Perspective & Biases

In continuation from the previous post about logic and intuition, the topic of biases caught my attention. We all have them—some biases serve us well, while others lead us astray. The challenge lies in distinguishing between the two, which requires a comprehensive perspective—not just of the market but also of ourselves and our circumstances.

The cognitive processes involved in trading are more complex than one might initially think. As illustrated in the image shared (not displayed here), multiple factors influence our decision-making.

The ‘market’ or ‘situation’ is just one element of the entire framework. While crucial, it’s also the reason why some traders can predict market movements accurately but falter when it comes to betting real money. The emotional shift when actively participating in the market, as opposed to observing from the sidelines, can significantly impact rationality. This is why starting with minimum stakes and setting modest targets can be beneficial. Additionally, those who aren’t as financially dependent on trading outcomes often achieve better results or learn faster. However, don’t be discouraged if you’re not in such a position—I certainly wasn’t when I began my trading journey.

Essentially, our feelings shape our perspective on a situation, leading to a biased view, but they do not alter the actual circumstances.

To modify how you feel—and subsequently, your trading performance—you might start by engaging only in market situations where you historically performed well. This approach can quickly bolster self-esteem through consistent results. Other strategies include lowering stakes, minimizing expectations, and optimizing your trading environment, all of which I’ve discussed in previous posts.

Practical methods to enhance comfort while trading include setting trades that allow you to profit quickly or reduce exposure time, and scaling out of positions once they become profitable.

Experiment with opening a few trades with different stake sizes and observe how your feelings change. This will highlight how significant emotions are in manual trading.

For those seeking to maintain a more balanced viewpoint and clarity in decision-making, especially when swing trading, consider experimenting with scaling out your stakes as the market moves in your favour.

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