In Michael Palin’s travel series ‘Full Circle’, Palin talks to Sokum, a Zen Buddhist monk. I jotted down the brief conversation that takes place between them:
When I read this I think about oneness, of our perception of tasks in relation to time, of an even allocation of one’s energy, of learning from others but not without reaching deep into oneself. Much food for thought. |
Archives of “perception” tag
rssOne of the best Trading Psychology books I've ever read!
“Psychology of Intelligence Analysis” by Richards J Heuer, Jr., published by the CIA’s Center for the Study of Intelligence, 1999.
Available as a pdf download from this webpage
Ok, so it’s a CIA book written for Intelligence Analysts, not a trading book written for traders. However, the information available in this book is superb. Well written and easy to follow. This is an excellent source of information on how we think, and the cognitive biases which undermine our ability to process information and conduct market analysis.
VERY APPLICABLE TO TRADING. HIGHLY RECOMMENDED.
Here’s what’s it covers:
Part 1 – Our Mental Machinery
Chapter 1: Thinking About Thinking
Chapter 2: Perception: Why Can’t We See What Is There to Be Seen?
Chapter 3: Memory: How Do We Remember What We Know?
Part 2 – Tools for Thinking
Chapter 4: Strategies for Analytical Judgment: Transcending the Limits of Incomplete Information
Chapter 5: Do You Really Need More Information?
Chapter 6: Keeping an Open Mind
Chapter 7: Structuring Analytical Problems
Chapter 8: Analysis of Competing Hypothesis
Part 3 – Cognitive Biases
Chapter 9 – What Are Cognitive Biases?
Chapter 10 – Biases in Evaluation of Evidence
Chapter 11 – Biases in Perception of Cause and Effect
Chapter 12 – Biases in Estimating Probabilities
Chapter 13 – Hindsight Biases in Evaluation of Intelligence Reporting
Part 4 – Conclusions
Chapter 14 – Improving Intelligence Analysis
A Study in the Psychology of Gambling- Written in Year 1873
In a 1873 letter to The Spectator entitled “A Study in the Psychology of Gambling” Saxon-les-Bains describes his gambling experience in Monte Carlo.
And what was my experience? This chiefly, that I was distinctly conscious of partially attributing to some defect of stupidity in my own mind, every venture on an issue that proved a failure; that I groped about within me something in me like an anticipation or warning (which of course was not to be found) of what the next event was to be, and generally hit upon some vague impulse in my own mind which determined me: that when I succeeded I raked up my gains, with a half impression that I had been a clever fellow, and had made a judicious stake, just as if I had really moved skillfully as in chess; and that when I failed, I thought to myself, ‘Ah, I knew all the time I was going wrong in selecting that number, and yet I was fool enough to stick to it,’ which was, of course, a pure illusion, for all that I did know the chance was even, or much more than even, against me. But this illusion followed me throughout. I had a sense of deserving success when I succeeded, or of having failed through my own willfulness, or wrong-headed caprice, when I failed. When, as not infrequently happened, I put a coin on the corner between four numbers, receiving eight times my stake, if any of the four numbers turned up, I was conscious of an honest glow of self-applause…
Evidently, in spite of the clearest understanding of the chances of the game, the moral fallacy which attributes luck or ill luck to something of capacity and deficiency in the individual player, must be profoundly ingrained in us. I am convinced that the shadow of merit and demerit is thrown by the mind over multitudes of actions which have no possibility of wisdom or folly in them, granted, of course, the folly in gambling at all, as in the selection of the particular chance on which you win or lose. When you win at one time and lose at another, the mind is almost unable to realize that there was no reason accessible to yourself why you won and why you lost. And so you invent what you know perfectly well to be a fiction, the conception of some sort of inward divining rod which guided you right, when you used it properly, and failed only because you did not attend ‘adequately to its indications.’
