How Do You See the Market?

How honest are you with yourself? Have you ever asked yourself the question and wondered how truthfully would you answer? My brother came to me the other day with an assignment which he had to write about the topic of bias. Before I thought about it I told him its a question of skewing the view so that it fits your likening.

He still grappled with the concept around it so I tried to explain it visually and tried to think of a way that would be easier to understand. I stood in front of an open door, no distractions in my eyes pathway, I could see the whole picture. The neighbours car, the plant pots on the side, the pavement in front of me and all the other little details. Then I told him to stand at the side of the door so that he only allowed one eye to see out the door while the other was staring at the wall inside.

"What do you see?" I asked, "I see the pavement and the plant pot" he said. But when I asked him if he could tell me that he saw the neighbours car he said he couldn't. "So if I told you that there's a car in front of me and you tell me that I'm talking rubbish what would that be?" 

Obviously he would be bias because his view is being blocked by the wall, he doesn't have complete sight of everything.

View image | gettyimages.com

Trading, like standing in front of a door, requires you to be unbiased even if it means being critical of your trading performance. The market is a self reflecting entity which draws you in based on your bad habits and throws you out on your flaws.  The problem with human beings is we can't face the truth when it becomes reality. We don't want to show our weaknesses to others in the fear of being tarnished as unsuitable or incapable.

The problem with this notion is that it often leads to a resistance against yourself, an inner conflict between what it happening and what you believe is factual. If we are unable to close the gap between these issues we ultimately lose sight of where it is we are going wrong and continue to commit errors without any real progression.

View image | gettyimages.com

Traders often fall into this trap depending on which side of the equation they stand on. Let's look at some examples:

Let's assume we have two fictional traders namely Trader A and Trader B

Trader A is a real maverick of a trader, likes to boast about his successes yet very silent in his defeats. When the market is running his in his element and every trade he touches turns to gold, however when the market starts to turn in the opposing direction his luck begins to run out and everything his made is simply given back.  When it comes to taking the responsibility for these mistakes, the market is blamed.

Trader B on the other hand is a bit more cautious in his approach, he often worries about when the market will turn in the opposing direction and constantly monitors it just for that signal. When the time does eventually come, if he is on the wrong side of the trade he often blames himself for being negligent. This dents his confidence which in turn makes him blinded to the vast opportunities presenting themselves when the time comes.

What do the above scenarios remind us about trading?

1. Both traders are consumed either by greed or fear surrounding their success. When it comes to trading we are not in control of the movements of the market we are however in control of the trade we set up.
2. Remember to keep everything relative in the sense of market depth. If the market has rallied hard in a short period of time we cannot expect that condition to prevail forever, there needs to be a degree of reasonability about the move.
3. We should also not fear a change in the direction of a move, if we are going to hang on to every inch of movement on the screen waiting for the change we might as well go insane. The market will decide when the time is right for the move to happen, being a aware of it is one of things you can do to put your mind at ease.

Having an unbaised view is a scarce commodity amongst traders and one which increases the chance of being successful. We need to be honest to a point where it does not hamper or hinder our performance and most importantly keeps our expectations realistic so as not to divert our attention on small details which only serve to distract us from our goal.

 If you would like to contact me you can through my email atcadetrader@gmail.com or if you wish to follow me on twitter and get the latest updates of news, interesting commentary and general trends in the market, my twitter handle is @CadeTradeR if you follow this link it’ll take you directly to my twitter timeline: https://twitter.com/CadeTradeR