Trading Perception Errors, Part 2
Your perceptions of the current market are all in your head. The market doesn’t need you to move tomorrow. It’s going where it is going regardless of your belief where it should go. How you perceive the market direction is based upon our own beliefs and the reliability of what our senses bring to us. Our perceptions are limited.
Previously I covered some interesting aspects of trading perceptions errors. I included the following phase which needs reiterated.
“If, however, we understand the limits of our perceptions, then we will not overly rely upon them. Instead, we simply see what the market is doing now, and rely on reality, instead of our likely faulty perceptions recreated from limited sensory input from our past reconstructed memories that create a narrative our ego needs to follow to be right. Read that again once just to let it sink in.”
Have you ever had a perception that the market was going to sell off and the market ran higher instead? Of course you have. How did that idea of the market selloff get in your head? Were you listening to the latest market analyst on CNBC who said he saw a bear market coming and you bought into it? Did you allow your own analysis to be overridden by a TV expert?
We do need to have an idea of where we feel the overall market is going, as often about 50% of the move in a position is attributed to the overall market movement. As our perceptions are often faulty it’s often best to simply quietly observe the direction of the market. Turn off the commentary and simply go with the trend, it’s much easier.
There are always bulls in a bear market, and bears in a bull market. One of them is wrong. But if you simply follow the trend the price chart will tell you the answer loud and clear.
Our perceptions and beliefs are often influenced by what and who we believe are trustworthy. TV financial analysists have an aura of truth simply because they are on TV and get the expert stamp of approval. Often traders see a confident trader and jump on the bandwagon, only to show regret a short time later. They trusted another’s analysis rather than their own. Often this comes about from simply not putting in the time to understand the market, understanding technical and fundamental analysis, and being so sure you don’t know what you are doing you must rely on someone else’s perspective on what to trade.
Only time and study will correct this type of perception error. Develop a study program to sharpen your trading saw and stop relying on other carpenters. Sifting through your own perceptions of the market is hard enough. Relying on others’ perceptions of a trade is often a recipe for disaster.
Enuf said.