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One of the things I'm learning regarding how our mind works is that there are 2 ways our brain makes a decision. Either through intuitive thinking, or deliberate thinking (or system 1 and system 2).
Intuitive thinking is unconscious, effortless, and automatic.
Essentially your brain is prioritizing efficiency - how do I get an answer fast?
While deliberate thinking is conscious, requires effort, and is controlled
Essentially your brain is prioritizing effectiveness - how do I get the right answer?
The example the book uses to show this is a simple problem:
If 5 machines make 5 widgets in 5 minutes and you want to make 100 widgets with 100 machines, how long will that take?
The intuitive answer here is 100 minutes. Your brain creates a pattern, 5, 5 = 5 so 100, 100 = 100.
However, the right answer is 5 minutes. It's not rocket science and it's a pretty easy answer, but it requires you to stop and think for a second, and not just go with your gut.
Now sometimes the fast decision is also the right one, and that's okay. However, only the professionals who are in the Unconscious Competent stage of learning, should rely on this. Someone like myself who is at the Conscious Incompetent stage wants to trade deliberately. So I want to take the extra time to get the right answer.
Now it's not as easy as telling yourself that you will only trade deliberately , it requires conscious effort.
Deliberate thinking is lazy and intuitive thinking is automatic. This combination makes it tricky to just turn on and off.
I know that when I watch the market constantly it is easy for me to enter a trade. However, if I build a habit where all the trades require deliberate thinking I should have better results.
My plan of attack to address this will be to mainly do 2 things:
Take myself out of situations where I'm likely to take an automatic trade
Consciously and with effort ensure that every trade I take I goes through a deliberate thinking process
Translated from generic to specific:
I won't be watching the market like a hawk the whole time, only during areas where in my plan I stated I would make a decision. The trigger for this will be alarms which I will set up during my morning prep
I will take the necessary time making a decision on whether or not to enter a trade, and then act. I will make an effort to ensure I don't rush this.
I'll add this to my psychology goals for the day so I can track it on a daily basis.
Now you're going to be thinking that I'm going to miss opportunities because it will take me longer to make up my mind and you are absolutely right!. Today is a perfect example as I missed 2 winning trades because of this. However, in a previous post I showed that my priority will be effectiveness first, then efficiency. I'm not a skilled enough trader to be able to improve both of those at once.
Not yet at least.
Yesterday's excellence is today's standard and tomorrow's mediocrity
A gentle reminder for those of you who have enjoyed reading this journal!
I'm currently registered in this month's journal contest. If you like what you see and feel that I deserve your vote in the contest, please do so by thanking my post in the link below:
The day before the fed meeting. Will we see a low range, low volume calm before the storm day? Or will we see some regret in pricing out that there won't be a rate hike similar to pricing out brexit?
News wise housing starts came out a bit weaker than consensus, but will that even matter? probably not
I'm seeing a BOJ announcement today but I'm assuming it's past the closing bell.
Still not actively trading the market. The only 3 setups I'll take today:
~4840 zone
Do not enter preemptively- Some signs need to be there to take this trade
LF short
Only take it if the bull move that got us here is showing signs of slowing down.
