Decision making skills for trader

[Value trader]

I’ve decided to make article using ideas from my last webinar «Decision making skills for trader». If traders ask what to develop in their trading, I would answer – develop your decision making skills, skills to perceive and process information e.t.c
We forget that trading is an art, not a science, and like any art, it should be mastered. And too often we forget that trader first and foremost is a decision maker.

What process of generating effective decision consists of?

1. Collecting information

Most of the time we don’t see the market, we see our projections, in other words – we don’t see things (market) as they are, we see things as we are. First, of all, we tend to be very filtering – pieces of information that don’t suit our beliefs and core convictions, are simply undervalued (if not rejected at all). Second, we tend to be superficial in our observations. Ability to observe is what we really lack.

What is the cure? How can we be less filtering?

We should train ourselves to think «outside the box» - to generate creative ideas instead of simply repeating old «mantras». You may oppose me saying that «there’s not too much space for creativity in trading». Yes, most of the time trading is about acting upon your plan and it can be boring enough. We should be rigid with our risk management. But in a process of trade selection, in a process of generating trading hypothesis, we can be flexible, we observe, we perceive and we generate idea… well, trading idea, of course.


2. Recognizing patterns

That’s really what most traders fail to do. I mean what I’m saying – it’s not difficult to draw a trend line, to spot a triangle or double top/bottom, but what is really difficult is to put everything in a context and understand – what is really going on. And it’s not actually about understanding – it’s about seeing. Some traders see good patterns, some don’t. Why?

Most traders try to recognize patterns doing analytical work – they divide complex picture (chart) on several small parts (candlesticks) and apply formal logic trying to capture relationships between those parts. How do you think – why candlestick analysis has become so popular? Because it suits tendency of human mind to divide and split information, when we see something complex, we tend to immediately split it into pieces and try to figure out – how do those pieces relate to each other? Maybe, it’s a 1.618 principle? Or maybe we can connect dots with lines? Or, maybe, we can build fancy figures with those dots?

Remember the impressionism art. Nothing was really visible until viewer has made several steps away. Hidden picture now was visible. The same is in pattern recognition – wherever you try to find it – it trading, in deciphering anything or solving a task. Until you are ready to change your view, to concentrate on big picture rather than on nuances, you will not be able to really see a good pattern.

[indrajit12]

I’ve decided to make article using ideas from my last webinar «Decision making skills for trader». If traders ask what to develop in their trading, I would answer – develop your decision making skills, skills to perceive and process information e.t.c
We forget that trading is an art, not a science, and like any art, it should be mastered. And too often we forget that trader first and foremost is a decision maker.

What process of generating effective decision consists of?

1. Collecting information

Most of the time we don’t see the market, we see our projections, in other words – we don’t see things (market) as they are, we see things as we are. First, of all, we tend to be very filtering – pieces of information that don’t suit our beliefs and core convictions, are simply undervalued (if not rejected at all). Second, we tend to be superficial in our observations. Ability to observe is what we really lack.

What is the cure? How can we be less filtering?

We should train ourselves to think «outside the box» - to generate creative ideas instead of simply repeating old «mantras». You may oppose me saying that «there’s not too much space for creativity in trading». Yes, most of the time trading is about acting upon your plan and it can be boring enough. We should be rigid with our risk management. But in a process of trade selection, in a process of generating trading hypothesis, we can be flexible, we observe, we perceive and we generate idea… well, trading idea, of course.


2. Recognizing patterns

That’s really what most traders fail to do. I mean what I’m saying – it’s not difficult to draw a trend line, to spot a triangle or double top/bottom, but what is really difficult is to put everything in a context and understand – what is really going on. And it’s not actually about understanding – it’s about seeing. Some traders see good patterns, some don’t. Why?

Most traders try to recognize patterns doing analytical work – they divide complex picture (chart) on several small parts (candlesticks) and apply formal logic trying to capture relationships between those parts. How do you think – why candlestick analysis has become so popular? Because it suits tendency of human mind to divide and split information, when we see something complex, we tend to immediately split it into pieces and try to figure out – how do those pieces relate to each other? Maybe, it’s a 1.618 principle? Or maybe we can connect dots with lines? Or, maybe, we can build fancy figures with those dots?

Remember the impressionism art. Nothing was really visible until viewer has made several steps away. Hidden picture now was visible. The same is in pattern recognition – wherever you try to find it – it trading, in deciphering anything or solving a task. Until you are ready to change your view, to concentrate on big picture rather than on nuances, you will not be able to really see a good pattern.

Hello value trader..
Good morning brother , how are you today? are you profit today? i think you good both it.
I have like the way you have explain the patterns to try and think separate from the hurdle and also in recognizing a pattern one should use practice and things other than orthodox , but what about practice . Can practice helps us in defining and trade those patterns and look to concentrate on what is hidden under the charts . I have gone through all the posts and threads of your where you emphasis on supply and demand behaviour on momentum days and does these rules you are trying to point out here as well .

[J_C_Anderson]

Trading is one of the most complicated and challenging spheres of activity, so it is necessary for the trader to have a proper mindset allowing him to make decisions in timely and accurate manner. As usual, trader does not have enough time to perform market analysis and make a decision, so sometimes the speed of making decisions is much more important than the quality of such decisions. That is why each trader develops a detailed set of rules describing each step of trading process to act accordingly. In this case, trader just have to find the situation he is looking for, check all elements and make a trade. By the way, it is also necessary to mention another important element - trading plan, which is a step by step plan describing the way the trader would apply the rules of his strategy in each particular situation. The main advantage of trading with the plan is that when you have it you do not need to make trading decision when you already have a position opened, you just execute your plan. It often helps to reduce the impact of emotions that sometimes could be subtantial, especially if you have a paper loss in your position and looking for the way to solve this issue. So, a profitable trading strategy with proven performance and detailed trading plan would help trader to deal with decision making process.