Author Topic: Improve your trading  (Read 738 times)

BWS

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Improve your trading
« on: August 14, 2020, 01:41:19 PM »
Hello.
I have been following the markets for some time now, read numerous articles, and made many mistakes. An article I read a few weeks ago struck a chord with me, basically explaining types of behaviour, why we do it, and how we can turn this to our advantage.
For ease of reading, I would like to break this up into separate posts. I hope some of you can gain something from these.
"I wouldn't say I'm the best manager in the business, but I'm probably in the top 1" - Brian Clough

PipMeHappy

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Re: Improve your trading
« Reply #1 on: August 14, 2020, 07:21:31 PM »
Look forward to seeing the posts...

BWS

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Re: Improve your trading
« Reply #2 on: August 17, 2020, 01:50:01 PM »
Before I start I want to say that this will not be your average 'improve your trading' thread, in so much as the idea is not to try and tell people anything about systems, indicators, or anything like that. You'll see as I go on.
By the way, these are not in any particular order and individual traders will find some of more significance to them than others will.
Feel free to jump in with comments/questions any time you like.
"I wouldn't say I'm the best manager in the business, but I'm probably in the top 1" - Brian Clough

BWS

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Re: Improve your trading
« Reply #3 on: August 17, 2020, 02:18:00 PM »
Overconfidence

Even the most reticent of us will encounter overconfidence in one way or another during their lifetime. Its a wired-in trait that encourages us to pursue ventures/goals/members of the opposite sex even where the odds of success are stacked against us. Without overconfidence mankind may never have ventured out of the cave, so its worth is undeniable. It is also a very useful tool in helping us bounce back from setbacks.

There are 3 key areas of overconfidence, 'overestimation' in our own abilities, 'overplacement' in how capable we think we are compared to others, and 'overprecision' in our perceived ability to answer difficult questions. It is 'overprecision' that is most relevant to traders and investors, particularly when we have had a good run of successful trades and may assume that we have some innate predictive power to make the right decision more often than others.

We are better at remembering our successes than our failures, which is a shame as we can learn more from our failures if we take the time and journal our trades. Only paying attention to our successes can lead to unreliable feedback that is skewed to our (often exaggerated) successes and away from our (often ignored) failures.

So, try to embrace your failings and those of others. Question why you, or others, failed and search ways of reducing the effects or repetition of this. Don't be harsh on yourself when you fail, its as unavoidable as night following day. And be honest with yourself when you succeed. Again, ask why you succeeded. Only by constantly questioning both successes and failures can you help eradicate overconfidence and the dangers it brings to your trading.

"I wouldn't say I'm the best manager in the business, but I'm probably in the top 1" - Brian Clough

Sharkie

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Re: Improve your trading
« Reply #4 on: August 17, 2020, 03:01:23 PM »
Great post BWS. Not what I was expecting but it makes a lot of sense and is defo something I need to be aware of moving forward
Interesting fact: Sharks only attack humans if they are wet

BWS

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Re: Improve your trading
« Reply #5 on: August 18, 2020, 02:33:32 PM »
Confirmation Bias

Confirmation bias is when something occurs that confirms or reinforces beliefs that we already hold. Its only natural to look for facts that support our thinking and to ignore those that run contrary to it.  Likewise, we tend to surround ourselves with people who hold similar beliefs as ourselves, further validating our thoughts. Some psychiatrists go so far as to suggest that we even associate with people who look like us as well.

Some social networking sites use algorithms to draw together similar types of people. On the surface this might seem a good idea, but it can lead to 'group-think' whereby the members can find themselves in a cosy 'bubble' of similar minded people who all confirm one anothers thoughts, regardless of how badly thought out this may be. The dangers of this for traders using these sites for trading advice/suggestions is obvious. The algorithm may have  brought people of similar experience levels, none of whom really knows what they are doing but, because of 'group-think' , the consensus opinion gains validity.

So, whilst its important to listen to the opinions of others, particularly when you are starting out in trading, try to keep your distance and do not be drawn into blindly believing everything others say. Try to talk to a variety of traders of different experiences, ages, and backgrounds. The more differing opinions you can share the better. If you only ever speak to people like yourself and those people only ever trade in one way, how will you expand your knowledge base?
« Last Edit: August 18, 2020, 03:32:15 PM by BWS »
"I wouldn't say I'm the best manager in the business, but I'm probably in the top 1" - Brian Clough

BWS

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Re: Improve your trading
« Reply #6 on: August 18, 2020, 03:26:11 PM »
Hello @Sharkie

I read over the weekend of an incident in Australia where a woman was attacked by a 4m (12 feet) shark. Her husband rushed to her on a paddleboard, jumped onto the shark, and began punching it as hard as he could. Eventually the shark released the wife and swam off.
The woman had some nasty bites but it could have been much worse. It was later reported that the shark was seen with the remains of the paddleboard in its mouth.

p.s. the woman was wet at the time, which supports your theory
"I wouldn't say I'm the best manager in the business, but I'm probably in the top 1" - Brian Clough

BWS

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Re: Improve your trading
« Reply #7 on: August 20, 2020, 01:59:52 PM »
The Endowment Effect

This is, generally, a good trait to have. It is were we place more value on things when we own them, especially if we have had to make some effort to own then, such as save up for years to buy something. It encourages us to care for and respect things which we own or are responsible for.