Take it as close to the high of 4841.75
Look for a stop of at least 4855.25
Aim for target of at least 4824
Do not take this trade if it's late in the afternoon session
If we do take out this AT high very fast - do not take a breakout trade. Pass up on that, we are too close to Wednesday for a setup like this to be likely
Don't get too confident with this because we have hit this zone 5-6 times already
~4820 zone
Do not enter preemptively- A lot of signs need to be there to take this trade
LF short
Be extra careful of taking this setup if this area is hit within the first 30 minutes
You want to see signs of the market rejecting higher prices
Entry on this will be tricky, so do not rush an entry decision
Target ~4795 but watch the 4805-4800 area for signs of things slowing down
If this happens late in the afternoon session, be extra careful about taking it
Be prepared to pass up on this one
Unless the signs are very strong, do not enter on first contact
~4785 zone
LF long
Do not enter preemptively- You want to see at least a couple of signs to take this trade
If you sense regret in the market for pricing out tomorrow's meeting early then do not enter this
Be careful taking this on the first
Look for a big volume# getting to this, and force pushing up
Can take this later in the session if you think this will be good to hold ON - you want to be up at least 7-8 pts though
Aim for 4800-4805 target, but if you move there fast don't hesitate to increase to 4809-4813
Things I'll be looking out for in the open:
Total volume- Are we seeing any big players step in today? Looking at weekly volume it seems they have already placed / taken out their bets as of last week
Range- Will we trend strongly one way or start out in a small range at the beginning of the day? This could signal whether or not the market is feeling some regret
Market speed? Market velocity? Is that a term? Either way, look to see whether or not we will see creepers or leapers
Here are the alarms I've set up to coincide with the 3 setups I could take today.
Yesterday's excellence is today's standard and tomorrow's mediocrity
Range day with not as much volume as last week. Fed meeting tomorrow so that's understandable.
Easy day to show, 0 trades taken. None of my alarms went off this time although I checked every now and then to see how things were going.
I didn't feel much FOMO today so that's good. There was only one time where I kind of wanted to get into a trade but decided against it because it wasn't part of my plan
It was 5 minutes into the open, the volume was starting to stack up and since the ON action was bullish I felt bullish. However it wasn't part of my plan so there was no way I was going to take that setup when I'm working on my psychology. The entry point was ~4806 and I never thought it long enough to see what the target would be. I don't even know if I would've hold on to it long enough because those selling wicks showed uncertainty in the market and I might've chickened out.
Either way, no win or lose but I stuck to my plan so I'm happy about that.
Apart from that I didn't really feel the need to enter into a trade. I won't lie though I took a 45 minute nap sometime after the EU close so that helped me calm down a bit .
The rest of my time I spent thinking about my psychology and reading my book. I'll be writing another post soon about hindsight bias, one that hits home with me.
Psychology goals today
Engage deliberate thinking in all trades - Passed with 1 trade I didn't take
0 FOMO trades - Passed
No trading outside of the 3 setups listed today - Passed
Maximum of 2 trades - Passed
Tomorrow is a big day and I am preparing myself to trade as I usually do well on big news days.
Yesterday's excellence is today's standard and tomorrow's mediocrity
Okay so I'm sure a lot of people know about hindsight bias, traders and non-traders. I'm sure all of the professional traders are very comfortable with it to the point where it doesn't affect them.
I'm pretty new so I had heard about hindsight bias but never thought too much about applying it to trading. However the book I'm reading really spoke to me while describing hindsight bias and how it can impact your trading.
So what's hindsight bias? I'm shamelessly stealing this one from wikipedia
The whole "I knew it was going to happen" effect.
I'm not going to get into the specifics as to why it happens and when, although it's an interesting topic. What impacts me the most out of this are the consequences. There are 2 main consequences:
Hindsight bias can stimulate feelings of regret and anger. "I should have seen X, I should have done Y, I knew Z was going to happen", etc. I do this, and I do it a lot. This can also lead to revenge trading which I've done in the past.
It prevents learning!!!!! This is so basic but something I never thought about. If you honestly feel like you were right and knew what was going to happen, you are telling yourself that you don't need to learn anything from that event. This is so wrong!!!! You need to learn from all of your mistakes so you can improve as a trader.
Okay so I'm going to grab a real-life trading scenario to show of a time when this bias impacted me and how.
Let's go back to that day that shall not be named, the Friday where the market broke-down and I missed it, and then I got really mad.
So in my plan I told myself to take a break-down trade and I didn't, you know the story. If you don't, go to page 6, I encourage you to read my post about it!
