Weekly Perspectives – 6 Reasons We Make Bad Trading Decisions

Weekly Market Outlook For August 12 – 16, 2019
August 11, 2019
Overly Negative
Overly Negative
August 15, 2019
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Happy to report that I am now back in Montreal.  I spent the last week in Playa del Carmen, Mexico and while the weather was beautiful I, unfortunately, caught a nasty case of food poisoning that left me spending most of my trip bedside.  

On the bright side, I did get a chance to binge-watch Season 1 of the new Amazon Original series The Boys which is about a group of vigilantes set on taking down corrupt superheroes who abuse their superpowers. 

Highly enjoyable spin on the classic superhero genre and couldn’t agree more with the 9/10 rating on IMDB.

By the way, long-time Montreal Traders Meetup contributor Etienne Crete is in town for a couple of weeks so we are trying to arrange a last-minute Meetup during the week of August 19th.  The exact date will be published in the next couple of days – keep your eyes open for the Meetup notification in your inbox/mobile phone!

 

Prepare for the coming week

In case you missed it, this past week, markets broke to the downside but buyers stepped up creating a mixed technical picture.

The short term momentum is to the upside but the technical damage has been done. Buyers need to continue to keep control and defend their levels else risk sellers stepping in and selling the pullback and flipping things back to full-time frame alignment to the downside. 

Watch the video to see the levels I’ll be watching.

Lots of earnings on the tap for the coming week so expect continued volatility.

In this week’s video, we look at the technical outlook for the VXX VX SPY QQQ IWM DIA EEM TSX TLT GLD XAUUSD GDXJ BTCUSD TOTAL UKOIL EEM BABA CZR SMH ON QRVO OIH WLL PVH for the week of August 12 – 16, 2019.

 

6 Reasons We Make Bad Trading Decisions – 

This short piece from HBR discusses 6 obstacles that plague good decision making. 
Unsurprisingly these 6 obstacles are also very real risks for making good trading decisions.  

The 6 reasons are:

  1. Decision fatigue

    Decision fatigue is a well-known phenomenon where the quality of our decision-making process can suffer when overwhelmed with having to make too many decisions.  

    This phenomenon often plagues intraday traders who are constantly evaluating markets and making 100’s or 1000’s of decisions inside a day.

    One way of alleviating decision fatigue in trading is to cultivate the process of skill development

    Anytime we learn a new skill to the time we master that skill we move from unconscious incompetence, to conscious incompetence, to conscious competence, and finally to unconscious competence.  

    Remember what it was like when you first learned to drive a car.  There were so many moving parts and so many decisions to make.  Compare that to now where you simply hop in the car, think about where you want to drive, and point your car in the general direction.  Sometimes we don’t even remember how we got to where we were going.  

    The key in applying this in trading is the application of deliberate practice and practicing said skill to the point where the decision can made without a lot of conscious exertion hence unconscious competence. 

  2. A steady-state of distraction

    Too many traders spend the bulk of their time distracted – distracted with the notifications on their mobile devices, emails, YouTube, stock alerts, StockTwits, social media, phone calls, etc.

    The consequence of all this distraction is that many traders have the inability to sustain long periods of focus and also lack self-awareness which leads to inconsistent performance.  

    What can you do to remove the shallow distractions in your life so that they don’t intrude into your trading and further deepen your level of focus inside and outside of trading?

  3. Lack of input

    The trading world is filled with excessive noise and information masquerading as wisdom.  

    We do ourselves a great service when we can surround ourselves with trusted advisers and colleagues to share new and different trading perspectives so that we don’t get caught up in our own little bubbles and fall victim to the same blind spots over and over again.  

    Personally, I find the Meetups a great forum to connect with other traders and hear those different perspectives and experiences.

  4. Multi-tasking

    The verdict is in on this one and the science shows that multi-tasking is a fool’s game.  

    Machines can multi-task well because well they are machines.  

    Where in your trading do you find yourself trying to act like a machine?
    The answers here will form the basis for things that you should consider scheduling, batching, or perhaps automating.

  5. Emotions

    It goes without saying that emotions form the basis for the trading psychology issues we see in trading.  Each trader brings their own set of emotional baggage to the trading game.  

    As such I have often said that self-awareness is one of the most important traits of a successful trader.  

    Most traders have spent the time building out some sort of trade plan so to that end, most traders would be well served to spend some time fleshing out a “trading psychology plan”.  

    Spend some time considering some of these questions.  What are your triggers?  What is your typical reaction?  How would you prefer to respond?

  6. Analysis Paralysis

    This phenomenon is all too common for traders who have too many conflicting indicators and a method that generates conflicting signals.  

    This week, try this one simple exercise.  Look at your trading layout, now what one thing can you remove from your charts?

 

Where Did This ‘Bull Market’ Come From, Anyway? – 

If you ever wondered where the term “bull market” and “bear market” come from and how they came to be defined then this WSJ article will be insightful for you.

Learn the history of the terms and why wanting more precision than the mood swings of markets tend to offer could be a bad thing.  

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Weekly Perspectives – 6 Reasons We Make Bad Trading Decisions

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