The Stock Trader's Steps to Success
Mark Douglas, in his classic book on trading behavior entitled THE DISCIPLINED TRADER: DEVELOPING WINNING ATTITUDES, describes what he believes are the three steps to a trader’s ultimate, long term success. The following steps have very little to do with technical anaysis and everything to do with the trader’s mental resources. Douglas explains that the “more sophisticated you become as a trader, the more you will realize that trading is completely mental. It isn’t you against the markets, it’s just you” (204). So, if it is just you what are the steps?
1. STAY FOCUSED ON WHAT YOU NEED TO LEARN. The trader needs to stay focused on mastering the steps to achieving his goals and not the end result, knowing that the end result, money, will be a by-product of what he knows and how well he can act on what he knows. A big part of what the trader needs to learn is how to accept missed opportunities. “Except for the inability to accept a loss, there isn’t anything that has the potential to cause more psychological damage than a belief in missed opportunities. When you release the energy out of the belief that it is possible to miss anything, you will no longer feel compelled to do something, like getting into trades too early or too late.” (205).
2. LEARN HOW TO DEAL WITH LOSSES: Douglas outlines two trading rules for dealing with losses both of which are designed to help the trader deal with any threat of pain and confront, head on, the inevitability of a loss. The first is to predefine what a loss is in every potential trade. By predefine Douglas means “determine what the market has to look like or do, to tell you that the trade no longer represents an opportunity” (206). Secondly, “execute your losing trades immediately upon perception that they exist. When losses are predefined and executed without hesitation, there is nothing to consider, weigh, or judge and consequently nothing to tempt yourself with” (207).
3. BECOME AN EXPERT AT ONE MARKET BEHAVIOR: Simplicity and focus is the mother of success. “You need to start as small as possible and then gradually allow yourself to grow into greater and greater amounts of market information. What you want to do is become an expert at just one particular type of behavior pattern that repeats itself with some degree of frequency. To become an expert, choose one simple traing system that identifies a pattern. Your objective is to understand completely every aspect of the system. In the meantime, it is important to avoid all other possibilities and information” (209).
Three simple steps yet ironically it is in the simplicity that traders find the most difficulty. Trading is not difficult, we make it so. Remember this the next time you enter a trade.
Dear Readers & Traders………..Don’t miss to read this Book !!101% it should be in your Library.-Technically Yours ,Anirudh Sethi
Self awareness for Traders
1) the recognition that our thinking and our emotions are intertwined and both influence our perception and judgment that leads to our decisions and actions (this view also happens to be consistent what the leading brain scientists are now saying)
2) much of our motivation – the intertwined thinking/emotion that drives our behavior – is actually subconscious, e.g. we assume we are trading the market but on other levels we are also trading our P&L and our feelings about our P&L (and what our P&L represents to us) is just one example.
3) when we understand (self-awareness) the underlying/subconscious motivation for our behavior we are in a better position to choose an alternative.
Obviously, nothing can guarantee change or improvement (contrary to many claims made by pseudo “experts”), but at least an approach that emphasizes expansion of awareness puts the odds in your favor.
And I have to play the probabilities here. Because more people tend to respond to a change process that includes an emphasis on self-awareness, I choose to use this approach in my own trading and in my coaching….it simply has the highest probability
of actually helping.
Courage and Trading
According to Plutarch, “Courage stands halfway between cowardice and rashness…” Clearly, we don’t want to be reckless; and clearly, we don’t want to be hesitant and timid. What we need is a balance. As we go about our trading moderating our greed and our fear to a combination of healthy desire and clear minded caution, we use courage to go forward.
Courage doesn’t mean closing your eyes, holding your nose, and jumping into the deep end. It does mean moving forward with clean and clear perception as well as steadfastness of purpose.
You don’t need courage if you’re totally confident and unafraid. Courage, according to John Wayne, is being scared to death and saddling up anyway. Because people tend to fear the unknown, and the unknown is all that is certain about any given trade, we need to employ courage. Since trading is always new, since anything can happen and it often does, since the wildness lies in wait, we need to overcome uncertainty and fear so that we can appropriately enter, exit, and remain in trades.
