Cognitive Limits

January 1st, 2014, 03:51 PM

PositiveDeviant

Is it that the white background promotes easier understanding of the information on the chart?

Or perhaps those people who trade successfully have a greater clarity of thought than others, and prefer white background charts?

There is a lot of interesting research going on right now in the field of behavioural science that shows that people's decision making is subconsciously influenced by contextual and sometimes peripheral cues in ways that are quite surprising.

It's referred to as nudge theory; here's an article about it.

First Obama, now Cameron embraces 'nudge theory' - UK Politics - UK - The Independent

The underlying principles that affect decision making obviously clearly relate to trading.

I liked the article and I am going to look into Nudge theory as a result. Thanks!

With that said, I think that it becomes a slippery slope to imply causations with correlations. Crediting the chart color as a factor in success sounds like the faulty reverse engineering that happens so much in the trading world... the trading theories about Gold vs oil, steel vs country GDP, gold vs silver, etc that 'work' until they don't work.

Quoting

A very simple example would be if you had two equally able traders, gave one a clean tidy space to work, and the other a messy unkempt desk, which one do you think would perform better?

You can affect your own subconscious mind in positive ways that affect your decision making, having an easy to interpret chart on a white background is a very easy basic example and step to take.

I potentially agree that the person with the cleaner desk might perform better. The problem I have is that everyone looks at the latter portion of the example "messy desk vs clean desk" and no one pays attention to the beginning portion of the sentence, "two equally able traders". If two traders are on the same level, then something as miniscule as changing your screen color or cleaning your desk might 'nudge' someone's talent higher, but only in the right context (both are equally able traders).

Perhaps a better example is the sports world. The difference between the worst team and the best team in college baseball is huge, but the difference between the worst team and the best team in the MLB is much much smaller. This is because everyone's skillset is essentially the same when you reach the professional level, so small edges make a big difference. That is why Sabermetrics (Moneyball) was such a game changer initially in the MLB.

The problem imo lies when people try prescribe small edges to environments where members are not operating efficiently to begin with. For example, basketball shoes have been ergonomically re-designed so that if the same player from 10 years ago used the 2014 edition of his shoes, he will be slightly better. However, the average pre-teen on the JV team that buys those exact same basketball shoes will see little/no return because he still doesn't tuck his elbow in on his jumper, doesn't understand anything about zone defense, and is only 4'11. If you are not a professional, giving yourself a small edge does not negate huge inefficiencies in your strategy.

So to bring this back to trading and wrap it up, until a trader approaches the maximum level of efficiency, this approach does not appear to have the proper context. If someone is a subpar trader, then IMO following 'small-edge' advice will only make them a subpar trader with a clean desk and a white chart background. It is only after efficiency approaches its maximum level that these minor enhancement make a relatively large difference.

January 4th, 2014, 10:48 PM

I agree that keeping it simple is paramount.

Even though I keep daily , hourly , 30 min, 15 min , 5 min, 6 range charts along with a Jigsaw DOM, I only look
at all of them when I need to get a consensus of Support and Resistance areas.

I keep MA'a and vwap tools on the charts just to keep my mind right with the trend.

The concept of threes is probably correct. Once price arrives at an area scouted out by studying all the
chart levels, I then only focus on PA on the 5 and 15 min charts, and the action on my Jigsaw DOM .
On the DOM I mainly focus on the Volume Profile to select an entry price.

So the closer I get to actually placing an order, the more narrow the focus.

Anything over 3 , I would think something would be missed.

Of course we speak of normal humans here. Genius' excluded.

As for the charts, I used black background for years until I noticed my eyesight was suffering.
I switched to grey background and subtle color shades for all the candles, ma's ,etc, and it has helped.

Cognitive Limits

Discussion in Psychology and Money Management

Cognitive Limits