Perceptions in Trading -Anirudh Sethi

Image result for PerceptionsPerceptions are a normal part of daily life. It is normal to have a perception of someone, something or a situation, but this perception is often judgmental. One tends to allow feelings, emotions and looks to affect the perception. Despite being a normal and inherent part of human psychology, perceptions can be highly problematic if left uncontrolled in the case of traders.

A trader cannot allow perceptions to cloud his/her judgement and decisions. Perceptions can be deceiving and they thus need to be kept in check as they could lead to erroneous decisions.

In a perfect world, a trader will manage to be completely rational. He/she would be able to assess all facts so as to base decisions and choices on sound information and data. Such a perfect scenario would not allow emotions, perceptions and feelings to come into the picture. As a result the decision making process and the resultant decisions should be ideal. However this is an unreal scenario as we all know that this is not possible in a real world. This is what makes trading psychology so interesting, and yet so complicated and complex. However one should consider this in a positive way as it after all lies at the foundation of why the market and the life of a trader is so challenging and exciting.

The basic idea is to try to keep perceptions under control as much as possible. Despite all efforts though, even seasoned traders may find it hard to be veyr rational at times. One cannot forget that there is tension, pressure, emotion and various other aspects which come into play while a trader is trying to make up his/her mind about the best and the safest course of action.

The best a trader can possibly do is to try to make sound decisions which are as much as possible unaffected by perceptions and emotions. So the trader should try to train himself or herself to know what perceptions are like. The trader needs to understand the perceptions that he/she has formed, so as to be personally aware what they are and not let them cloud his/her judgement. One cannot block perceptions per se, but one can be aware of what they are, and attempt to block their effect on the evaluation and decision making process.

One needs to appreciate the fact that as soon as something happens the human brain is going to process and evaluate those circumstances and interpret them. Perceptions are going to be formed inevitably. However the trader needs to train himself/herself to perceive the situation in an objective way, and not let perceptions take over what is more important and valid.

Perceptions can have a very negative effect on trading decisions as in many cases they can be skewed or deceiving. Traders thus need to be aware of their thinking processes so as to distinguish between what is a perception of reality, and what is truly applicable or valid in the particular situation.

Perceptions tend to be even more powerful when one is afraid of a decision, and when one has a lot of self assurance. Giving too much weight to losing a trade is normal when one went through such a situation, and it is normal to perceive a similar trade to be similarly risky. Likewise, a trader who has got used to being successful may end up perceiving his/her trades as being quite safe. So traders should try to be cautious. While winning trades are remembered with a lot of fondness and satisfaction, they should not take over one’s judgments and make one feel too confident in his/her upcoming decisions. On the other end of the spectrum, a trader cannot allow his/her failures to make him/her perceive all other trades to be too risky. Being cautious is important and recommended in trading, but one cannot always end up being over cautious either.

Thus a trader needs to be aware of the perceptions that he/she forms while ascertaining how their effect could be blocked rationally so as not to degrade the final trading decision. Perceptions are normal and one cannot expect to avoid them. Traders just need to learn how to perceive their perceptions and keep track of them during their evaluation process leading to a decision.