When asked what he meant by “guts”, Ernest Hemingway told Dorothy Parker in an interview “grace under pressure”. Trading is all about grace and gracefulness under pressure.
The good news is that courage is like any muscle. It grows and becomes stronger the more you use it. Often as I trade I’m unaware of utilizing courage. I know I’m extremely alert. I may even be excited. I’m not aware of any fear until something starts to go wrong. However, that alertness and excitement is a product of adrenalin running. Excitement or fear comes from the interpretation you give to the adrenalin high. The more you act as if you’re unafraid, the less afraid you become. It all gets easier. Act the part and become the part. Make it your goal to trade with increasing grace under pressure.
The difference between excitement and fear depends of what you are imagining.
Are you imagining loss or are you imagining profit? Of course, you always have to keep the alternative in mind as trading is all about balancing the alternatives, profit with loss. But you don’t have to put loss into the foreground of your mind, because you never would put on a trade unless profit was the probable outcome. Direct your imagination towards profit, and suspend all thoughts of loss–once you’ve put your stops in.
“Don’t cry before you’re hurt.” says a proverb. I would add, don’t mourn a loss before you experience it. Don’t even mourn it after you take it, get on with the next trade, and the next, and the next. Anticipate profit. That’s what you’re there to experience. Ah yes, and as another proverb states: “Fortune favors the brave.”
Asymmetry
A general principle in trading for me is that without thorough investigation, comprehension, and experimentation leading to full acceptance, no trading rule or system can be properly executed. If one cannot completely understand and embrace the reasoning behind some method or axiom, whether internally discovered or externally given, the reflex necessary to act without further thinking or doubt is fatally compromised — the circuit between the eyes watching the screen and the finger on the trigger cannot afford even the slightest impedence. One area in my trading which I’ve been struggling over has been the disparity between the success of my entries versus the failure of my exits on profitable trades. If I had the ability to accurately anticipate and identify the origins of a move, why were my attempts in capturing and keeping the bulk of the profits so horribly inept? Why was my timing in closing trades so blatantly pathetic in comparison with their openings, to the point where I would either consistently stop-out on the lows of retracements, or conversely wind up giving back the entire move if I tried to avoid getting shaken out. (more…)
Trading Quotes
“Rich people don’t make big bets. Really rich-and smart-people don’t make big bets. First they are not out to “prove” anything, they are out to make more money, and second, they know that risk control is as important as the other two legs of speculation, selection and timing. That is all this business of … trading gets down to, selection, timing, and risk control.” “Trading well is not easy, but it is something you can learn if you have the perseverance combined with the humility to be realistic about your own strengths and weaknesses.” “Most often, traders have four fears. There’s the fear of being wrong, the fear of losing money, the fear of missing out and the fear of leaving money on the table. I found that basically, those four fears accounted for probably 90% to 95% of the trading errors that we make. Let’s put it this way: If you can recognize opportunity, what’s going to prevent you from executing your trades properly? Your fear. Your fears immobilize you. Your fears distort your perception of market information in ways that don’t allow you to utilize what you know.” |
DAY TRADING LESSONS
Trading is a continuous learning process
Courage and Trading
According to Plutarch, “Courage stands halfway between cowardice and rashness…” Clearly, we don’t want to be reckless; and clearly, we don’t want to be hesitant and timid. What we need is a balance. As we go about our trading moderating our greed and our fear to a combination of healthy desire and clear minded caution, we use courage to go forward.
Courage doesn’t mean closing your eyes, holding your nose, and jumping into the deep end. It does mean moving forward with clean and clear perception as well as steadfastness of purpose.
You don’t need courage if you’re totally confident and unafraid. Courage, according to John Wayne, is being scared to death and saddling up anyway. Because people tend to fear the unknown, and the unknown is all that is certain about any given trade, we need to employ courage. Since trading is always new, since anything can happen and it often does, since the wildness lies in wait, we need to overcome uncertainty and fear so that we can appropriately enter, exit, and remain in trades. (more…)