By Richard L. Muehlberg*
Posted: June 20, 2008

As a trader, how many inputs do you follow on a typical day? How many symbols are on your watch lists? How many watch lists do you track? How many charts, news feeds, alerts, and so forth, are on your mental radar?

These inputs are your lifeline. Trouble is, they may be sabotaging you. On the one hand, you may have built a "trader's cockpit" that functions faster than your brain can function. On the other hand, in a cruel irony, you may have built a trader's cockpit with too many of the wrong inputs and too few of the right ones.

Do you feel bewildered on some trading days? Paralyzed? Have you ever gone ahead and made a dumb trading decision even though you knew it was dumb? Have you ever fixated on a few inputs and lost sight of everything else? Or, how about this: Have you ever made a trading decision you thought was smart only to see it turn into a sharp loss soon afterward? You were blindsided.

What Is Tunnel Vision?

Blame it on "tunnel vision". Tunnel vision comes in at least two forms: Reactive and induced. Both forms involve a combination of information, stress and high-risk decision-making.

When you approach a high-risk decision during a stressful situation and are presented with, in effect, too much information, your mind can narrow. Your mind can fixate on just a fraction of that information: This is reactive tunnel vision. When you present yourself with too little information or the wrong information, you are, in effect, inducing tunnel vision: This is induced tunnel vision.

Both forms of tunnel vision can lead to wrong decisions. For an active trader, this means money-losing decisions. Tunnel vision can be insidious. You might not know you are experiencing it. You will, of course, know the symptoms: Making wrong decisions and feeling "out of touch" when you make those decisions. But, because tunnel vision involves a lessening of awareness, you might not be aware that tunnel vision is behind your financial losses.

115 - 145 Beats per Minutes

I was curious to research how police officers handle tunnel vision. I did a web search using the key words "police psychology + tunnel vision". I found a lot.

One of the articles I found under "police psychology + tunnel vision" stood out. Unfortunately, I lost track of the author's name. I didn't write the following excerpt but you need to read this:

"Typical heart rates during a close-quarters life-threatening event can range from 175 - 200 beats per minute (BPM) or even higher. From a resting heart rate of 72 BPM, we can attain these elevated rates in as little as two seconds…Optimal survival performance occurs when the heart rate is between 115 and 145 BPM. When the heart rate exceeds 145 BPM, mental and physical performance deteriorates in the following ways: (1) We lose the ability to perform fine or complex motor skills; (2) We are unable to focus; (3) We lose depth perception, and a great deal of our peripheral vision."

The author offers three solutions: (1) Visualize the proper response. (2) Come to terms with the possibility of death. (3) Perform tactical breathing. ("...If circumstances permit, try to breath in for a count of two, hold for a count of two, and exhale for a count of two. Do this several times to keep the heart rate within 115 - 145 BPM").

"Learn It until You Forget It"

Sgt. Charles E. Humes, Jr., in an article titled "Lowering Pursuit Induced Adrenaline Overloads", writes: "Bruce Lee was once quoted as teaching 'Learn it until you forget it.' I believe his meaning was to learn techniques so that you could perform them without conscious thought. As he said in the movie 'Enter the Dragon' while teaching a young apprentice, 'Don't think; feel.'"

Sergeant Humes also quotes police psychologist Alexis Artwohl, PhD: "I have studied the fascinating question of what allows some people to perform well in (traumatic) situations while others do not. There are a variety of factors, but based on my study of the scientific literature and working with numerous actual survivors, it became clear to me that one of the most important factors is the individual's ability to control physiological and emotional arousal levels when faced with high stress situations."

What Can You Do about Tunnel Vision?

Put these two authors together. The first author describes the importance of your heart rate as a contributing cause of tunnel vision. He discusses: (1) Visualization (Tell yourself: "This is what I will do when I approach a high-risk decision."); (2) Acceptance (Tell yourself: "I will not let the act of making a high-risk decision paralyze me."); (3) Breathing technique (Tell yourself: "Before I enter a high-risk situation, I will lower my heart rate."). Granted, a trader isn't going to die literally as a result of a bad decision but he / she can figuratively die: A trader can blow out financially. The risk of loss must not become a paralyzing thought.

The second author, Sgt. Humes, reinforces the importance of physical and mental preparation: "Learn it until you forget it." He echoes the theme of controlling your arousal levels in stress situations.

Based on my research so far and on my own experience as a trader, this is what I suggest:

• Trading requires you to make high-risk decisions under stress. You need to recognize that tunnel vision can happen to you. You need to appreciate the difference between induced and reactive tunnel vision.
• You need to limit induced tunnel vision. This may involve adjusting your "trader's cockpit" upward. You worked hard to create the way you look at markets and make trading decisions. Nevertheless, if tunnel vision is a recurring problem, you need to re-examine your inputs. Add what makes sense. Subtract what gets in the way.
• Limit your vulnerability to reactive tunnel vision. In part two of this two-part article, I will detail two trader-friendly techniques for counteracting reactive tunnel vision. Part two of this article will appear in this space in the near future.

*Reprinted (and modified) with permission from Richard L. Muehlberg (richardmue@yahoo.com). Richard is a contributor to Futures magazine and actively day trades his own account using linear regression channels and intermarket analysis. His daily trading diary entries are available on www.DayTradingWithLinesInTheSky.com.