Awareness and Acceptance in Trading
3 Steps to Improve Your Trading Decisions
Making trading decisions in the face of risk and uncertainty is not as easy as it might seem at first glance. Research in finance and neuroeconomics has helped us better understand our decision-making process and the factors that influence it. However, many traders have found that once they have mastered all the information on this topic, it is very difficult to translate this knowledge in real-time on a real chart.
This article is about how to improve your trading decisions. It was written based on the opinions of experts - managers of stock companies and traders. In it, we will share with you some of the key points. At the same time, we note the need to go beyond simply reading and understanding, you should think out of the box. It is recommended that you start using specific decision-making methods and strategies in order to improve the very process of your trading activities.
We recommend three basic approaches to help you improve your trading decision making:
- Help in understanding the decision-making process and the factors that influence it.
- Find your own unique decision-making processes, strengths and weaknesses, and factors and situations that have the greatest impact on your decisions.
- Teaching some practical strategies and approaches to help you improve your decision-making process.
Understanding and acceptance
Let's start by looking at the next question: What is a good trading decision? This is when your trade was profitable? Or when was the shopping process good
As an illustration of luck, consider an example of a point game in which you have 18 points. According to statistics, your better option is to abstain than to choose another card that will give you 3 points. Yes, if you are lucky, you will score 21 points and get the opportunity to defeat your opponent. This is a good result, but unfortunately, it is unlikely.
Good trading is when, along with a good trading process, you have followed your rules, followed your strategy, and maintained iron discipline. Assuming that your trading decision-making process is correct, while the strategy you are using has a positive probability, then over time, you will start to make a profit.
Ideally, your goal should be to maintain your positive trading results. So, before continuing to trade, consider all the possible results of the current trading activity. This helps to raise awareness of what are the disadvantages of your trading.
Keith Stanovich at the University of Montreal states this: "If you taught smart people about the mistakes they can make in the decision-making process, then, in this way, you'll help them make better decisions." Of course, knowledge is power that can help you better understand the decision-making process and avoid any kind of pitfalls you might fall into.
The practical application of the theory of financial behaviour has provided an excellent opportunity for traders to expand their knowledge in the field of financial decision making and in understanding the factors that can influence them. We highly recommend Daniel Kahneman's Thinking Fast and Slow and James Montier's Behavioral Investing as a starting point for developing your own decision-making in the face of risk and uncertainty, and for understanding the cognitive and emotional biases that influence your decisions.
The decision-making process (acceptance) involves more than just the accumulation of knowledge. There are also specific techniques and strategies you can use to help you make better decisions. Some of them are provided below.
- Focus on the process.
- Create a questionnaire.
- Be more attentive.
- Consider satisfying with the minimum rather than the maximum.
- Control your emotions and energy.
Know yourself ... The concept of self-knowledge is nothing new. In fact, almost every self-improvement book is ever written will encourage you to become more aware of your strengths and weaknesses. And this is true, but how can you achieve this is another matter?
Generally, the way to become aware of my decision-making process is through cultivating 3 qualities in myself:
1. Reflective Awareness is the quality in which you remember decisions you have ever made before. You evaluate them, recognize your pattern of behaviour at the time of the decision, look for opportunities to learn from your experience and improve your decision making.
In order to do this effectively, limiting yourself from wrong conclusions, it is important that you keep records of your trading decisions in your diary or notebook. We also note that in general, people's actions are aimed at the result, and, based on this, we tend to spend more time considering the results that were perceived as "bad", and much less time we devote to those events that we regard as " good ones".
It is also interesting that when we get a positive result, we are more inclined to attribute success to ourselves and at the same time, we least take into account the possibility of luck and the influence of external factors, while, receiving a negative result, we act in a fundamentally opposite way!
That being said, research from Harvard University shows that we can extract a lot of valuable information by looking at the moments in which we achieved success. This gives us the opportunity to find the appropriate models and factors that can be used in the future, we can try to reproduce them in the future.
2. Productive awareness is the quality of matching and comparing your best decisions with your worst in order to find similarities and differences. What helps you make the right decisions? What helps you make your wrong decisions? This is your thinking, emotions, behaviour or environment in the market, at work, or any life event. Note that this quality can be developed only if you evaluate your good trading decisions and results as effectively as your bad ones.
3. Situational awareness is the ability to determine the likelihood of a wrong decision, as well as the ability to remain vigilant and master your own thoughts, feelings, and behaviours. When the risk of making a wrong decision becomes higher, these are cases of increased stress and external pressure, high volatility and uncertainty in the market, moments when you are tired, as well as when your mood and emotions are at extreme values, for example, after big losses or victories, after a series of losses or profitable positions - it is necessary that you become more aware of the processes that take place inside you.
It is the moment when you should resist the reflexive, instinctive part of the brain, which in such situations tries to guide the decision-making process, as well as use the reflective and analytical parts of the brain and "think twice".
Making trading decisions in the face of risk and indefiniteness is not an easy process. However, by developing an understanding of this process, raising your awareness, or putting into practice a simple technique or strategy, you can improve your trading decision-making process and improve your trading results.