Archives of “Knowledge” tag

rss

Reaction in Your Brain When Your Market View Is Completely Wrong

  
  Education
#  #  #  #  #  #  #  #

Eric Barker has a new article (link here) on how to win every argument. The article had a point which made me think whether the same situation happens in trading.

brainSo it quoted an experiment by psychologist Drew Westen, which showed to supporters, footage of their favorite candidates completely contradicting himself. The experiment found that as soon as the people realized that the information contradicted their world view, the parts of the brain that handle reason and logic went dormant, while the parts of the brain that handle hostile attacks – the fight-or-flight response – lit up. Essentially logic gets thrown out the window, and it just becomes a fight where you do anything to win.

A similar situation occurs in trading, when you have a certain expectation of how the market should behave. E.g. you might for various reasons, think that the market will go up. So when the market does not follow what you expect, you might initially make up excuses for it. However when the market continues to go completely in the opposite direction of what you expect, your logic and reasoning centers would shut down, your fight-or-flight response kicks in, you treat it like a hostile attack on you, and you would do anything to win (or not lose), e.g. keep averaging down. I’m sure this sequence of events led to many traders blowing up their accounts. It is pretty interesting that the experiment showed this as a ‘natural expected’ behavior.

As always, trade what you see, not what you think.

THE BEST TRADERS ARE HUMBLE

  
  Education
#  #  #  #  #  #  #  #

When an ordinary man attains knowledge, he is a sage; when a sage attains understanding, he is an ordinary man.

– Anonymous

With some technical trading knowledge and experience, you become a trader.

But when you become consistent and profitable, you feel ordinary again. This is because you’ve grown aware of the great uncertainty you face in the markets.

You’ve gained a strong appreciation of risk. In fact, your respect for risk is so deep that you would feel humble. And in that sense, you will feel ordinary.

Achieving Greatness as a Trader

  
  Education
#  #  #  #

1) Much of performance learning is the cultivation of positive habit patterns – If you have to make efforts to follow trading rules, that is effort not devoted to tracking markets. The key to success is turning rules into habits, so that they can be followed without effort, preserving mental capital for analysis and decision-making.
2) The development of new habits opens the door to fresh ways of thinking and behaving – I’ve long noticed that successful traders periodically remake themselves and their trading, adapting to changing market conditions. They cultivate new habits, which aids them in developing new skills and ways of making money.
3) We will learn and perform best by making maximum use of our learning strengths – This is an extension of the notion of operating within a trading niche. If we’re engaged in a concerted program of learning and development, it makes sense to ground our efforts in learning competencies. (more…)

Benedict Carey,, How We Learn-Book REVIEW

  
  Education
#  #  #  #  #  #  #  #  #  #

Benedict Carey, a science reporter for The New York Times, has written a fast-paced, well-structured book that should have broad appeal. How We Learn: The Surprising Truth About When, Where, and Why It Happens (Random House, forthcoming September 9) not only summarizes a wide range of research findings that challenge traditional views but offers useful tips for both teachers and students.

BENEDICT

For instance, most people do better if they break out of routines—if, for example, they vary their study or practice locations. Distributed study time is more effective than concentrated study time. Mixing multiple skills in a practice session sharpens our grasp of all of them. Forgetting is critical to learning. And sleep—well, we all know the value of sleep to learning and creating.

Of particularly interest to traders may be the chapter entitled “Learning Without Thinking: Harnessing Perceptual Discrimination.”

(more…)

Go to top