Now the reason I got extremely mad when I came back was because of the hindsight bias. I felt like I knew what was going to happen because I put it in my plan. I obviously didn't know the market was breaking-down as it was happening. I might not want to accept that, but it is the truth.
Did it go into my plan? yes
Did it cross my mind while trading? yes
Did it also cross my mind that we were going to have a big bull trend coming up instead? yes
Did I unconsciously or consciously make the decision to take bull trades instead? yes
There's no denying that there was a struggle in my mind between both scenarios, but my brain made the wrong decision that it was going to pull back into a bull trend. This is an amazing revelation because it's something that I can change!
Now, what really hurt me here is that I was really mad and I got myself into a negative spiral. I bullied myself, etc. I also tried to make up for it by taking even more bad trades, so that's not good.
Now regarding the 2nd major consequence - I didn't try to learn much from it!!!
Reading that as I write it sounds crazy, but it's so true. While I focused on my reaction to the bad trades, I never focused on the actual trading execution and why I made those decisions in the first place. Wow!
Obviously that was a mistake and I missed a huge learning opportunity, thankfully I can do it now.
2016-09-09
So let's see what happened here. I spent a lot of time today going back and analyzing this loss and now that I'm much more calm about the whole situation, it no longer hurts to look at my chart from that day. As a matter of fact, I laugh at how silly I reacted in that situation now.
First of all, I had good prep and a trading plan. I established that we were in a bear market and things looked bearish. I stated how fast the market dropped from hitting the top of the balance area in comparison to the past and everything looked bearish (the red arrows in the picture below). I read the chart well but I threw my planning out the window with the end of my trading plan (the highlighted part below). Take a look.
So what did I just do there? I threw in my 'expert tidbit', that had 0 to do with what was on the charts, and it was purely based on my logic and not the market's. What makes this a big mistake is the fact that this is MY IDEA, thus I am much more attached to it. I want it to be right more than something I read off a chart, it is my baby. This clearly had an influence on me throughout the whole day.
Next let's get into the actual trades.
So I was initially in the market from an ON trade that I felt bullish on. Thinking back I felt very comfortable about that trade. I was attached to that trade because it aligned with my 'bullish feeling', but I didn't notice it at the time. It was working very well for over an hr after the market opened so it gave me more time to look for more signs on why I was right. I didn't even think to look for reasons as to why I may be wrong.
Then I got stopped out. The market started to descend and the overall sentiment was clearly changing, but I was already too far in. What did I do next? I doubled down, and then again, and then again (not doubled down $ wise, but as in I kept making the same bet)! All with different entries but the same target, one time I even did 2 contracts instead of 1 (yikes). Clearly logic was gone and emotions had taken over by now.
The funny thing is that in all that madness I took a short, but I exited within seconds because it just didn't align with my original idea in the morning.
Recap of mistakes made
I read the pre-market well, but I set my own views on what should happen. At this point I am no longer speculating on what I see in the charts, I have entered speculating off what I think should happen which is based purely on my logic. My logic =/= the market's
I became too attached to a trade. It didn't matter how many times the market told me "no", I wanted to see the trade work out
I did not look for signs that my first trade was wrong
I let emotions get the best of me
I entered auto-pilot mode. I was no longer questioning the market or trying to read it, I was a market-zombie
I never tried to engage my deliberate brain, I let the automatic intuitive mind do all the thinking
In all of this I never walked away to calm myself down, I was too far in!
Actions from what I just learned
I will not speculate on what I think will happen. I've added this to my psychology prep as follows: Market biases create a narrow mindset. I will want what the market wants. I will trade what I see, and not what I think.
I will engage my deliberate brain in all of my trades (working on this)
It is already one of my silver risk management rules but I need to walk away if I take a really bad trade
I'll add this to my silver risk management rules, I will walk away if I take the same setup twice in a row and it fails!
This is something I want to do but I don't think I'm at the point yet - Always look for reasons as to why a trade you are in is wrong, if you don't find enough then you have a solid trade. Once you are stronger psychologically speaking, you should work on this!
