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Hi,
We all have inner tendencies. If we all have them, what are inner
tendencies?
They are characteristics that strongly determine some key aspects of our
personality particularly in relation to:
• our learning skills as traders,
• our comprehension skills as traders,
• the extent to which we trade as members of a crowd,
• our openness to new trading ideas
• our ability to clearly perceive the market and exploit trading
opportunities...
One such inner tendency, the subject of this case study, is to do with the
weighting we place on occurrences of the same type of event.
We have all heard of the phrase "first impressions are important".
Some people place a large weighting on the last occurrence.
We all have some standard, often unwitting, weightings of significance we
apply to events, by their order of presentation, frequency, emotional
associations...
Your weighting is different from my weighting. Your weighting is neither
better or worse than mine - it is just yours.
These weightings can control our perceptions and the decisions we take as
traders
So it pays to be aware of our weightings, in case it gets in the way of
making money.
This case study is of a trader with an extreme weighting to the last
occurrence. She has given permission for the case study to be published
- her name and other identifications have been changed.
Introduction
----------------
Jean (not her real name) had a marked perception deficit - and one she was
not consciously aware of, because the perception deficit itself was part of
the lens through which she perceived her environment.
She tended to place an extremely high weighting to the last occurrence of
an event. For example, the last time she over-rode her stop-loss it
worked well for her. As this was the last occurrence, this was way more
important in influencing her perception of the utility of over-rides than
all the previous occasions put together - majority of which, based on data
supplied by Jean, had failed her.
So for Jean, over-rides of stops were now the way to go, and she stopped
placing resting stop-loss orders in the market. So, for the next few
trades she used mental stops which she over-rode, until she lost heavily.
No problem, stop-losses are now the answer and she went back to employing
resting stop-losses, at least until an over-ride worked well!
This behaviour pattern had apparently been repeating, sometimes several
times in one month and over several years. Based on her later assessment,
the resultant losses accounted for over half her losses.
It took many months of coaching to get Jean to see what was going on and
many more months to find a practical and acceptable (to Jean) circumvention
of the problem.
Lessons Learnt
----------------------
Now this was an extreme case, but many of us tend to employ enhanced
weights to events that have occurred recently - and to this extent our
perception bias may be limiting our learning and development in what is
normally a game of odds.
For if the odds are not perceived clearly, we are unlikely to optimise our
chances of success.
We can be unaware of some of our perception deficits - but that is what a
coach or mentor is for - assuming they understand the issues and know how
to resolve them.
--------------------------
--------------------------
May your potential be realised, Ric.
www.traderscalm.com
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