- I haven’t seen much correlation between good trading and intelligence. Some outstanding traders are quite intelligent, but a few aren’t. Many outstanding intelligent people are horrible traders. Average intelligence is enough. Beyond that, emotional makeup is more important.
- As I recall more than half the course revolved around developing the right attitude, guarding against debilitating emotions, how to think about risk, and how to handle success and failure.
- Teaching the turtle system itself doesn’t take very long. I was saying you need less than 12 degrees of freedom in a system; versions of the turtle system had three or four.
- We spent a lot of time talking about our theories on how to control risk; that was actually the bulk of the course. Attitude, emotional control, discipline; those things are harder to teach. All the turtles learned the system and learned the strategy; that was the easy part, but some of them brought the right attitude and right mental set to it and they prospered and became very rich. Others had a more halting career and did not succeed as well. They had the same training, but maybe they did not have the same emotional make-up.
Archives of “Cognition” tagrss
- Find a voice recorder and record your stream of consciousness through the sequence of two to three trades or decisions.
- Do this in sequence
- Write down five to ten memories from before you were 18 years old.
- From that list, pick three that stand out from the rest. Maybe they still have an emotional charge, maybe you even think of them every once in a while.
- For these three memories, write the story of what happened, in the form of a kind of news report on who, what, where, why, and when.
- Take these stories and look at them from a different point of view. Ask what the other people in the story were feeling or what it seemed like they were feeling.
- Last, write down how the situation made you feel in the moment and what you told yourself about the situation.
- Then set the writing and the recordings aside for a few days or weeks. Just let both simmer in the back of your mind.
- Keep a bedside notebook and jot down your thoughts and feelings from your dreams right away. What matters is the sequence of feelings and emotions in the dream; or, in other words, those feelings that you wake up with in reaction to the events in the dream.
- Now summarize the following using the data of your memories
- What do I expect for myself?
- How do I expect things to turn out?
- How do I seem to feel about myself?
- What kind of labels do I talk about myself with?
- What fears come up?
- How do I react to others?
- How do I react to being told something other than what I want to hear?
- Go back to your trading recordings and summarize what feelings came up during your decision-making moments. We are looking for the themes and feelings that repeat themselves across market and decision sequences. Compare his information with what you discovered in the previous steps. What seems similar? If it doesn’t immediately click, let it rattle around in the back of your brain for a few weeks.
Learning from history
Trading is an interesting field to say the least. It revolves around a great deal of decision making, and a lot of choices which will have diverse effects. What is responsible for the decisions made? Naturally, the trader’s thoughts and considerations in relation to his or her trading experience. So, to a certain extent neuroscience comes into the picture.
Neuroscience refers to the way the brain works, along with its cognitive functions. In fact neuroscientists focus their studies on the human brain, and how it has an impact on behavior and thinking functions.
Financial decisions are very important, and it goes without saying that they are affected by the individual’s financial literacy, experience as well as cognitive constraints. Decisions are also affected by one’s level of confidence, level of objectivity, and the element of risk involved. The amount of money involved is also prevalent, as the higher it is, the bigger the risks are and the more cautious one is more likely to be, as long as greed and over confidence do not cloud one’s decision. Thus, there are several factors which all have an effect on the decision that is finally made.
Therefore the neuroscience behind trading decisions is a very complex matter. Despite efforts to try to understand how the brain works and how it effects trading psychology and the subsequent decisions made by traders, one cannot say for sure how it all works out as there are so many factors and issues involved. There are however some patterns and trends that were noted after neuroscientists conducted certain studies in this regard.
For instance, there is a general belief that traders invest in a diversified portfolio in order to limit risk, and once this is done, they are less pressured to make substantial trading decisions since they have their investments spread out quite well. There are others who prefer to take bigger risks because they want to stick to certain stocks only, because they have a belief that they are going to do better off that way. Evidently in this case pride and confidence comes into play. (more…)
There is a reason why so few traders succeed. It is not for lack of study or effort or passion. It is not for lack of education or a Bloomberg platform subscription. It is not because only a select few have access to technical “secrets” (a.k.a. indicators). No. So few succeed at trading for the same reason that so few succeed at living an abundant life.
The unsuccessful refuse to think differently when faced with difficulties believing that luck has passed them by. They do not succeed because the want of instant gratification and its fleeting rewards has replaced the need for sustainable, hard fought, earned rewards indicative of a mindset prepared to tackle failure as nothing but a mathematical equation: here is the problem now let’s find the solution.
The mediocre search for easy answers to difficult problems believing that the right answers to their questions are found somewhere “out there”. The successful make difficult decisions where there are no easy answers, questioning whether their perception of what is out there is a distorted reflection of what is inside of them.
The best traders, according to Mark Douglas, think differently than others because they know that what is most important is “how they think about what they do and how they’re thinking when they do it.”
1) Not putting in the work – When we try to borrow ideas from others, we never really deeply understand those ideas. The process of independently generating an idea ensures that the idea makes sense to us. That gives us staying power during temporary periods of adverse price action;
2) Negative self-talk – When we focus on everything we could have done better and everything we did wrong, we create mini failure experiences for ourselves over time. Our self-talk reflects our relationship with ourselves. How can we feel confident in who we are and in what we do if we’re constantly tearing ourselves down?
3) Not playing to our strengths – Many traders attempt trading styles that don’t match their personality and cognitive strengths. Over time that generates frustration and erodes confidence. Trading frequently when we function best as big picture idea generators inevitably exposes us to noise and randomness.
If you think you dare not, you don’t,
If you like to win, but you think you can’t
It is almost certain you won’t.
If you think you’ll lose, you’re lost
For out of the world we find,
Success begins with a fellow’s will
It’s all in the state of mind.
If you think you are outclassed, you are
You’ve got to think high to rise,
You’ve got to be sure of yourself before
You can ever win a prize.
Life’s battles don’t always go
To the stronger or faster man,
But soon or late the man who wins
Is the man WHO THINKS HE CAN!
Easier said than done, but it’s worth spending time understanding who you are in relation to risk, money, hard work, uncertainty, and a number of other things you will face as a trader. While you’re at it, also consider what skills you need to develop: a better understanding of probability? Deeper knowledge of financial markets? Any specific analytical techniques?
There are many ways to work toward the goal of knowing yourself, and it’s probably the process that matters more than anything. Some people will talk to a therapist, some will go on long walkabouts, some will journal and reflect, and some may work on the answers in the quiet moments each day. There’s no wrong way to do this, but the market is going to make you face the best and worst in yourself.