Realization & Action Moving Forward re: Hindsight Bias- Conflicting thoughts will cross my mind while in a trade, but if I made a decision in the past it's because of what I saw / felt at the time. Maybe what I saw / felt was wrong, but I need to accept that the mistake was on my end and not just from a 'I didn't listen to myself perspective. What I need to do instead is tell myself 'you did not make the right decision at the time, Why? What were you focused on? What did you miss? Why did you miss it? How can you prevent it?'
That's how I will become a better trader!
Yesterday's excellence is today's standard and tomorrow's mediocrity
We all go through these massive rules v red mist fights, I've spent years engaged in the battle. Only when rules become habits does anything change, consciousness on its own is sadly limited.
You are absolutely right.
Identifying the problem is easy, putting plans in place is easy, but making a habit change is hard.
Glad to hear you touch on it because I've been thinking about this a lot. There are a lot of models and processes out there on how to break down habits and create new ones. So far none of them have resonated with me completely, so I'm in the process of grabbing bits and pieces from the best ones to build something specifically tailored to my psychology and personality.
All of this will be in a future post so I'd love your take on it when I do get there.
Cheers
Yesterday's excellence is today's standard and tomorrow's mediocrity
Will they surprise the market with a small increase in interest rate? Or will they keep the status quo with the unknown of the general election? My hope is they surprise us because it seems that the market has made the assumption that they won't hike interest rates, so it would definitely add a lot of volatility and shake things up a lot. We'll see though.
Today I will be actively trading after the news, but will take the same approach I've been taken this last week during the morning session.
Psychology goals today
Deliberate thinking in all trades with one exception (during the news)
No trading in morning session outside of the 3 setups listed today
4830 area, below is what I wrote from morning prep
The signs are there, volume was able to take up some of the orders but not enough to show strong continuation in the bull move. I entered an order at 4829.50 but I was about 10 seconds late!!!
Either way, I left this order in there in case we saw another pullback into this. The signs were good enough that I don't think we will break the 4833 area so my plan was still 4833.50 stop and 4812 target
Then the market pulled back as I hoped, and it LITERALLY CAME TO THE TICK!!!
but wow my order didn't get filled, just bad luck on that one haha
I was watching it at the time and felt some FOMO and wanted to just short with a market order but I chose against it. Money wise that was a bad decision, but psychology wise I stuck to not FOMOing that trade
I had to take a picture because damn how often does it happen that it gets to your price point but you don't get filled? haha
I won't lie. This one stung a bit, and I had to go play with my dog for a little bit because I was so close to getting filled and it moved down 8 points pretty much within 30 seconds after that haha.
Now despite not being able to fill in this trade there is something I should be happy about.
The last 3 trades where I've been comfortable enough to put an order into NinjaTrader, would all have been wins. Now the reason they weren't wins was because I wasn't fast enough or because I was a bit too conservative with my entry points, but it is still a good trend. It shows that my decision making is improving, although ever so slightly. It's not a lot and obviously I'll need more information but it does help raise my confidence level!
Yesterday's excellence is today's standard and tomorrow's mediocrity
Okay so I traded the news today. I honestly wanted to be very greedy and I had to remind myself. Your goal is long-term growth not short-term profits!
So I took a long at 4803.5 and got out at 4830.25
A nice 26 pt win after my almost a full week without taking a trade.
I took a second trade at 4814.25, I've set a stop order at 4814.50, I'll hold it until near the end of the day to see if we break new AT highs. If the pullback is strong enough that it takes me out, then oh well. Edit- Stop filled so this was a break-even trade.
My emotions right now I'm a bit anxious, I'm going to take a 5 minute break from looking at things as watching things move very fast does get me a bit anxious lol.
Yesterday's excellence is today's standard and tomorrow's mediocrity
, it requires conscious effort. 
.
