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Monday, November 12, 2012


Trading is a lot about understanding oneself.  I am not going to delve into all the different personality traits that can affect a person's ability to trade.  There is one thing in particular that I believe hinders a lot more people then just me.  Maybe discussing it here might help others realize they have the same problem.

Get a group of traders in front of a chart and there will be many different opinions on what the chart is saying. Experience is a big factor of course.  If you study a lot of charts you will learn to recognize some things that lead to forming better opinions.  I think there is another factor though.  My observation is that some people have an inherent bullish bias and some have an inherent bearish bias.  Some flip back and forth with the greatest of ease.  If a trader has an inherent bias when they look at a chart they will automatically look for things to confirm that bias.  Anything that might go against that view is given a lower weighting, if even noticed.  The majority of traders only trade long.  Therefore they spend all of their time looking for long trades.  That means that when they look at a chart they are purposely looking for anything that would make that chart indicate it would be a good long.  This is only natural.  One thing that just about every person in the world does is to look for things that confirm their current beliefs.  The overwhelming majority of successful traders trade both long and short.  When they look at a chart they are just looking for trades.  They evaluate both ways.  Is this chart a good long, a good short, or one to avoid?

Besides the inherent bias, there is the market bias.  I can guarantee you that people that believe we are still in a bull market are looking at the current SPX chart and seeing something totally different from those of us who believe we have entered a bear market.  I personally have had to work extremely hard at having a neutral market bias when looking at charts.  My brain takes in a lot of things and forms conclusions that I do not always understand.  I finally figured out that I can have a short term market bias that I am not fully aware of.  I started looking at a charts consciously thinking what is the case for being long, what is the case for being short.  If I didn't purposely try to make both cases I ended up making some bad decisions.  It is automatic now, but it took some time to get it that way.

If you struggle to make money on a consistent basis it might be worth a little time thinking about how your mind works.  Do you have an inherent bias?  Is your market bias influenced by what you read and hear?  Do you understand when you have a bias and what it is?


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The information in this blog is provided for educational purposes only and is not to be construed as investment advice.