Intuition
Thursday, September 28, 2006 at 02:12PM
I have this interesting article I found. This is something we normally discuss in the 3-day live class. Read this real quick and as soon as your done, sit back and realize what just happened.
I cdnuolt blveiee that I cluod aulaclty uesdnatnrd what I was rdgnieg!
THE PHAOMNNEAL PWEOR OF THE HMUAN MNID
Aoccdrnig to a rseearch at Cmabrigde Uinervtisy, it deosn’t mttaer
in what oredr the ltteers in a word are, the olny iprmoatnt tihng is
Tahtthe frist and lsat ltteer be in the rghit pclae. The rset can be a
taotl mses and you can still raed it wouthit a porbelm. This is
Bcuseae the huamn mnid deos not raed ervey lteter by istlef, but
The word as a wlohe.
Amzanig huh?
Now I’m tinkihng aobut all the tmie I wtsead in sochol
lrenanig how to slpel…...
What were you just reading? Nothing. Those were not words, they were letters mixed together that spelled absolutely nothing. Somehow each of us were able to create something out of nothing!?
How long have you been reading? Since age 5 or 6? You have had plenty of practice, and it shows. We read effortlessly. Your mind gets into a groove where it is trained not to examine every single detail, but to see the bigger picture.
How can we apply this to trading?
HEARING WHAT YOU WANT TO HEAR – SEEING WHAT YOU WANT TO SEE
Traders call this preferential bias. Preferential bias exists among all of us, whether it be through trading, profession, or reading. Once you've developed a preference for a trade, you often distort additional information to support your view. This is why an otherwise conscientious trader may choose to ignore what the market is really doing. We've seen traders convince themselves that a market was going up when, in fact, it was in an established downtrend. We’ve seen traders poll their friends and brokers until they obtained an opinion that agreed with their own, and then enter a trade based upon that opinion.
My perspective on this post is that trading will become like reading as you continue to enhance your experience. Hopefully when you start to develop this preferential bias for how you like to trade, this will promote you to stop looking for reasons not to trade. You'll stop focusing on the inconsequential details and start to focus on the bigger picture. For example, if you find yourself not taking a trade because your option greek missed your goal value by a few pennies, or the phase 1 score was only four positives instead of 5, you tend to forget why you considered the trade in the first place. Great trend, a buy signal, a big volume breakout, or whatever. Realize that when you place a trade, even if every single detail meets your criteria for a trade, and you think "this is a perfect stock, perfect entry point, perfect risk/reward..." the trade can still fail. Once you understand this, stop looking for the perfect trade, and find the trade where the upside outweighs the downside. Don't be too restrictive on your rules, and as you are learning keep record of your trades. This will help you to go back and focus on what you did well and what you did poor. As you analyze your trades, rules, etc... this will help you develop a better intuition as a trader.
I'd love to hear your thoughts, so comment if you are feeling inspired to do so. By the way, my spell check functionality went nuts on this post. Thought you'd be interested.
I cdnuolt blveiee that I cluod aulaclty uesdnatnrd what I was rdgnieg!
THE PHAOMNNEAL PWEOR OF THE HMUAN MNID
Aoccdrnig to a rseearch at Cmabrigde Uinervtisy, it deosn’t mttaer
in what oredr the ltteers in a word are, the olny iprmoatnt tihng is
Tahtthe frist and lsat ltteer be in the rghit pclae. The rset can be a
taotl mses and you can still raed it wouthit a porbelm. This is
Bcuseae the huamn mnid deos not raed ervey lteter by istlef, but
The word as a wlohe.
Amzanig huh?
Now I’m tinkihng aobut all the tmie I wtsead in sochol
lrenanig how to slpel…...
What were you just reading? Nothing. Those were not words, they were letters mixed together that spelled absolutely nothing. Somehow each of us were able to create something out of nothing!?
How long have you been reading? Since age 5 or 6? You have had plenty of practice, and it shows. We read effortlessly. Your mind gets into a groove where it is trained not to examine every single detail, but to see the bigger picture.
How can we apply this to trading?
HEARING WHAT YOU WANT TO HEAR – SEEING WHAT YOU WANT TO SEE
Traders call this preferential bias. Preferential bias exists among all of us, whether it be through trading, profession, or reading. Once you've developed a preference for a trade, you often distort additional information to support your view. This is why an otherwise conscientious trader may choose to ignore what the market is really doing. We've seen traders convince themselves that a market was going up when, in fact, it was in an established downtrend. We’ve seen traders poll their friends and brokers until they obtained an opinion that agreed with their own, and then enter a trade based upon that opinion.
My perspective on this post is that trading will become like reading as you continue to enhance your experience. Hopefully when you start to develop this preferential bias for how you like to trade, this will promote you to stop looking for reasons not to trade. You'll stop focusing on the inconsequential details and start to focus on the bigger picture. For example, if you find yourself not taking a trade because your option greek missed your goal value by a few pennies, or the phase 1 score was only four positives instead of 5, you tend to forget why you considered the trade in the first place. Great trend, a buy signal, a big volume breakout, or whatever. Realize that when you place a trade, even if every single detail meets your criteria for a trade, and you think "this is a perfect stock, perfect entry point, perfect risk/reward..." the trade can still fail. Once you understand this, stop looking for the perfect trade, and find the trade where the upside outweighs the downside. Don't be too restrictive on your rules, and as you are learning keep record of your trades. This will help you to go back and focus on what you did well and what you did poor. As you analyze your trades, rules, etc... this will help you develop a better intuition as a trader.
I'd love to hear your thoughts, so comment if you are feeling inspired to do so. By the way, my spell check functionality went nuts on this post. Thought you'd be interested.
Reader Comments (10)
I can relate this to my trading. A few months ago, I would take a trade thinking it was in an up trend (usually becasue the 30D MA was still moving up) not realizing the stock had actually been in a sideways trend for a couple of weeks. Now, I see these issues very quickly.
I still have to watch closely. Sometimes I think it would be better to turn the MA off when looking at charts.
Thank you for the post, and last night MT was fabulous. I am definately a Trend Trader.
Eric.
Awseome,Il'l pinrt & famre tihs psot!
Tahkns,
Sausn M
Thanks for the 10 commandments, but in watching an old Mel Brooks movie I do believe there should be 15 commandments! Did you drop a tablet on the way to the blog?
- Todd M
http://www.iqtest.com/report.html?uid=77616e6e616265616c6f744074616d70616261792e72722e636f6d-396-1157675608
(sorry for the copy/paste, but I don't think this format allows hyperlink html tags)
Anyway, I see what you mean by relating the article to investing. Although one may think of a "money tree," to invest many strategies one must see the whole forest.
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