As traders and investors, this can mean we favour investments/systems that have we have spent time learning and have done well out of in the past. This can make us reluctant to sell these investments/change these systems when situations change and they are no longer profitable.
"I wouldn't say I'm the best manager in the business, but I'm probably in the top 1" - Brian Clough

BWS

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Re: Improve your trading
« Reply #8 on: August 21, 2020, 08:31:58 AM »
Loss Aversion

Nobody likes making a loss, no matter how small but loss aversion can adversely affect our trading/investing if we allow it to over-influence our decision making.

A common belief among many traders is that "a loss isn't a loss until you liquidate". This is bunkum, just an excuse for poor or lazy management of the situation. A good trader will decide before entering a trade what level he will call it quits at should things go against him.

Learn to take the rough with the smooth and accept your losses as part of the job, dont ignore them in the hope that they will magically turn around. We all get it wrong sometimes.
« Last Edit: August 21, 2020, 09:36:09 AM by BWS »
"I wouldn't say I'm the best manager in the business, but I'm probably in the top 1" - Brian Clough

Kaitsu

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Re: Improve your trading
« Reply #9 on: August 21, 2020, 02:52:36 PM »
Nobody likes making a loss, no matter how small but loss aversion can adversely affect our trading/investing if we allow it to over-influence our decision making.
A good and important issue, @BWS.   ;)

I have also often written about this topic. It is important for traders to remember that we deal in probabilities, that is our business whatever instruments we may trade - the product we deal in is probability. This means, by definition, that we will lose as well as gain. Once this is understood, then it is easy to understand the critical importance of risk/money management. The only solution to trading successfully and consistently is to ensure our sum losses are less than our sum gains. And this means applying a disciplined method/approach that, on balance, produces more gains than losses. As long as we work within the criteria of our approach, losses are never wrong or failures, they are just "overheads" to be paid in order to make a bigger gain. 

All businesses have costs but, like a factory investing in new production machinery, they will not consider these costs "failures", they are simply a means to make more profits.

But also as in the case of other businesses, if expenses are not managed or planned properly they can easily lead to financial losses or even bankruptcy.

All traders include losses in their work, and sometimes these can come in a long series before finally producing the gain. But one needs to understand this aspect of our particular business and accept it as "normal".

You cannot make profits if you are not in the market and you cannot be in the market and avoid losses. So manage it!!

The only time losses are wrong or failures is when they result from trades outside our parameters. These can be revenge or greed trades or simply spontaneous ichy trigger finger trades - but these are all types of trading that cross over the thin red line between trading and gambling - and gambling generally ends up in sorrow and regret........
Ships are safe in harbour - but that is not what ships are for......

eddieb

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Re: Improve your trading
« Reply #10 on: August 21, 2020, 03:12:39 PM »
Nice thread  Ben and some good points made by Kaitsu.  Looking forward to your next post Ben, agree with all I've seen so far.
Disclaimer. Posts are just my thoughts,  not recommendations.  Do your own due diligence before trading

BWS

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Re: Improve your trading
« Reply #11 on: August 21, 2020, 03:29:41 PM »
losses are never wrong or failures, they are just "overheads" to be paid in order to make a bigger gain. 
That is a really good way to put it.

I'll put a list of my sources at the end of my posts, then if you want to read in a bit more depth its there for you.

Thanks guys for all your support. Have a great weekend!!!
« Last Edit: August 21, 2020, 03:31:55 PM by BWS »
"I wouldn't say I'm the best manager in the business, but I'm probably in the top 1" - Brian Clough

Kaitsu

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Re: Improve your trading
« Reply #12 on: August 21, 2020, 06:27:41 PM »
Have a great weekend!!!
You too!  :)
Ships are safe in harbour - but that is not what ships are for......

PipMeHappy

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Re: Improve your trading
« Reply #13 on: August 22, 2020, 02:53:19 PM »
Great thread @BWS and also great post by @Kaitsu about probabilities!

Have a great weekend!

PipMe

BWS

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Re: Improve your trading
« Reply #14 on: August 24, 2020, 11:04:39 AM »
Outcome Bias

This is when we review our performance and our interpretation of it is biased according to the result instead of the method.
Because of this, we can review a trade that was entered poorly or for the wrong reasons and deem it a good trade because we ended with a profit, even if the reason for getting this profit had nothing to do with our reasons for entering the trade. If we later review these trades in a positive manner, we run the danger of repeating the same mistakes again and again with no guarantee that luck will come to our rescue a second time.

This highlights the importance for traders and investors to journal their trades. We need to avoid judging our trading ability based solely on results rather than the quality of our thinking process when we entered the trade.
"I wouldn't say I'm the best manager in the business, but I'm probably in the top 1" - Brian Clough