Tuesday, March 31, 2015

Trading is a decision making game: Simplify the process!

There is no auto-pilot for the successful trader because trading is the ultimate decision making game. As with most professions that rely heavily on cognitive abilities and mental clarity, we must do everything we can as traders to simplify the process of trading.

Overly complex trading systems do not meaningfully improve results because they
  • Lead to poor decision making due to information overload and analysis paralysis, 
  • Amplify panic trading and emotions such as fear and greed.
  • Bring out personal biases such as confirmation bias, gambler's fallacy, hindsight bias, group think and wishful thinking.
So how do we make better decisions?

We create systems that make things easier for ourselves. For example, I have a methodology based on approximately 10 different setups. Each setup is most effective in certain markets. Thus, I have created a simple weekly and daily process that helps me create a game plan that allows me to focus on what is important and filter the noise. 

Trade Report members see the results of this process in effect on a daily basis with my top down market - - -> sector - - -> trading setups - - -> focus list - - -> approach. The students that I mentor get a first hand look at how to develop this process.

This process not only develops your focus list, it also puts you in tune or "at one" with the market. You know exactly where money is flowing, what setups are working and how stocks are moving. At this point you reach optimal decision making capability and trading becomes easy.

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1 comment:

Mike said...

I do agree with you "Trading is a decision making game". Its not easy to take decision. One single decision can result into great profit or loss. We must do everything we can as traders to simplify the process of trading.
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