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Forex Decision Fatigue

A recent New York Times article relates the story of three jailed Israeli men who appeared for parole hearings before the same board. Two were serving a 30-month sentence for fraud, and one a 16-month sentence for assault. All three had completed at least two-thirds of their sentences, but only one had their parole approved by the board. It turns out that the decision was influenced by the time of day the hearing took place.

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The prisoner granted parole had his hearing early in the morning. The other two had their hearings in mid to late afternoon, when the judges were suffering from “decision fatigue,” a condition the article defines as a gradual depleting of mental energy as a result of continually making decisions.

According to researchers, the percentage of favorable rulings in parole hearings starts out at its highest early in the morning, and then steadily declines as the day wears on. This percentage increases dramatically after food breaks, but immediately declines again as soon as the judges resume their decision-making processes.

Here’s the bad news for forex traders we are not immune to this phenomenon. The physiology is only starting to understand and analyze this but for the forex traders it is a reality that we face every day especially during volatile market conditions.

The professional day trader may have as many as twenty of thirty trades per day and during the volatile markets by the end of the day they are usually. So it is not recommended to push yourself further doing trades about which you later would say “What was I thinking ?”. In the middle of the flow the feeling of greed (just one more winner!) and fear (I am going to finally lose! ) constantly hunt us forcing to make more and more decisions which have a diminishing return quality because of the decision fatigue. Something to remember, the next time you trade too long.

Read also Forex Meditation


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