessary to perform at optimum efficiency. If possible, start your

trading day later and trade more at the end of the day when your

mind is more alert. A morning person would simply do the reverse,

trading the first part of the day to take advantage of an alert,

focused mind. As you have learned in previous chapters, the first

two hours and last two and one-half hours of the trading day exhibit

the highest probability for success. Is it coincidence that this time

frame just happens to fit human circadian cycles? I don't think so. I

am convinced that a large part of the cycles in the market are, in

fact, related to circadian biological cycles. If you think about it, the

market is a human creation, and it is our trading that gives it life. It

should, therefore, reflect the cycles of its creators.

If you are a professional trader and your job demands that you

trade, you can't go to your boss and say, "My individual circadian

rhythms won't enable me to be at my best until later in the day so I

am going to wait before I start trading." Your boss is going to think

you have lost your mind. If you find yourself in a situation in which you can't adjust your trading hours, I have some very helpful suggestions

to assist you in keeping alert throughout the trading day.

Muscular Activity Most traders sit in a comfortable chair, while

some stand at their trading stations; both lead to fatigue. Stretching

can alleviate fatigue by triggering the sympathetic nervous system,

which helps keep you alert. Another simple exercise is to squeeze a

small rubber ball or wrist exerciser, which will also stimulate muscular

activity. A walk or run in the early morning, preferably in

morning light, will stimulate your body alertness.

Food and Nutritional Supplements Do not start the day by consuming

sugar. If you do, in most cases you are setting yourself up for a drop

in alertness later in the afternoon. When trading through the lunch

hour, many traders now eat energy bars. If you do this, make sure

that these bars don't have a large percentage of sugar. If they do, it

will exacerbate a period of decreased alertness that some people

call the "lunch dip" or "afternoon dip," which occurs between the

hours of 1:00 P.M. and 4:00 P.M. Within these hours, performance suffers,

and if you are in one of those dimly lit trading dungeons, you

have to fight to stay awake. If you are on the East Coast of the United

States, you are trading during this time frame. This dip in alertness

has nothing to do with lunch; rather, it is related to human circadian

rhythms. Fluctuations in body temperature, hormone levels, and

other activities in the human brain cause a perceptible drop in alertness

during that time. We experience peak alertness in the morning

and early evening. The Mexican culture has what is called siesta

(midday nap), and life and business revolve around this practice.

Mexicans simply extend their day into the early evening hours. In

the United States, we see this as a waste of time, but from a biological

point of view they are operating at a time when they are the most

alert. Some major corporations in the United States are now adopting

the idea of short naps to increase the productivity and alertness

of their corporate executives and employees. The companies that

have adopted this program see the results in less absenteeism,

increased productivity, and greater company loyalty. Even Japanese corporations recognize the importance of naps to increase productivity.

Human biology is essentially the same no matter what part of

the world you live in.

The type of food you eat and the time you eat it are important

from a biological point of view. I love a good turkey sandwich. If I

were trading on the East Coast and had turkey for lunch, I would be

compounding the problem of decreased alertness—the afternoon

dip previously described. Turkey has within it a substance called

tryptophan, which will cause relaxation and drowsiness. If I eat a

turkey sandwich just prior to 1:00 P.M. the combination of normal

human circadian rhythm and the chemical effect of the tryptophan

can cause a marked drop in performance. Other foods that have

tryptophan include fish and egg whites. Foods like bananas or milk

help induce sleep. Foods or drinks with caffeine (chocolate, tea, soft

drinks, herbs like green tea, gurana, and gotakola) stimulate the

body and help to inhibit sleep. Don't get into a habit of using caffeine

to stimulate awareness.

Temperature Dry, cool air will help keep an individual alert. Conversely,

a warm or humid temperature will make you sleepy. Your

age and sex will also impact how temperature affects you. As we get

older, physiological changes take place and we tend to be less tolerant

of colder temperatures. An increase in external temperature

tends to make an individual drowsy. Studies have shown that men

and women perceive and regulate body temperature differently.

Women tend to become much colder than men in the same temperature

environment. This explains the battle over temperature control

between men and women that has been raging for years. It has

a biological basis.

