Content Courtesy: http://annemarietrades.com/
There’s a strange truth in the market and it is this. We see genius quants in great firms design incredible algorithms that trade for us…presumably to take the human element away, but at the end of the day when we’re doing it right the human still outsmarts the greatest and most powerful algorithms around…with the key phrase in there being ‘doing it right’. An amazing catch-22, no? That’s why firms are still filled with people today and not just machines.
There are a lot of things that prevent humans from executing successfully in the market, and much of it comes from something psychologists call cognitive biases. Here’s the definition from Wikipedia: A cognitive bias is a person’s tendency to make errors in judgment based on cognitive (things we know) factors, and is a phenomenon studied in cognitive science and social psychology. Forms of cognitive bias include errors in statistical judgment, social attribution, and memory. Such biases drastically skew the reliability and strength of anecdotal and legal evidence. These are thought to be based upon heuristics, or rules of thumb, which people employ out of habit or necessity.
A sneaky thing, cognitive bias, for even though we know it exists, and we try to force objectivity into our decision making, we simply have a tough time doing it. We are hard wired to create cognitive biases and consistently use them. We need them to operate effectively as it creates a sense of certainty we need to function. To put a simple example out there of a basic cognitive bias consider sitting at the dinner table. Because you have done this countless times, you have the expectation (bias) that the chair you are about to sit in will not fall apart under your weight.
Cognitive bias is the sole reason I do not watch the news during the trading day. News inadvertently forces me into the if-then space, to create expectation and consequence; it makes pattern recognition more difficult, skews my perceptions of movements, and impairs my ability to make technically sound decisions. It makes the market even noisier than it is. That’s bad for me. When I trade, I try to make what I am doing as simple as it can possibly be in order to execute as flawlessly as possible, otherwise I make mistakes…too much information around me dilutes my success.
You’d think it would be the opposite, but it isn’t. Synthesis of data becomes increasingly difficult the more of it there is, and so by my own design, I move most of the data far enough out of reach…until it can’t hurt my performance.
Trading is serious business and if performance, or your ability to execute well isn’t important to you, you need to just stop trading. Either actively work every day on increasing your performance or just get accustomed to failing. Simple as that
Devi Naren
Trade Wisely and Relax!!!
Linear Mode
