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Paralysis By Analysis

  
  Education
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When too much information is amassed, a person is unable to internalize pertinent data necessary for rapid fire decision making. When one is unable to process the mass amounts of information, inaction occurs.

Common Problems:

  1. Not prioritizing
  2. Confusion
  3. Postponement of decision making
  4. Bad judgement
  5. Time mismanagement
  6. Lack of critical thinking
  7. Feeling psychologically stressed and overwhelmed
  8. Working hard, but feeling behind

Common Causes:

  • The delusion of a infinite range of possibilities to make money.
  • Insistence on completing all analysis before initializing action.
  • Too many variables all at once causing incessant revisiting of original signal.
  • Lack of daily objectives.
  • Choosing quantity over quality
  • Increasingly conflicting trading methods.
  • Creative speculation, that is, you can outguess the guessers.
  • Big Project Syndrome: this system will do it all, will use the latest tools, will use a new paradigm, will start with a clean slate.
  • Risk avoidance, fear of making a mistake.

Viable Solutions:

  • Keep trading system simple. Never integrate varying styles. Building a bigger model doesn’t add clarity – it creates confusion.
  • Do enough analysis to convince yourself the odds are in your favor – and then stop!
  • Refuse to review technical complexities, instead, review working functionality. If you’re not seeing simplicity in trading system design, move on.
  • Start your system design with one requirement based on sound principles, i.e, an architectural prototype. A trading system without a prototype is like a candle without a wick, which is how analysis paralysis really happens.

STOCK MARKET RULES: THERE ARE ONLY TWO!

  
  Education
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 two-number

The stock market has only two rules, both of which are vague and confusing. It is up to you to make them clear and simple to understand.

 Here are the guidelines:You must write these rules down so that you will not forget them.

You must always follow these rules.

These rules will never change.

You must keep them forever.

These rules are never to be broken.

You must never add to these rules.

 Here are the rules: 

KNOW WHEN AND WHY TO BUY.

KNOW WHEN AND WHY TO SELL.

 Now, take these rules and develop your trading methodology around them.

HUMAN MISJUDGMENT- 22 Points

  
  Education
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1.  Under-recognition of the power of what psychologists call ‘reinforcement’ and economists call ‘incentives.’

2. Simple psychological denial.

3. Incentive-cause bias, both in one’s own mind and that of ones trusted advisor, where it creates what economists call ‘agency costs.’

4. This is a superpower in error-causing psychological tendency: bias from consistency and commitment tendency, including the tendency to avoid or promptly resolve cognitive dissonance. Includes the self-confirmation tendency of all conclusions, particularly expressed conclusions, and with a special persistence for conclusions that are hard-won.

5. Bias from Pavlovian association, misconstruing past correlation as a reliable basis for decision-making.

6. Bias from reciprocation tendency, including the tendency of one on a roll to act as other persons expect.

7.  Now this is a lollapalooza, and Henry Kaufman wisely talked about this: bias from over-influence by social proof — that is, the conclusions of others, particularly under conditions of natural uncertainty and stress. (more…)

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