Light You should increase the brightness of the light in your trading

environment. If possible, have as much natural light as you can.

Bright light will stimulate alertness. In some cases, you can increase

the light in your trading area by using a desk or floor lamp. Your

light source should approximate natural light. Be careful not to

increase the temperature in your trading area, as this will cause you to become drowsy. Remember that darkness increases the production

of melatonin, which brings on fatigue and sleep.

Sound Sound can either stimulate or bring on relaxation and sleep

depending on the type of sound. Listen to the sounds in your trading

area and be on guard for sounds that will cause you to become

drowsy. These sounds would have a dull, repetitive nature, such as

the sounds of technology that surround a trading environment—for

example, computer hum or buzz, overhead-light hum, or any continuous

monotone sound. Sounds that stimulate would be irregular

or variable in nature, such as TV, radio, or loud talking. These

sounds can become distracting, and you need to focus on what you

are doing. When talking or some other irregular sound becomes distracting,

I suggest that you use soft earplugs. In fact, the use of

earplugs has been shown to enable readers to concentrate and

focus more effectively on written material.

Sight Don't sit and stare at your computer monitors. Becoming

fixed on one spot of the screen will send you into a daydream state.

Move your eyes and head slightly to the right and left and remain

focused on trading. Make sure your computer monitors have a dot

pitch of 0.25 or 0.26 mm, or your eyes will become irritated and

fatigued.

Smell Our olfactory sense, or sense of smell, is one of the most

powerful senses we have. It has both a conscious and subconscious

effect on our mind and body. You can confirm this by popping an

ammonia capsule under the nose of an unconscious person: The

sense of smell will return the individual to a conscious state. Aroma

can stimulate or induce relaxation. The smell of peppermint can

induce alertness, while the smell of jasmine or lavender can relax

and calm you. In my office I have a time-release spray (see Figure

7.1) that is set to spray the scent of peppermint at 11:00 A.M. and

again at 12:00 P.M. Pacific time. I have found that it increases my

alertness and helps fight off normal circadian fatigue. I know that

the last two and one-half hours of the trading day have a high prob174

the strategic electronic day trader

ability for success, and I want to take advantage of this potential

opportunity by being as alert as possible. Such an atomizer can be

placed on your desk or in your office and set to release at specific

times of the day

Reversing Circadian Rhythms

One of the most important factors influencing circadian rhythms is

the degree of light and darkness your body experiences. Everyone

is no doubt familiar with the effects of jet lag, which is a disruption

of the circadian cycle brought on by crossing time zones faster than

the body can adjust. Airline pilots have to deal with this problem all

the time. You can adjust your circadian rhythms (biological clock)

by exposing your eyes to bright light at specific times during the

day. It is quite possible to adjust your biological clock to a new time

zone within one day. In fact, natural adaptation could take a month.

To speed up the process, you can use specific artificial light to

accomplish the adjustment. If you are a professional trader, or if it's Miami today and London or Tokyo tomorrow, adjusting your circadian

rhythm will give you a definite advantage.

Sleep

It is important that a trader learns about sleep. Not just because

sleep is necessary for performance and alertness, but because in

sleep you naturally enter four different states of mind. The concept

of entering a different state of mind to improve your trading seems

ridiculous to most traders. What they don't understand is that all

human beings enter different states of mind every night. Two of

these states of mind, which you have entered all of your life while

sleeping, hold the key to your trading performance. There is

nothing ridiculous about improving your trading. It is ridiculous to

let ignorance and a misplaced trust in technology cause you to fail.

Nuclear accidents, plant explosions, fatal fires, and other tragic

events may be linked to fatigue and a disruption of the circadian

cycle. Studies suggest that 50 percent of fatal highway accidents are

caused by fatigued drivers. The estimated cost of worldwide losses

due to fatigue is more than $370 billion. The inability to sleep seems

to increase as we get older. The body's ability to regulate temperature

and melatonin production decrease with age. As we get older,

we tend to have fewer SCN neurons. Trying to trade when you are

fatigued or don't feel well is not in your best interests and could

cause you to become a market statistic.

