Daily Trading Goal – Caught in Your Own Thinking

Today’s daily trading goal is to stop getting caught up in your thinking.  In psychology,  one aspect of this is the confirmation bias.  Where view almost all information as confirming our original thoughts.  Stop this by wearing aware it exists.  Be mindful of your thoughts.

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Integral Theory from a Traders View

Ken Wilber is the famous, possibly infamous, creator of integral theory.  The theory in brief (I can’t stress that enough) posits 5 major tenants:  Lines, Levels, Types, States, and Quadrants.  We’ll be looking at quadrants in this post.

Each quadrant represents an internal (psychological) or external (behavioral) on an individual or collective (societal) level.  As I trader I use these quadrants as a tool to check my perspective.

Upper Left: What am I thinking feeling, expecting from this stock?

Bottom Left: What are other people thinking, feeling, expecting from this stock?

Upper Right: How is the stock moving? What are the patterns and trend?

Bottom Right: What is the sector doing, the collective?

As complicated as integral theory can get. One can typically break it down for practical everyday use.  Metatheories are often good for that. 🙂

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Lesson of the Week – Perseverance

Nothing says failure like giving up.  This week, while optimizing and running walk-forward tests on upwards of 12 stocks with 5 tests each, I was confronted with this FAILED almost every morning I woke up.

To wake up every morning seeing the word FAILED in bold capital letters plastered across the screen can weaken your resolve that it’s even possible to make money in the market using automated strategies.  After a few days, I saw PASSED! I was ecstatic! 

I could feel the rush of dopamine flood my brain like a well trained rat pushing that level for a fix.  Of course, the moment was fleeting and further degraded as the next FAILED came up again and again.

I was soon reminded of Carel Dweck’s groundbreaking research in Mind Set.  Focus on the process, the growth, what you learned NOT the outcome.  I supposed that’s a beautiful element of being human: how quickly we can be overtaken by our ancestral brains.  I’m not a zen monk and I won’t pretend that seeing FAILED doesn’t bother me but refocusing on the process made the work less emotionally draining.

Focus on the process, not the outcome.

What was my process?  :

  1. Find stocks that “look” like they trend
  2. Run optimizations with at least 10k bars in each & 1 year worth of data
  3. Run walk forward analysis
  4. Log it
  5. Live paper money test for PASSED

The process is productive, thinking about FAILED is not.  Keep persevering, focus on the process.

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Why You Suck at Trading – Opportunity Cost

When you first start trading & open your new trading platform it should remind of a bit like vegas.  It’s designed like that on purpose.  Not only are there color lights flashing but a plethora of indicators, time frames, and types of bars to try to use.  There are thousands of combinations.

For example, Tradestation has well over 100 indicators but let’s say they only have 100. You would have 161,700 combinations to choose from if you only wanted to pick 3 at at time. That’s a lot of choices!.

In the TED talk below choices create an ideal opportunity cost.  If I had used a MACD instead of a stochastic indicator this trade could have worked!… DARN!  This most likely isn’t true but we can’t help our ancient brains.

All the potential combinations of indicators, time frames, and chart styles create endless choices which create more opportunity cost, implying that you could have done better.

My question to you: Are you changing your strategy because the market is demanding adaptation from you? OR are you changing your strategy haphazardly based on the potential opportunity you perceive you could had?

 

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Cognitive exercise: Changing Your Emotions

When we have a series of bad trades, bad days or worse a bad week we can mentally start to believe all sorts of fiction.  “I’m not a good trader.” “I don’t have how to do this anymore.”  I have been experimenting with a cognitive exercise that works well for me.

Remind yourself of better times to change your emotional state.

There are a number of exercises around the self-help community that focus on bringing in love, light, and gratitude if you believe in that stuff…  My favorite version of this was created by Phil Stutz & Barry Michael in their book titled The Tools.  This is a great book in which the authors describe real life cases in which these short cognitive exercises can be used to achieve remarkable results.

I have shortened their Grateful Flow into a trading exercise. I have created three steps to help get your mind believing you can trade again.

  1. Find your best trades from the week or month or year.
  2. Print them out
  3. Cognitively review each bar of each trade as you mentally run the trade in your head.

Without going into the depths of endocrinology the dopamine circuits in our brain are rewarded for risk taking, even if that risk fails.  There are other steroids & endorphins that will condition you if that behavior failed.  They are two different things.

How does this exercise help? Cognitively it allows you to create a different mental emotional frame.  It reminds your brain that you can trade and helps stop the intrusion of negative thoughts.  Emotionally, this may help alleviate the negative stress hormones floating around in your bloodstream by creating a mentally more soothing environment.

 

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Doing the Right thing isn’t Always Easy

Doing the right thing isn’t always easy.  As I take the time to prepare a salad, shaving and chopping beets. Then cutting the carrots and washing the lettuce.  A canned Amy’s organic soup stares me in the face. In 5 minutes I could be eating, but I have another 10 minutes of prep to go…

When we trade the market, we are always in preparation, searching, no hunting for that one good trade.  When we find it, we eat and are ideally rewarded.  The last week, however, there has been a famine. With the market eagerly anticipating the fed announcement on Wednesday markets went sideways an extremely difficult market to trade for those who use the trend to trade.  What is the right thing to do?

For me, sit & prepare.  My coach John over at John Fitzpatrick Coach summarized a passage from the famous Bhagavad-Gita, “That within inaction is action.”

Within Inaction is Action.

Every trader is different and trades differently. This week for me was a lesson is patience discipline and knowing when to focus energy elsewhere when the fruit is too high to pick.

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