Archives of “Decision making software” tag

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Perceptions in Trading -Anirudh Sethi

  
Analysis, Education
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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. (more…)

Perfection in Trading :Anirudh Sethi

  
Analysis, Education
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Image result for perfectionBeing perfect is certainly not easy. Perfection is debatable, and needless to say, as challenging as can be. Matters become increasingly difficult when this is attributed to a trading environment or situation. Many traders end up setting their trades by focusing on what they want the results to be. They focus on the outcome of the trade, and do not give a lot of attention to the actual execution of that trade. This is in fact one of the main reasons why trading is so difficult. A trader can never hope to be perfect in his or her decisions. And, one can never hope for a perfect scenario, where any decision that is made results in a favorable result. Therefore the general rule of thumb that traders need to appreciate and get used to is that they need to perfect the decision making process and the execution of the trade, rather than hoping to make the results perfect. The choices, research, knowledge and information discerned are the steps that need to be perfected in the hope of perfecting the results of the trade in question.

Perfection also revolves around another issue in trading. The vast majority of traders worry a great deal about the outcome of their trading decisions. They experience a fear of losing out, and they do not want to risk a lot of their money either. They realize that in trading it is practically impossible to be perfect, and no matter how many years pass, and how many trades they do, they are still going to end up being imperfect.

Moreover, especially in the case of novice traders, it is normal to think that being a trader is a somewhat simple way to make money. They see the future as being rewarding and profitable – typically, a perfect way to become rich. Yet, they tend to underestimate the risks involved in trading and the various issues that revolve around making sound trading decisions and choices. (more…)

RISK in Trading -Anirudh Sethi

  
Analysis, Education
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Image result for risk gifLife is full of risks, and risks are all around you as a trader. In a perfect world there would be no risks and any decision you make will turn out to be the best one. You can hope for win after win, and not even have to worry about the prospect of losing. Yet this is an unrealistic and impossible scenario because as we all know trading is all about risk. However, there is no need to be afraid of risk. We need to accept the fact that it is there, and rather than focusing on fear we need to know how to deal with it and manage it.

This is where risk management comes into play. As a trader you need to be disciplined. You need to know how to understand the way you are thinking. At the end of the day it is all about trading psychology. Trading is not solely about getting an understanding of the market, and the trading skills such as recognizing trading patterns and managing risks. It is also about training yourself to be self-assured without being too risky. It is about being cautious, but not wait too long to take an action. It is about blocking emotions and sentiments which could impair your judgments. The market is constantly changing and you are going to be constantly faced with challenges, and so risk is inevitable. However the risk taht you tae can be calculated.

Thus as a trader you will need to balance out your trading skills with your trading psychology so as to master the mental game of trading. Here are some general rules which can help you in risk management:

  • Emotions have no place in trading. You need to make well planned and well calculated decisions that are not affected by sentiments. Otherwise your decision making process is going to take longer, and in all probability, be skewed.
  • You need to accept that you are not perfect, and so there are going to be times when you succeed, and other times when you fail and lose money. Successes and failures will result in different, and extreme emotions, but these emotions need to be controlled so as to keep thinking straight.
  • In order to minimize risks, many traders are well aware that it is best to opt for diversification. Having an diversified portfolio will help to reduce your risks. Money should be distributed across different kinds of investments so that in case a certain trading decision goes wrong it will be less likely to affect the trader in a dramatic way as one would still have other investments at one’s disposal.
  • Gaining experience is what many traders believe in in order to succeed. Through experience you gain more insight and knowledge, as well as trading skills. However despite their importance, they are not going to be enough to back your progression as a trader. You need to couple this up with clear thinking.
  • You need to have the willingness to take risks. However the risks that you take can be calculated and appropriate. Trading is risky, but in time you will learn how to go about it so as to minimize risks and the results thereafter. For instance, you should only risk money that you can afford to lose. Otherwise, it is best not to trade at all in such cases.

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Should You Trust Your Trading Intuition?

  
Analysis, Education
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I’ve heard from many traders that they often take decisions based on instincts. Actually, all non-quants use intuition in some form or another. If you are not using a program that takes all signals that your system produces, how do you decide between several equally good looking trading setups with similar risk to reward? Do you take them all or do you concentrate on only a few? The odds are that you are doing the latter and your ultimate choice for capital allocation is subconscious.

Even though we are defined by our decisions, we are often completely unaware of what’s happening inside our heads during the decision-making process.
Feelings are often an accurate shortcut, a concise expression of decades’ worth of experience.
The process of thinking requires feeling, for feelings are what let us understand all the information that we can’t directly comprehend. Reason without emotion is impotent.
This is an essential aspect of decision-making. If we can’t incorporate the lessons of the past into our future decisions, then we’re destined to endlessly repeat our mistakes.

Nothing can replace personal experience: (more…)

Objectivity in Trading -Anirudh Sethi

  
Analysis, Education
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Image result for Objectivity in tradingTrading is a very interesting field, and also a highly challenging one. Being faced with changing prices, other traders’ actions, and your expectation and hope of making the right decision, is certainly not an ideal situation to make objective choices. Many a time traders feel the stress and tension of it all to be too heavy on their minds, and as a result, their judgement is clouded. They either act too rashly, or are way too slow and cautious.

So we can all agree that for a trader to be objective is definitely no easy feat. However, an objective mindset is indispensable for a successful trader. The market is going to be offering the trader all kinds of information and data, as well as suggestions and comments being made by fellow traders. A trader needs to learn how to be objective as well as have the flexibility to use that information so as to act upon it objectively. This is however easier said than done.

In reality most traders enter the market with many notions and mindsets, as well as certain biases. The goal is to try to make the best possible trading decision, but due to these aspects it is not always the case. All human beings have an innate tendency of trying to be quite certain about a decision they make, and so they sort of seek confirmation for their actions. However in trading you cannot always be fully certain of your choices, and in the vast majority of the cases you will not be. The best you can do is to acquire information so as to make well informed decisions and as a result minimize risk. Speculating in the financial markets is normal, but no matter how much you try to speculate, you can never be completely certain. (more…)

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