The type and amount of sleep you get is very important. Sleep

is not like some people imagine it. You don't just shut down and

wake up after a set number of hours. Sleep has several stages, each

distinguished by different brain-wave activities that recur throughout

the night. I suspect that everyone has had the feeling of freefalling

in a dream. It is interesting to note that we fall and then rise

through the different levels of sleep. There are four stages of sleep,

which include both non-REM (rapid eye movement) sleep and REM

sleep. You can record the different levels of sleep by the use of an

electroencephalogram (EEG) machine because each level of sleep

has a different frequency. This makes it possible to identify the state

of mind we want to access as traders. Let's examine the different

levels of sleep.

Levels of Sleep In your conscious state, when you are awake and

feel alert, your brain-wave pattern is known as beta. When you lie

down to sleep and begin to feel drowsy, your brain begins to produce

alpha waves. It is important to understand that each state of

consciousness has a different brain-wave pattern and frequency.

This enables a trained professional to identify different states of

consciousness. Alpha and theta waves will be explored later when

we discuss how we use hypnosis and biofeedback in training the

biomechanical trader. For now, you need to understand the basic

mechanics of the sleep process.

Level 1: After about five to seven minutes of alpha-wave production,

you reach the twilight of consciousness. Now the

brain changes wave production to the theta wave. In level

1, you have definite relaxation of breathing and muscles

and slower pulse rate. In other words, a state of mind

influences matter, and the matter in this case is you. Never

let anyone tell you that a state of mind has no effect on

you or your performance.

Level 2: This stage usually lasts for 15 to 35 minutes and is characterized

by flashes of electric activity within the brain.

Level 3: Levels 3 and 4 are our deepest levels of sleep, during

which the brain is producing delta waves. Deep sleep will

usually last for 30 to 40 minutes.

Level 4: This is the last stage of descent into sleep. From level

4, the sleeper begins to ascend upward, passing levels 3

and 2 until reaching level 1 and beginning REM sleep. REM

sleep represents about 25 percent of total sleep time. If

you awaken during REM sleep, you are able to remember

dreams. Learning, creativity, imagination, and suggestion

response come in REM sleep. The alpha brain wave is predominant

in this state of mind. When you meditate, you

enter level 1 and begin to relax: You have willed yourself

into a different state of mind. A typical REM cycle can last

for minutes or up to an hour. During the night, you will pass through cycles of REM and non-REM sleep, with each

cycle lasting around 90 minutes.

The Sleeper Awakens How many times have you awakened from

sleep feeling disoriented and unable to think straight? In fact, you

may find it hard to talk because you just can't formulate what you

want to say. The level of sleep you are in determines how alert

you will be when you awaken. If you awake from delta, or deep

sleep, you will feel many of the feelings I have just described. This

condition may last for more than 5 to 10 minutes. However, if you

awaken from levels 1 or 2, you feel alert and even refreshed. A biomechanical

trader uses this information to help his or her performance

in trading the market. It is possible to control or manage

your sleep cycle. You can learn techniques that will enable you to

wake up from the correct level of sleep for better performance.

Understanding that levels 1 and 2 will refresh you can be an important

factor in mental performance. If you did not get enough rest, it

is possible to learn to relax and place yourself in an alpha or theta

state. Within this state of mind, you can refresh your mind and relax

your body, in effect giving yourself a mental and biological recharge.

You can use this technique during the time of day when alertness

suffers—from 1:00 to 4:00 P.M. This will help you combat the natural

circadian cycle known as "afternoon dip," or "lunch dip."

About now you should feel warm and sleepy. You may feel

drowsy. Your eyes may feel heavy. You might even be yawning.

Reading about the states of sleep has made you tired. If this is the

case, you have been influenced on a subconscious level to become

sleepy. The process started from the title "Sleep." The wording, sentence

structure, and the subject have been set up to induce a

relaxed, calm state and induce an alpha response. Have a good

night's sleep and a profitable day trading tomorrow!

We will examine other biological factors later in this chapter

when we discuss factors involved in the mechanics of creating a

biological trader. Let's now examine psychological factors and characteristics

that you need to become aware of before we take a further

look into the creation of a biomechanical trader.