Move from Certainty to Curiosity to improve your trading

The major reoccurring problem I have in trading is not being objective enough in my decision. A recent example is entering the market just before the October crash and held on to the shares even when I doubted my positions. On the other hand, for the times when I executed a trade as planned, I showed remarkable ability to make sound decisions on the fly even under strenuous conditions. Thus, it is in my best interest to perform consistently and learn to be objective in my market analysis.

I have come up with two solutions for my problem. 1) Make more use of computational tools and 2) improve my trading psychology.

In this particular post, I'd like to address my psychological barriers. Coincidentally, a book I've been reading about conflict resolution (Stone, et. al., "Difficult Conversations," pg 38+) has suggested techniques that I think can be applied for trading.

When it comes down to it, we argue with other people because of difference of opinions. Similarly, we lose money in the market because we are arguing with the market. The first step in conflict resolution is understanding ourselves.

As best as we might try to remove emotion in our trading decision, the tendency to develop unconsciously biased perception is very human. Our perception about a situation is based on

  1. our selection of information
  2. our interpretation
  3. our conclusion

Some people use candlestick charts, some uses line graphs. A bullish crossover on the RSI can mean a turn of sentiment to some or imminent opportunity to short for others. These are just some examples of how we add our personal touch to each problem. Indeed, I don't think eliminating emotion from the equation is advisable. It is our experience, our knowledge, and our skills that we should rely on to make tough decisions. Since decisions happen so fast and generally involve more subconscious than not, we are not aware of all the influences of our views.

One way to keep an unbiased opinion is to thoroughly understand how you came to a conclusion. Why did we select one information over the other? What assumptions are we making in an interpretation? How did we come up with a conclusion based on our interpretations? In other words, shift from a certain stance about our conclusion to a curious state about the entire thinking process.

One way to shift your stance from the easy certainty of feeling that you've thought about this from every possible angle is to get curious about what you don't know about yourself.

Keeping an open mind with a curious approach can help you evaluate wether your views make sense in light of new information and perspective.

For example, the way I analyze a potential trade entry is to think from both sides of the trade (go long or go short). Ultimately, I enter the trade as planned if my analysis is stronger than the counter-arguments.